##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



---



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 001-31883



---



FIRST NATIONAL BANKSHARES OF FLORIDA, INC.

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 20-0175526                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



2150 Goodlette Road
North, Naples, FL 34102

(Address of principal executive offices) (Zip Code)



(239) 262-7600

(Registrants telephone number, including area code)





(Former name, former address and former fiscal year, if changed since last
report)



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange
Act.    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.



|                              |  |                                
|----------------------------- |  | -------------------------------
|Class                         |  | Outstanding at October 31, 2004
|Common Stock, $0.01 Par Value |  | shares 59,476,812              



---



---

##### Table of Contents

FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

FORM 10-Q

September 30, 2004

INDEX



|                               |  |                                                                                       |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                       |  | PAGE
|                               | 
|PART I - FINANCIAL INFORMATION |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Financial Statements                                                                  |  |     
|                               |  |                                                                                      
|                               |  | Consolidated Balance Sheets                                                           |  | 2   
|                               |  | Consolidated Statements of Income                                                     |  | 3   
|                               |  | Consolidated Statements of Cash Flows                                                 |  | 4   
|                               |  | Notes to Consolidated Financial Statements                                            |  | 5   
|                               |  |                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 23  
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosure of Market Risk                                |  | 35  
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 35  
|                               | 
|PART II -
OTHER INFORMATION    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 35  
|                               |  |                                                                                      
|Item 2.                        |  | Changes in Securities                                                                 |  | 35  
|                               |  |                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  | 36  
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 36  
|                               |  |                                                                                      
|Item 5.                        |  | Other Information                                                                     |  | 36  
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits                                                                              |  | 36  
|                               | 
|Signatures                     |  | 37                                                                                   
|                               | 
|Exhibits                       |  | 38                                                                                   



1



---

##### Table of Contents

FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except par value and share data

Unaudited



|                                                                                                       |  |                   |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                       |  | September 30,2004 |           |   | December 31,2003 |  
|ASSETS                                                                                                 |  |                   |           |   |                  |   |           |  
|Cash and due from banks                                                                                |  | $                 | 109,531   |   |                  | $ | 99,664    |  
|Interest bearing deposits with banks                                                                   |  |                   | 349       |   |                  |   | 5,128     |  
|Federal funds sold                                                                                     |  |                   | 820       |   |                  |   | 866       |  
|Mortgage loans held for sale                                                                           |  |                   | 18,531    |   |                  |   | 15,153    |  
|Securities available for sale                                                                          |  |                   | 985,429   |   |                  |   | 764,543   |  
|Securities held to maturity (fair value of $12,531)                                                    |  |                   |          |   |                  |   | 12,029    |  
|Loans, net of unearned income of $3,224 and $774                                                       |  |                   | 3,707,461 |   |                  |   | 2,449,382 |  
|Allowance for loan losses                                                                              |  |                   | (40,307   | ) |                  |   | (28,104   | )
|                                                                                                       |  |                   |           |   |                  |   |           |  
|NET LOANS                                                                                              |  |                   | 3,667,154 |   |                  |   | 2,421,278 |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|Premises and equipment                                                                                 |  |                   | 144,878   |   |                  |   | 120,117   |  
|Goodwill                                                                                               |  |                   | 390,059   |   |                  |   | 173,729   |  
|Other assets                                                                                           |  |                   | 186,769   |   |                  |   | 138,629   |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                           |  | $                 | 5,503,520 |   |                  | $ | 3,751,136 |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|LIABILITIES                                                                                            |  |                   |           |   |                  |   |           |  
|Deposits:                                                                                              |  |                   |           |   |                  |   |           |  
|Non-interest bearing                                                                                   |  | $                 | 634,549   |   |                  | $ | 451,837   |  
|Interest bearing                                                                                       |  |                   | 3,273,236 |   |                  |   | 2,268,152 |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|TOTAL DEPOSITS                                                                                         |  |                   | 3,907,785 |   |                  |   | 2,719,989 |  
|                                                                                                       |  |                  
|Short-term borrowings                                                                                  |  |                   | 511,295   |   |                  |   | 354,051   |  
|Long-term debt                                                                                         |  |                   | 353,931   |   |                  |   | 271,000   |  
|Other liabilities                                                                                      |  |                   | 44,193    |   |                  |   | 40,981    |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES                                                                                      |  |                   | 4,817,204 |   |                  |   | 3,386,021 |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|STOCKHOLDERS EQUITY                                                                                   |  |                   |           |   |                  |   |           |  
|Common stock - $0.01 par valueAuthorized - 500,000,000 sharesIssued - 59,361,105 and 46,317,300 shares |  |                   | 594       |   |                  |   | 463       |  
|Additional paid-in capital                                                                             |  |                   | 676,927   |   |                  |   | 341,615   |  
|Retained earnings                                                                                      |  |                   | 11,873    |   |                  |   | 21,139    |  
|Accumulated other comprehensive income                                                                 |  |                   | 1,242     |   |                  |   | 1,898     |  
|Treasury stock - 31,080 shares at cost                                                                 |  |                   | (689      | ) |                  |   |          |  
|Deferred stock compensation                                                                            |  |                   | (3,631    | ) |                  |   |          |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|TOTAL STOCKHOLDERS EQUITY                                                                             |  |                   | 686,316   |   |                  |   | 365,115   |  
|                                                                                                       |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                             |  | $                 | 5,503,520 |   |                  | $ | 3,751,136 |  
|                                                                                                       |  |                   |           |   |                  |   |           |  



Note: The Balance Sheet at December
31, 2003 has been derived from the audited financial statements at that date.



See accompanying Notes to Consolidated Financial Statements



2



---

##### Table of Contents

FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in thousands, except per share data

Unaudited



|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|--------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                                                    |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                                    |  | 2004                            |        | 2003                           |   | 2004   |  | 2003
|INTEREST INCOME                                     |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Loans, including fees                               |  | $                               | 42,153 |                                | $ | 34,165 |  | $    | 113,858 |  | $ | 102,553
|Securities:                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Taxable                                             |  |                                 | 8,433  |                                |   | 6,482  |  |      | 23,567  |  |   | 17,773 
|Nontaxable                                          |  |                                 | 793    |                                |   | 703    |  |      | 2,220   |  |   | 2,202  
|Dividends                                           |  |                                 | 355    |                                |   | 266    |  |      | 1,002   |  |   | 830    
|Other                                               |  |                                 | 19     |                                |   | 1      |  |      | 43      |  |   | 117    
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|TOTAL INTEREST INCOME                               |  |                                 | 51,753 |                                |   | 41,617 |  |      | 140,690 |  |   | 123,475
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|INTEREST EXPENSE                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Deposits                                            |  |                                 | 10,206 |                                |   | 8,771  |  |      | 27,273  |  |   | 27,622 
|Short-term borrowings                               |  |                                 | 1,426  |                                |   | 495    |  |      | 2,361   |  |   | 1,644  
|Long-term debt                                      |  |                                 | 3,067  |                                |   | 1,370  |  |      | 7,829   |  |   | 3,417  
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|TOTAL INTEREST EXPENSE                              |  |                                 | 14,699 |                                |   | 10,636 |  |      | 37,463  |  |   | 32,683 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|NET INTEREST INCOME                                 |  |                                 | 37,054 |                                |   | 30,981 |  |      | 103,227 |  |   | 90,792 
|Provision for loan losses                           |  |                                 | 400    |                                |   | 952    |  |      | 2,675   |  |   | 4,512  
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                                 | 36,654 |                                |   | 30,029 |  |      | 100,552 |  |   | 86,280 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|NON-INTEREST INCOME                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Service charges                                     |  |                                 | 5,142  |                                |   | 4,872  |  |      | 15,014  |  |   | 13,762 
|Insurance premiums, commissions and fees            |  |                                 | 6,768  |                                |   | 6,861  |  |      | 23,342  |  |   | 19,496 
|Securities commissions and fees                     |  |                                 | 864    |                                |   | 993    |  |      | 3,186   |  |   | 2,952  
|Trust                                               |  |                                 | 837    |                                |   | 701    |  |      | 2,506   |  |   | 2,005  
|Gain on sale of securities                          |  |                                 | 107    |                                |   | 7      |  |      | 270     |  |   | 420    
|Gain on sale of mortgage loans                      |  |                                 | 702    |                                |   | 256    |  |      | 2,488   |  |   | 4,954  
|Other                                               |  |                                 | 1,211  |                                |   | 1,351  |  |      | 3,291   |  |   | 4,079  
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|TOTAL NON-INTEREST INCOME                           |  |                                 | 15,631 |                                |   | 15,041 |  |      | 50,097  |  |   | 47,668 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|                                                    |  |                                 | 52,285 |                                |   | 45,070 |  |      | 150,649 |  |   | 133,948
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|NON-INTEREST EXPENSES                               |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Salaries and employee benefits                      |  |                                 | 20,924 |                                |   | 21,042 |  |      | 60,275  |  |   | 56,962 
|Net occupancy                                       |  |                                 | 3,008  |                                |   | 2,746  |  |      | 8,378   |  |   | 7,582  
|Equipment                                           |  |                                 | 2,902  |                                |   | 2,312  |  |      | 8,276   |  |   | 6,375  
|Amortization of intangibles                         |  |                                 | 611    |                                |   | 341    |  |      | 1,301   |  |   | 924    
|Merger                                              |  |                                 | 4,645  |                                |   |       |  |      | 4,645   |  |   | 1,014  
|Other                                               |  |                                 | 7,104  |                                |   | 6,581  |  |      | 22,209  |  |   | 19,946 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|TOTAL NON-INTEREST EXPENSES                         |  |                                 | 39,194 |                                |   | 33,022 |  |      | 105,084 |  |   | 92,803 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|INCOME BEFORE INCOME TAXES                          |  |                                 | 13,091 |                                |   | 12,048 |  |      | 45,565  |  |   | 41,145 
|Income taxes                                        |  |                                 | 4,167  |                                |   | 3,749  |  |      | 15,001  |  |   | 13,541 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|NET INCOME                                          |  | $                               | 8,924  |                                | $ | 8,299  |  | $    | 30,564  |  | $ | 27,604 
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|NET INCOME PER COMMON SHARE*:                       |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Basic                                               |  | $                               | .17    |                                | $ | .17    |  | $    | .63     |  | $ | .58    
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Diluted                                             |  | $                               | .17    |                                | $ | .17    |  | $    | .61     |  | $ | .57    
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        
|CASH DIVIDENDS PER COMMON SHARE*                    |  | $                               | .07    |                                |   | N/A    |  | $    | .21     |  |   | N/A    
|                                                    |  |                                 |        |                                |   |        |  |      |         |  |   |        

---

|* | Restated to reflect the 3 percent stock dividend declared on April 19, 2004.
|- | ----------------------------------------------------------------------------



See accompanying Notes to Consolidated Financial Statements



3



---

##### Table of Contents

FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

Unaudited



|                                                                                  |  |                                |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |         
|                                                                                  |  | 2004                           |          |   | 2003 |  
|OPERATING ACTIVITIES                                                              |  |                                |          |   |      |   |          |  
|Net income                                                                        |  | $                              | 30,564   |   |      | $ | 27,604   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |          |   |      |   |          |  
|Depreciation and amortization                                                     |  |                                | 11,820   |   |      |   | 10,713   |  
|Provision for loan losses                                                         |  |                                | 2,675    |   |      |   | 4,512    |  
|Deferred taxes                                                                    |  |                                | 2,927    |   |      |   | (1,767   | )
|Net gain on sale of securities                                                    |  |                                | (270     | ) |      |   | (420     | )
|Net gain on sale of mortgage loans                                                |  |                                | (2,488   | ) |      |   | (4,954   | )
|Proceeds from sale of mortgage loans                                              |  |                                | 185,246  |   |      |   | 306,369  |  
|Mortgage loans originated for sale                                                |  |                                | (186,136 | ) |      |   | (290,833 | )
|Net change in:                                                                    |  |                                |          |   |      |   |          |  
|Interest receivable                                                               |  |                                | (5,737   | ) |      |   | (2,485   | )
|Interest payable                                                                  |  |                                | 1,619    |   |      |   | (658     | )
|Other, net                                                                        |  |                                | (7,554   | ) |      |   | 453      |  
|                                                                                  |  |                                |          |   |      |   |          |  
|Net cash flows from operating activities                                          |  |                                | 32,666   |   |      |   | 48,534   |  
|                                                                                  |  |                                |          |   |      |   |          |  
|INVESTING ACTIVITIES                                                              |  |                                |          |   |      |   |          |  
|Net change in:                                                                    |  |                                |          |   |      |   |          |  
|Interest bearing deposits with banks                                              |  |                                | 4,779    |   |      |   | 198      |  
|Federal funds sold                                                                |  |                                | 46       |   |      |   | 3,118    |  
|Loans                                                                             |  |                                | (394,607 | ) |      |   | (202,556 | )
|Bank owned life insurance                                                         |  |                                | (10,400  | ) |      |   |         |  
|Securities available for sale:                                                    |  |                                |          |   |      |   |          |  
|Purchases                                                                         |  |                                | (240,616 | ) |      |   | (522,476 | )
|Sales                                                                             |  |                                | 8,085    |   |      |   | 324,062  |  
|Maturities                                                                        |  |                                | 139,666  |   |      |   | 209,497  |  
|Securities held to maturity:                                                      |  |                                |          |   |      |   |          |  
|Maturities                                                                        |  |                                | 770      |   |      |   | 3,512    |  
|Increase in premises and equipment                                                |  |                                | (12,422  | ) |      |   | (22,196  | )
|Net cash paid for mergers and acquisitions                                        |  |                                |         |   |      |   | (9,347   | )
|                                                                                  |  |                                |          |   |      |   |          |  
|Net cash flows from investing activities                                          |  |                                | (504,699 | ) |      |   | (216,188 | )
|                                                                                  |  |                                |          |   |      |   |          |  
|FINANCING ACTIVITIES                                                              |  |                                |          |   |      |   |          |  
|Net change in:                                                                    |  |                                |          |   |      |   |          |  
|Non-interest bearing deposits, savings and NOW                                    |  |                                | 255,952  |   |      |   | 145,641  |  
|Time deposits                                                                     |  |                                | 94,125   |   |      |   | (12,435  | )
|Short-term borrowings                                                             |  |                                | 109,517  |   |      |   | 33,126   |  
|Increase in long-term debt                                                        |  |                                | 165,131  |   |      |   |         |  
|Decrease in long-term debt                                                        |  |                                | (127,676 | ) |      |   | (10,945  | )
|Net acquisition of treasury stock                                                 |  |                                | (5,227   | ) |      |   |         |  
|Capital contributions                                                             |  |                                |         |   |      |   | 28,349   |  
|Cash dividends paid                                                               |  |                                | (9,922   | ) |      |   | (19,910  | )
|                                                                                  |  |                                |          |   |      |   |          |  
|Net cash flows from financing activities                                          |  |                                | 481,900  |   |      |   | 163,826  |  
|                                                                                  |  |                                |          |   |      |   |          |  
|NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS                                |  |                                | 9,867    |   |      |   | (3,828   | )
|Cash and due from banks at beginning of period                                    |  |                                | 99,664   |   |      |   | 117,359  |  
|                                                                                  |  |                                |          |   |      |   |          |  
|CASH AND DUE FROM BANKS AT END OF PERIOD                                          |  | $                              | 109,531  |   |      | $ | 113,531  |  
|                                                                                  |  |                                |          |   |      |   |          |  



See accompanying Notes to Consolidated
Financial Statements



4



---

##### Table of Contents

First National Bankshares of Florida, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)



Summary of Significant Accounting Policies



Business:



First National Bankshares of Florida, Inc. (the Company) was incorporated under the laws of the state of Florida
on August 12, 2003. On January 1, 2004, the Company was spun-off from F.N.B. Corporation (F.N.B.). The Company is a diversified financial services company headquartered in Naples, Florida. The Company owns and operates First National Bank of
Florida, (a community bank); Roger Bouchard Insurance, Inc. (an insurance agency); and First National Wealth Management Company (a national trust company). The Company has full-service offices located throughout south and central Florida.



The spin-off resulted in the division of certain existing
corporate support functions between the two resulting entities. Corporate expenses included in the Companys financial results for periods prior to the spin-off represent an allocation of F.N.B.s corporate expense to the Companys
subsidiaries. This allocation is based on a specific review to identify costs incurred for the benefit of the subsidiaries of the Company and in managements judgment results in a reasonable allocation of such costs. The Company was allocated
$8.3 million of overhead costs related to shared administrative and support functions for the nine months ended September 30, 2003.



In connection with the spin-off from F.N.B., the Company incurred approximately $10.5 million in restructuring expenses during the fiscal year ended
December 31, 2003. These expenses consisted of $5.3 million of early retirement expenses and involuntary separation costs, $4.2 million in professional fees, and approximately $1.0 million in fixed asset write-off and other expenses connected with
the separation. On September 30, 2004, a liability associated with the spin-off of approximately $973,000 remained. This liability primarily consists of amounts due to terminated employees under various benefit plans and employment agreements.
Continued payments to these terminated employees will be made in accordance with the terms and provisions of such benefit plans and employment agreements.



The consolidated financial statements for periods prior to the effective date of the spin-off included herein may not necessarily be indicative of the
results of operations, financial position and cash flows of the Company in the future or had it operated as a separate, independent company during the periods presented.



Basis of Presentation:



The consolidated financial statements include accounts of First National Bank of Florida, Roger Bouchard Insurance, Inc., and First National Wealth
Management Company, all of which are wholly-owned by the Company. All significant intercompany balances and transactions have been eliminated. The financial condition and results of operations of acquisitions accounted for as a purchase are included
in the Companys financial statements from the date the acquisition is completed. (See the Mergers and Acquisitions section of this report).



Certain prior year amounts have been reclassified to conform with current year presentation. The reclassification had no impact on total assets,
liabilities, stockholders equity, net income or cash flows.



Common Stock
Dividend:



On April 19, 2004, the Companys Board of
Directors declared a 3 percent common stock dividend payable on July 15, 2004 to shareholders of record as of June 30, 2004. As a result of the stock dividend, the Company issued 1,383,837 shares of its common stock. The stock dividend increased
additional paid in capital and decreased retained earnings by $23.9 million, the market value of the shares issued. Per share data included herein have been adjusted to reflect the stock dividend.



5



---

##### Table of Contents

Use of Estimates:



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



Preferred Securities of Unconsolidated Subsidiary Trust:



On March 31, 2004, the Company acquired the common stock of First National Bankshares Statutory Trust II (Issuer Trust), an unconsolidated subsidiary
trust. The Issuer Trust used the proceeds from the issuance of $25.0 million of its preferred securities to third-party investors and common stock to acquire a $25.8 million debenture issued by the Company. This debenture and certain capitalized
costs associated with the issuance of the preferred stock comprise the Issuer Trusts only assets and the interest payments from the debentures finance the distributions paid on the preferred securities. The Company recorded the debenture in
Long-term debt and its equity interest in the business trust in Securities available for sale on the balance sheet. The debenture and preferred securities bear interest at a floating rate equal to the 3-month LIBOR plus 279
basis points.



The Company has entered into agreements which,
taken collectively, fully and unconditionally guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee.



FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, raised questions about whether trust
preferred securities issued by unconsolidated subsidiary trusts could be treated as Tier 1 capital. On July 2, 2003, the Federal Reserve Board issued a letter stating that trust preferred securities will continue to be included in Tier 1 capital
until notice is given to the contrary. As such, the debenture issued to the Issuer Trust currently qualifies as Tier I capital under present Federal Reserve Board guidelines.



New Accounting Standards:



In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments. The EITF reached a consensus on an other-than-temporary impairment model for debt and equity securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and cost method investments. The basic model developed to evaluate whether an investment within the scope of Issue 03-1 is other-than-temporarily impaired involves a three-step process including, determining whether an investment
is impaired (fair value less than cost), evaluating whether the impairment is other-than-temporary and, if other-than-temporary, requiring recognition of an impairment loss equal to the difference between the investments cost and its fair
value. The three-step model used to determine other-than-temporary impairments shall be applied prospectively to all current and future investments in interim or annual reporting periods beginning after June 15, 2004. In October 2004, the Financial
Accounting Standards Board (FASB) issued FSP 03-1-1, Effective Date of Paragraphs 10-20 of EITF 03-1,The Meaning of Other Than Temporary Impairment, delaying the effective date for the recognition and measurement guidance
of EITF 03-1 until certain implementation issues are addressed and a final FSP providing implementation guidance is issued. The final FSP providing implementation guidance is expected to be issued early in December 2004. The required disclosures of
EITF 03-1 remain in effect and are provided in the Securities footnote.



6



---

##### Table of Contents

In March 2004, the Securities and Exchange Commission (SEC) issued SAB 105, Application
of Accounting Principles to Loan Commitments, which provides registrants the SECs view on recording the fair value of loan commitments. Under SAB 105, the fair value of loan commitments that are required to follow derivative accounting
under Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, should not consider the expected future cash flows related to the associated servicing of the future
loan. The staff believes that incorporating expected future cash flows related to the associated servicing of the loan essentially results in the immediate recognition of a servicing asset, which is only appropriate once the servicing asset has been
contractually separated from the underlying loan by sale or by securitization of the loan with servicing retained. The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004.
The application of this guidance did not have a material impact on the Companys financial condition or results of operation.



In December 2003, the FASB issued a revision to FAS 132, Employers Disclosures about Pensions and Other Post-Retirement Benefits. The
revision retains the disclosures required by the original standard and requires additional disclosures about the assets, obligations, cash flows and net periodic benefit costs of defined benefit pension and post-retirement plans. In addition, the
revised standard requires interim period disclosures of the components of net periodic benefit costs. The required disclosures of the revised standard are provided in the Retirement Plan footnote.



In December 2003, the AICPA issued Statement of Position (SOP) 03-3
Accounting for Certain Loans and Debt Securities Acquired in a Transfer. SOP 03-3 prohibits the carryover of an allowance for loan losses on certain loans acquired in a purchase business combination. Increases in expected cash flows to
be collected from the contractual cash flows will be recognized as an adjustment of the loans yield over its remaining life, while decreases in expected cash flows will be recognized as an impairment. This accounting guidance will be effective
for loans acquired in fiscal years subsequent to December 15, 2004. The Company does not anticipate this new accounting standard to have a material impact on its financial condition or results of operations.



Mergers and Acquisitions:



On August 1, 2004, the Company signed a definitive agreement and plan of merger which provides for the acquisition of the
Company by Fifth Third Bancorp (Fifth Third), an Ohio-based registered financial holding company. Under the terms of the merger agreement, which has been approved by both companies board of directors, each outstanding share of the
Companys common stock will be exchanged for 0.5065 shares of Fifth Third common stock in a tax-free reorganization under the Internal Revenue Code. The merger, which is expected to close during the first quarter of 2005, is subject to approval
by shareholders of the Company, receipt of certain banking regulatory approvals and satisfaction of certain other conditions. A Special Meeting of the Companys shareholders has been called for November 22, 2004, to consider and approve the
merger.



On September 3, 2004, the Company completed its
acquisition of Southern Community Bancorp (Southern), a bank holding company located in Orlando, Florida, with assets having a fair value of $1.3 billion. The acquisition of Southern allowed the Company to expand its existing presence in
the Orlando market, as well as, enter the West Palm Beach and Daytona Beach markets. On the merger date, the Company issued 1.5047 shares of its common stock for each share of Southern common stock. As a result, the company issued 11.5 million
shares of its common stock with a value of $284.3 million and converted the outstanding Southern stock options to the Companys stock options with a fair value of $20.6 million.



7



---

##### Table of Contents

The following table depicts the allocation of purchase price to the assets and liabilities of Southern
and the resulting goodwill:



|                                                                                    |  |   |        |   |  |   |        
|----------------------------------------------------------------------------------- |  | - | ------ | - |  | - | -------
|Value of the Companys common stock issued for Southerns outstanding common stock  |  |   |        |   |  | $ | 284,306
|Fair value of the Companys stock options issued for Southerns outstanding options |  |   |        |   |  |   | 20,608 
|                                                                                    |  |   |        |   |  |   |        
|Total purchase price                                                                |  |   |        |   |  | $ | 304,914
|                                                                                    |  |  
|Net assets acquired:                                                                |  |   |        |   |  |   |        
|Southerns stockholders equity                                                     |  | $ | 79,695 |   |  |   |        
|Southerns goodwill                                                                 |  |   | (971   | ) |  |   |        
|Adjustments to reflect assets acquired at fair value:                               |  |   |        |   |  |   |        
|Securities                                                                          |  |   | (2,093 | ) |  |   |        
|Loans and leases                                                                    |  |   | 7,859  |   |  |   |        
|Core deposits intangible                                                            |  |   | 26,075 |   |  |   |        
|Adjustments to reflect liabilities assumed at fair value:                           |  |   |        |   |  |   |        
|Time deposits                                                                       |  |   | 2,648  |   |  |   |        
|Long-term debt                                                                      |  |   | (379   | ) |  |   | 108,297
|                                                                                    |  |   |        |   |  |   |        
|Deferred taxes on purchase accounting adjustments                                   |  |   |        |   |  |   | 10,350 
|Direct acquisition costs                                                            |  |   |        |   |  |   | 9,102  
|                                                                                    |  |   |        |   |  |   |        
|Goodwill resulting from merger                                                      |  |   |        |   |  | $ | 216,069



The fair value of
interest earning assets and interest bearing liabilities was based on either the quoted market values or discounting the future cash flows using market rates as of the acquisition date. These adjustments will be amortized or accreted in future
periods over the estimated lives of the interest earning assets and interest bearing liabilities. The core deposits intangible will be amortized over a ten year period. The Company is currently obtaining third party independent appraisals of the
land and buildings. Once finalized, these appraisals will be used to adjust the value of the land and buildings to fair value. The Company incurred merger related costs totaling $4.6 million, which related primarily to employment obligations. On
September 30, 2004, a liability associated with the merger of approximately $5.0 million remained. This liability primarily consists of amounts due to terminated employees and service providers under contractual obligations.



Subsequent to the announcement of the merger between the Company and Fifth
Third, the Company and Southern executed an amendment to the original merger agreement. Under this amendment, the Company agreed that it would issue additional shares of its common stock after completion of the First National/Southern merger to
those persons who were the holders of Southern common stock on the effective date of the merger if (i) the First National/Southern merger is completed at an exchange ratio below 1.6686, and (ii) either the merger agreement between Fifth Third and
the Company is terminated prior to August 1, 2005 or the Fifth Third/First National merger has not closed for any reason by that date.



8



---

##### Table of Contents

If these contingencies occur, then the holders of Southern common stock on the effective date of the First
National/Southern merger would be entitled to receive the difference between the number of shares of the Companys common stock that such holder would have received if the exchange ratio had been 1.6686 and the number of shares of the
Companys common stock actually issued to such holder based upon the lower exchange ratio in effect at the time of the First National/Southern merger.



On June 30, 2004, the Company signed a definitive agreement to acquire First Bradenton Bank (Bradenton), a state-chartered commercial bank
located in Bradenton, Florida. Under the terms of the definitive agreement, the Company will exchange shares of its common stock for the outstanding common stock of Bradenton on a tax-free basis and of Bradenton will merge with and into First
National Bank of Florida. Based upon the Companys closing price on September 30, 2004 of $24.55 per share, the transaction has a total value of approximately $9.9 million, representing 2.0 times Bradentons book value. The merger is
scheduled to close in the fourth quarter of 2004.



On July 1,
2003, Roger Bouchard Insurance, Inc. completed its acquisition of Lupfer-Frakes, Inc. (Lupfer) an independent insurance agency located in Central Florida. Roger Bouchard Insurance, Inc. paid $10.2 million in exchange for all of the outstanding
common stock of Lupfer. The transaction, which was accounted for as a purchase, resulted in the recognition of $8.5 million in goodwill and $1.3 million in customer and renewal lists. The value assigned to the customer and renewal lists will be
amortized over a ten-year period. Lupfers results of operations have been reflected in the Companys results beginning in the third quarter of 2003.



On March 31, 2003, F.N.B. completed its acquisition of Charter Banking Corp. (Charter), a bank holding company headquartered in Tampa, Florida, with
assets having a fair value of $795.6 million. As a result, Charter became a wholly-owned subsidiary of F.N.B. The acquisition of Charter allowed F.N.B. to access the Hillsborough county market and to expand its presence in the Pinellas county
market. Charters only subsidiary was Southern Exchange Bank (SEB). In exchange for all of the outstanding common stock of Charter, F.N.B. paid $150.2 million. F.N.B. funded this acquisition through the issuance of $125.0 million of
trust preferred securities and $25.2 million from F.N.Bs existing lines of credit with several major domestic banks. The transaction, which was accounted for as a purchase, resulted in the recognition of approximately $103.0 million in
nondeductible goodwill and $1.1 million in core deposits intangible. The core deposits intangible will be amortized over a ten year period. The fair market value assigned to loans, investments, fixed assets, deposits and long-term debt was $169.8
million, $461.5 million, $40.8 million, $481.5 million and $154.5 million, respectively. The fair market value of interest earning assets and interest bearing liabilities was based on either quoted market values or discounting future cash flows
using market rates as of March 31, 2003. These purchase adjustments will be amortized or accreted in future periods over the estimated lives of the interest earning assets and interest bearing liabilities. Current third party independent appraisals
were used to value the land and buildings included in fixed assets. Merger related costs totaling $1.2 million were incurred in connection with this acquisition, which was related to employment obligations. Charter was merged into F.N.B. Corporation
on August 22, 2003.



SEBs results of operations have been
reflected in the Companys results since the acquisition date of March 31, 2003. Southern Exchange Bank was merged into First National Bank of Florida on October 10, 2003 as part of an internal reorganization.



9



---

##### Table of Contents

Securities



The amortized cost and fair value of securities are as follows (in thousands):



|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|----------------------------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|                                                                  |  | Amortized Cost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities available for sale:                                    |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|September 30, 2004                                                |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|U.S. Treasury and other U.S. Government agencies and corporations |  | $              | 197,301 |                      | $ | 2,005                 |  | $ | (273       | ) |  | $ | 199,033
|Mortgage-backed securities of U.S. Government agencies            |  |                | 398,847 |                      |   | 2,555                 |  |   | (2,206     | ) |  |   | 399,196
|Other mortgage-backed securities                                  |  |                | 228,493 |                      |   | 928                   |  |   | (1,783     | ) |  |   | 227,638
|States of the U.S. and political Subdivisions                     |  |                | 103,777 |                      |   | 1,737                 |  |   | (136       | ) |  |   | 105,378
|Other debt securities                                             |  |                | 24,069  |                      |   | 987                   |  |   | (92        | ) |  |   | 24,964 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Total Debt Securities                                             |  |                | 952,487 |                      |   | 8,212                 |  |   | (4,490     | ) |  |   | 956,209
|Equity securities                                                 |  |                | 29,216  |                      |   | 11                    |  |   | (7         | ) |  |   | 29,220 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  | $              | 981,703 |                      | $ | 8,223                 |  | $ | (4,497     | ) |  | $ | 985,429
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  |                |         |                     
|                                                                  |  | Amortized Cost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|December 31, 2003                                                 |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|U.S. Treasury and other U.S. Government agencies and corporations |  | $              | 135,550 |                      | $ | 2,083                 |  | $ | (300       | ) |  | $ | 137,333
|Mortgage-backed securities of U.S.Government agencies             |  |                | 359,425 |                      |   | 2,518                 |  |   | (2,256     | ) |  |   | 359,687
|Other mortgage-backed securities                                  |  |                | 156,359 |                      |   | 1,129                 |  |   | (1,775     | ) |  |   | 155,713
|States of the U.S. and political Subdivisions                     |  |                | 65,184  |                      |   | 2,370                 |  |   | (4         | ) |  |   | 67,550 
|Other debt securities                                             |  |                | 19,636  |                      |   | 851                   |  |   |           |   |  |   | 20,487 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Total Debt Securities                                             |  |                | 736,154 |                      |   | 8,951                 |  |   | (4,335     | ) |  |   | 740,770
|Equity securities                                                 |  |                | 23,768  |                      |   | 13                    |  |   | (8         | ) |  |   | 23,773 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  | $              | 759,922 |                      | $ | 8,964                 |  | $ | (4,343     | ) |  | $ | 764,543
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  |                |         |                     
|                                                                  |  | Amortized Cost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities held to maturity:                                      |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|December 31, 2003                                                 |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities of U.S. Government agencies            |  | $              | 691     |                      | $ | 15                    |  | $ |           |   |  | $ | 706    
|States of the U.S. and political subdivisions                     |  |                | 11,338  |                      |   | 492                   |  |   | (5         | ) |  |   | 11,825 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  | $              | 12,029  |                      | $ | 507                   |  | $ | (5         | ) |  | $ | 12,531 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        



The Company
transferred all securities held to maturity into securities available for sale during the second quarter of 2004 in order to improve operational efficiency and enhance the management of its asset/liability management position. At the time of the
transfer, the securities transferred had an amortized cost of $11.3 million and a net unrealized gain of $262 thousand.



10



---

##### Table of Contents

At September 30, 2004 and December 31, 2003, securities with a carrying value of $190.8 million, and
$161.9 million, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $362.4 million, and $270.6 million at September 30, 2004 and December 31, 2003,
respectively, were pledged as collateral for short-term borrowings.



The age of gross unrealized losses and fair value of available for sale securities by investment category as of September 30, 2004 were as follows:



|                                                                  |  |                     |         |                  |                        |        |           |       |                  |    |  |            |    |                  |  |   |         |  |   |        |  
|----------------------------------------------------------------- |  | ------------------- | ------- | ---------------- | ---------------------- | ------ | --------- | ----- | ---------------- | -- |  | ---------- | -- | ---------------- |  | - | ------- |  | - | ------ | -
|                                                                  |  | Less than 12 months |         |                  | Greater than 12 months |        |           | Total |                 
|                                                                  |  | Fair value          |         | Unrealizedlosses |                        |        | Fairvalue |       | Unrealizedlosses |    |  | Fair value |    | Unrealizedlosses | 
|U.S. Treasury and other U.S. government agencies and corporations |  | $                   | 63,380  |                  | $                      | (273   | )         |       | $                |   |  | $          |   |                  |  | $ | 63,380  |  | $ | (273   | )
|Mortgage-backed securities of U.S. government agencies            |  |                     | 198,314 |                  |                        | (2,206 | )         |       |                  |   |  |            |   |                  |  |   | 198,314 |  |   | (2,206 | )
|Other mortgage-backed securities                                  |  |                     | 155,039 |                  |                        | (1,783 | )         |       |                  |   |  |            |   |                  |  |   | 155,039 |  |   | (1,783 | )
|State of the U.S. and political subdivisions                      |  |                     | 5,587   |                  |                        | (134   | )         |       |                  | 93 |  |            | (2 | )                |  |   | 5,680   |  |   | (136   | )
|Other debt securities                                             |  |                     | 2,734   |                  |                        | (92    | )         |       |                  |   |  |            |   |                  |  |   | 2,734   |  |   | (92    | )
|Equity securities                                                 |  |                     | 43      |                  |                        | (7     | )         |       |                  |   |  |            |   |                  |  |   | 43      |  |   | (7     | )
|                                                                  |  |                     |         |                  |                        |        |           |       |                  |    |  |            |    |                  |  |   |         |  |   |        |  
|Total                                                             |  | $                   | 425,097 |                  | $                      | (4,495 | )         |       | $                | 93 |  | $          | (2 | )                |  | $ | 425,190 |  | $ | (4,497 | )
|                                                                  |  |                     |         |                  |                        |        |           |       |                  |    |  |            |    |                  |  |   |         |  |   |        |  



The Company does not
believe unrealized losses, individually or in the aggregate, as of September 30, 2004 represent an other-than-temporary impairment. The unrealized losses are primarily a result of changes in interest rates and will not prohibit the Company from
receiving its contractual interest and principal payments. The Company has the ability and intent to hold these securities for a period necessary to recover the amortized cost.



Loans



Following is a summary of loans (in thousands):



|                                       |  |                   |           |   |                  |   |           |  
|-------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                       |  | September 30,2004 |           |   | December 31,2003 |  
|Real Estate:                           |  |                   |           |   |                  |   |           |  
|Residential                            |  | $                 | 1,032,576 |   |                  | $ | 810,790   |  
|Commercial                             |  |                   | 1,618,923 |   |                  |   | 1,017,291 |  
|Construction                           |  |                   | 641,837   |   |                  |   | 311,266   |  
|Installment loans to individuals       |  |                   | 86,665    |   |                  |   | 77,660    |  
|Commercial, financial and agricultural |  |                   | 329,584   |   |                  |   | 227,117   |  
|Lease financing                        |  |                   | 1,100     |   |                  |   | 6,032     |  
|Unearned income                        |  |                   | (3,224    | ) |                  |   | (774      | )
|                                       |  |                   |           |   |                  |   |           |  
|                                       |  | $                 | 3,707,461 |   |                  | $ | 2,449,382 |  
|                                       |  |                   |           |   |                  |   |           |  



The loan portfolio
consists principally of loans to individuals and small- and medium-sized businesses within the Companys primary market area of south and central Florida.



As of September 30, 2004 and December 31, 2003, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate
category of loans.



11



---

##### Table of Contents

Non-Performing Assets



Following is a summary of non-performing assets (in thousands):



|                            |  |                   |        |                  |   |      
|--------------------------- |  | ----------------- | ------ | ---------------- | - | -----
|                            |  | September 30,2004 |        | December 31,2003
|Non-accrual loans           |  | $                 | 11,316 |                  | $ | 5,521
|Restructured loans          |  |                   |       |                  |   |     
|                            |  |                   |        |                  |   |      
|Total Non-Performing Loans  |  |                   | 11,316 |                  |   | 5,521
|Other real estate owned     |  |                   | 743    |                  |   |     
|                            |  |                   |        |                  |   |      
|Total Non-Performing Assets |  | $                 | 12,059 |                  | $ | 5,521
|                            |  |                   |        |                  |   |      



Loans past due 90 days
or more, on which interest accruals continue, were $492,000, and $163,000, at September 30, 2004 and December 31, 2003, respectively.



Allowance for Loan Losses



Following is an analysis of changes in the allowance for loan losses (in thousands):



|                               |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                               |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                               |  | 2004                            |        |   | 2003                           |   |        | 2004 |  |   | 2003   |  
|Balance at beginning of period |  | $                               | 29,705 |   |                                | $ | 25,746 |      |  | $ | 28,104 |   |  | $ | 21,421 |  
|Addition from acquisitions     |  |                                 | 10,414 |   |                                |   |       |      |  |   | 10,414 |   |  |   | 2,506  |  
|Charge-offs                    |  |                                 | (453   | ) |                                |   | (916   | )    |  |   | (1,659 | ) |  |   | (3,391 | )
|Recoveries                     |  |                                 | 241    |   |                                |   | 501    |      |  |   | 773    |   |  |   | 1,235  |  
|                               |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Net Charge-offs                |  |                                 | (212   | ) |                                |   | (415   | )    |  |   | (886   | ) |  |   | (2,156 | )
|Provision for loan losses      |  |                                 | 400    |   |                                |   | 952    |      |  |   | 2,675  |   |  |   | 4,512  |  
|                               |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Balance at end of period       |  | $                               | 40,307 |   |                                | $ | 26,283 |      |  | $ | 40,307 |   |  | $ | 26,283 |  
|                               |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



Deposits



Following is a summary of deposits (in thousands):



|                                                |  |                   |           |                  |   |          
|----------------------------------------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                                                |  | September 30,2004 |           | December 31,2003
|Non-interest bearing                            |  | $                 | 634,549   |                  | $ | 451,837  
|Interest bearing checking                       |  |                   | 884,678   |                  |   | 503,064  
|Savings                                         |  |                   | 1,050,863 |                  |   | 843,677  
|Certificates of deposit and other time deposits |  |                   | 1,337,695 |                  |   | 921,411  
|                                                |  |                   |           |                  |   |          
|                                                |  | $                 | 3,907,785 |                  | $ | 2,719,989
|                                                |  |                   |           |                  |   |          



Time deposits
of $100,000 or more were $671.2 million and $415.8 million at September 30, 2004 and December 31, 2003.



12



---

##### Table of Contents

Short-Term Borrowings



Following is a summary of short-term borrowings (in thousands):



|                                            |  |                   |         |                  |   |        
|------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                            |  | September 30,2004 |         | December 31,2003
|Securities sold under repurchase agreements |  | $                 | 300,795 |                  | $ | 248,051
|Federal funds purchased                     |  |                   | 155,500 |                  |   | 86,000 
|Federal Home Loan Bank advances             |  |                   | 55,000  |                  |   | 20,000 
|                                            |  |                   |         |                  |   |        
|                                            |  | $                 | 511,295 |                  | $ | 354,051
|                                            |  |                   |         |                  |   |        



Long-Term Debt



Following is a summary of long-term debt (in thousands):



|                                |  |                   |         |                  |   |        
|------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                |  | September 30,2004 |         | December 31,2003
|Federal Home Loan Bank advances |  | $                 | 256,091 |                  | $ | 211,944
|Subordinated debentures         |  |                   | 97,012  |                  |   | 58,238 
|Other long-term debt            |  |                   | 828     |                  |   | 818    
|                                |  |                   |         |                  |   |        
|                                |  | $                 | 353,931 |                  | $ | 271,000
|                                |  |                   |         |                  |   |        



First National Bank of
Florida has available credit with the Federal Home Loan Bank of $821.4 million, of which $311.1 million, or 37.8%, was used as of September 30, 2004. These advances are secured by residential real estate loans and Federal Home Loan Bank Stock.



Commitments, Credit Risk and Contingencies



The Company has commitments to extend credit and standby letters of credit
which involve certain elements of credit risk in excess of the amount stated in the consolidated balance sheet. The Companys exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of
those instruments. Consistent credit policies are used by the Company for both on- and off-balance sheet items.



Following is a summary of off-balance sheet credit risk information (in thousands):



|                             |  |                   |           |                  |   |        
|---------------------------- |  | ----------------- | --------- | ---------------- | - | -------
|                             |  | September 30,2004 |           | December 31,2003
|Commitments to extend credit |  | $                 | 1,327,138 |                  | $ | 717,079
|Standby letters of credit    |  |                   | 42,427    |                  |   | 34,842 



At September 30, 2004,
funding of approximately 73% of the commitments to extend credit is dependent on the financial condition of the customer. The Company has the ability to withdraw such commitments at its discretion. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Based on
managements credit evaluation of the customer, collateral may be deemed necessary.



13



---

##### Table of Contents

Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties.



Standby letters of
credit are conditional commitments issued by the Company which may require payment at a future date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.



Earnings Per Share



Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock
outstanding.



Diluted earnings per common share is calculated
by dividing net income by the weighted average number of shares of common stock outstanding, assuming the exercise of stock options and warrants. Such adjustments to the weighted average number of shares of common stock are made only when such
adjustments dilute earnings per share.



On the date of
spin-off, F.N.B. stock options held by employees of the Company were converted into stock options of the Company. Since the stock options were converted after year end, it is not possible to estimate the dilutive impact to the Company for periods
prior to the distribution. The conversion of the stock options provided the employees with a benefit similar to that provided by the F.N.B. options. Therefore, the dilutive effect of the stock options on the Companys prior periods
weighted average shares outstanding is assumed by applying the exchange ratio to the dilutive effect of such stock options of F.N.B. In addition, F.N.B. had convertible preferred stock outstanding until the preferred stock was redeemed in exchange
for F.N.B. common stock during the third quarter of 2003. As such, the dilutive effect of F.N.B.s preferred stock on the Companys prior periods weighted average shares outstanding is assumed by applying the exchange ratio to the dilutive
effect of such securities of F.N.B.



The following tables set
forth the computation of basic and diluted earnings per share (in thousands, except share data):



|                                  |  |                                      |            |                                 |   |            |  |      |            |  |   |           
|--------------------------------- |  | ------------------------------------ | ---------- | ------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                  |  | Three Months EndedSeptember 30, 2004 |            | Nine Months Ended September 30,
|                                  |  | 2004                                 |            | 2003                            |   | 2004       |  | 2003
|Basic                             |  |                                      |            |                                 |   |            |  |      |            |  |   |           
|Net income                        |  | $                                    | 8,924      |                                 | $ | 8,299      |  | $    | 30,564     |  | $ | 27,604    
|                                  |  |                                      |            |                                 |   |            |  |      |            |  |   |           
|Average common shares outstanding |  |                                      | 51,107,658 |                                 |   | 47,470,734 |  |      | 48,822,001 |  |   | 47,444,857
|                                  |  |                                      |            |                                 |   |            |  |      |            |  |   |           
|Earnings per share                |  | $                                    | .17        |                                 | $ | .17        |  | $    | .63        |  | $ | .58       
|                                  |  |                                      |            |                                 |   |            |  |      |            |  |   |           



14



---

##### Table of Contents

|                                                                        |  |                                 |            |                                 |   |            |  |      |            |  |   |           
|----------------------------------------------------------------------- |  | ------------------------------- | ---------- | ------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                        |  | Three Months EndedSeptember 30, |            | Nine Months Ended September 30,
|                                                                        |  | 2004                            |            | 2003                            |   | 2004       |  | 2003
|Diluted                                                                 |  |                                 |            |                                 |   |            |  |      |            |  |   |           
|Earnings applicable to diluted earnings per share                       |  | $                               | 8,924      |                                 | $ | 8,299      |  | $    | 30,564     |  | $ | 27,604    
|                                                                        |  |                                 |            |                                 |   |            |  |      |            |  |   |           
|Average common shares outstanding                                       |  |                                 | 51,107,658 |                                 |   | 47,470,734 |  |      | 48,822,001 |  |   | 47,444,857
|F.N.B Corporation convertible preferred stock                           |  |                                 |           |                                 |   |           |  |      |           |  |   | 87,811    
|Net effect of dilutive stock options based on the treasury stock method |  |                                 | 2,046,506  |                                 |   | 939,958    |  |      | 1,532,620  |  |   | 808,556   
|                                                                        |  |                                 |            |                                 |   |            |  |      |            |  |   |           
|                                                                        |  |                                 | 53,154,164 |                                 |   | 48,410,692 |  |      | 50,354,621 |  |   | 48,341,224
|                                                                        |  |                                 |            |                                 |   |            |  |      |            |  |   |           
|Earnings per share                                                      |  | $                               | .17        |                                 | $ | .17        |  | $    | .61        |  | $ | .57       
|                                                                        |  |                                 |            |                                 |   |            |  |      |            |  |   |           



Cash Flow Information



Following is a summary of supplemental cash flow
information (in thousands):



|                                                                   |  |                                 |         |      |   |       
|------------------------------------------------------------------ |  | ------------------------------- | ------- | ---- | - | ------
|                                                                   |  | Nine Months Ended September 30,
|                                                                   |  | 2004                            |         | 2003
|Cash paid for:                                                     |  |                                 |         |      |   |       
|Interest                                                           |  | $                               | 35,844  |      | $ | 33,341
|Income taxes                                                       |  |                                 | 17,495  |      |   | 11,946
|                                                                   |  |                                
|Noncash investing and financing activities:                        |  |                                 |         |      |   |       
|Acquisition of real estate in settlement of loans                  |  | $                               | 440     |      | $ | 339   
|Transfer of securities from held to maturity to available for sale |  |                                 | 11,269  |      |   |      
|Changes in account balances due to acquisition of Southern:        |  |                                 |         |      |   |       
|Securities                                                         |  | $                               | 119,595 |      |   |      
|Loans, net of allowance                                            |  |                                 | 854,134 |      |   |      
|Premises and equipment                                             |  |                                 | 20,451  |      |   |      
|Deposits                                                           |  |                                 | 837,719 |      |   |      
|Short-term borrowings                                              |  |                                 | 47,727  |      |   |      
|Long-term debt                                                     |  |                                 | 45,476  |      |   |      
|                                                                  |  |                                 | 1,770   |      |   |      



Stock-Based Compensation



Under the Companys Amended and Restated 2003
Incentive Plan, the Company has the ability to issue stock (subject to certain restrictions as determined by the board of directors), stock options or stock appreciation rights to its employees. The following table summarizes information about the
non-qualified stock options granted during 2004:



|                                |  |   |            
|------------------------------- |  | - | -----------
|Options granted                 |  |   | 1,288,830  
|Weighted average exercise price |  | $ | 16.89-24.88
|Vesting period                  |  |   | 6 months   



15



---

##### Table of Contents

The exercise price of the stock options granted during the third quarter of 2004 was equal to or exceeded
the market price of the underlying stock on the date of grant. Therefore, no compensation expense is recognized in accordance with APB Opinion 25, Accounting for Stock Issued to Employees.



Effective on the date of the spin-off, all outstanding F.N.B. options held by
the Companys employees were converted to options to purchase the Companys common stock. No compensation expense was recognized as a result of the conversion.The following table shows pro-forma net income and earnings per share
assuming the Companys stock options had been expensed based on the fair value of the options along with significant assumptions used in the Black-Scholes option pricing model (dollars in thousands, except per share data).



|                                                                                                     |  |                                      |        |   |                                     |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ----------------------------------- | - | ------ | -
|                                                                                                     |  | Three Months EndedSeptember 30, 2004 |        |   | Nine Months EndedSeptember 30, 2004 |  
|Net income (as reported)                                                                             |  | $                                    | 8,924  |   |                                     | $ | 30,564 |  
|Stock-based compensation expense included in net income, net of tax                                  |  |                                      | 363    |   |                                     |   | 608    |  
|Stock-based compensation expense if the fair value method had been applied to all awards, net of tax |  |                                      | (2,624 | ) |                                     |   | (5,203 | )
|                                                                                                     |  |                                      |        |   |                                     |   |        |  
|Pro forma net income                                                                                 |  |                                      | 6,663  |   |                                     |   | 25,969 |  
|                                                                                                     |  |                                     
|Earnings per share:                                                                                  |  |                                      |        |   |                                     |   |        |  
|Basic (as reported)                                                                                  |  | $                                    | .17    |   |                                     | $ | .63    |  
|Basic pro forma                                                                                      |  |                                      | .13    |   |                                     |   | .53    |  
|                                                                                                     |  |                                     
|Diluted (as reported)                                                                                |  | $                                    | .17    |   |                                     | $ | .61    |  
|Diluted pro forma                                                                                    |  |                                      | .13    |   |                                     |   | .52    |  
|                                                                                                     |  |                                     
|Assumptions:                                                                                         |  |                                      |        |   |                                     |   |        |  
|Risk-free interest rate                                                                              |  |                                      |        |   |                                     |   | 4.07   | %
|Dividend yield                                                                                       |  |                                      |        |   |                                     |   | 1.57   | %
|Expected stock price volatility                                                                      |  |                                      |        |   |                                     |   | .24    | %
|Expected life (years)                                                                                |  |                                      |        |   |                                     |   | 7.09   |  
|Fair value of options granted                                                                        |  |                                      |        |   |                                     | $ | 5.93   |  



During 2004, the
Company has issued 230,595 shares of restricted stock with a weighted average fair value of $16.89. The restricted stock is subject to vesting upon continued employment with the Company or the Company attaining certain performance criteria as
established by the board of directors. The unvested portion of the Companys restricted stock is shown on the balance sheet under the caption Deferred stock compensation and amortized to expense over the vesting period.



16



---

##### Table of Contents

Retirement Plan



The retirement plan expense for the non-qualified benefit plan includes the following components (in thousands):



|                    |  |                                 |     |                                |   |      |  |      |       |  |   |      
|------------------- |  | ------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | ----- |  | - | -----
|                    |  | Three months endedSeptember 30, |     | Nine months endedSeptember 30,
|                    |  | 2004                            |     | 2003                           |   | 2004 |  | 2003
|Service costs       |  | $                               | 212 |                                | $ | 215  |  | $    | 636   |  | $ | 645  
|Interest cost       |  |                                 | 184 |                                |   | 170  |  |      | 553   |  |   | 512  
|Net amortization    |  |                                 | 117 |                                |   | 114  |  |      | 352   |  |   | 341  
|                    |  |                                 |     |                                |   |      |  |      |       |  |   |      
|Net benefit expense |  | $                               | 513 |                                | $ | 499  |  | $    | 1,541 |  | $ | 1,498
|                    |  |                                 |     |                                |   |      |  |      |       |  |   |      



|                                         |  |                                |   |  |      |  
|---------------------------------------- |  | ------------------------------ | - |  | ---- | -
|                                         |  | Assumptions as ofSeptember 30, |  
|                                         |  | 2004                           |   |  | 2003 |  
|Weighted average discount rate           |  | 6.0                            | % |  | 6.8  | %
|Rates of increase in compensation levels |  | 4.0                            | % |  | 4.0  | %



Comprehensive Income



The components of comprehensive income, net of related
tax, are as follows (in thousands):



|                                                             |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                             |  | 2004                            |        |   | 2003                           |   |        | 2004 |  |   | 2003   |  
|Net income                                                   |  | $                               | 8,924  |   |                                | $ | 8,299  |      |  | $ | 30,564 |   |  | $ | 27,604 |  
|Other comprehensive income (loss):                           |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Unrealized holding gains (losses) arising during the period  |  |                                 | 13,485 |   |                                |   | (9,032 | )    |  |   | (500   | ) |  |   | (2,566 | )
|Reclassification adjustment for gains included in net income |  |                                 | (48    | ) |                                |   | (115   | )    |  |   | (156   | ) |  |   | (530   | )
|                                                             |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Other comprehensive income (loss)                            |  |                                 | 13,437 |   |                                |   | (9,147 | )    |  |   | (656   | ) |  |   | (3,096 | )
|                                                             |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive income (loss)                                  |  | $                               | 22,361 |   |                                | $ | (848   | )    |  | $ | 29,908 |   |  | $ | 24,508 |  
|                                                             |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



Business Segments



The Company operates in three reportable segments: a community bank, an
insurance agency and a wealth management company. The Companys community bank offers services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts and commercial, mortgage
and individual installment loans. The Companys wealth management subsidiary offers trust services as well as various alternative investment products, including mutual funds and annuities. The Companys insurance agency is a full-service
insurance agency offering all lines of commercial and personal insurance through major carriers. Other items shown represent the parent company and eliminations which are necessary for purposes of reconciling to the consolidated amounts. The
following tables provide financial information for these segments (in thousands).



17



---

##### Table of Contents

|                                                    |  |               |           |                 |   |                  |  |   |       |   |  |              |         |   |  |   |          
|--------------------------------------------------- |  | ------------- | --------- | --------------- | - | ---------------- |  | - | ----- | - |  | ------------ | ------- | - |  | - | ---------
|At or for the three months ended September
30, 2004 |  | CommunityBank |           | InsuranceAgency |   | WealthManagement |  |   | Other |   |  | Consolidated
|Interest income                                     |  | $             | 51,725    |                 | $ | 43               |  | $ | 3     |   |  | $            | (18     | ) |  | $ | 51,753   
|Interest expense                                    |  |               | 13,973    |                 |   | 48               |  |   | (2    | ) |  |              | 680     |   |  |   | 14,699   
|Provision for loan loss                             |  |               | 400       |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 400      
|Non-interest income                                 |  |               | 7,111     |                 |   | 6,988            |  |   | 1,742 |   |  |              | (210    | ) |  |   | 15,631   
|Non-interest expense                                |  |               | 31,053    |                 |   | 5,959            |  |   | 1,625 |   |  |              | 557     |   |  |   | 39,194   
|Intangible amortization                             |  |               | 518       |                 |   | 92               |  |   | 1     |   |  |              |        |   |  |   | 611      
|Merger expenses                                     |  |               | 4,645     |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 4,645    
|Income tax expense                                  |  |               | 4,234     |                 |   | 416              |  |   | 50    |   |  |              | (533    | ) |  |   | 4,167    
|Net income (loss)                                   |  |               | 9,176     |                 |   | 608              |  |   | 72    |   |  |              | (932    | ) |  |   | 8,924    
|Total assets                                        |  |               | 5,474,493 |                 |   | 35,570           |  |   | 3,545 |   |  |              | (10,088 | ) |  |   | 5,503,520
|Goodwill                                            |  |               | 371,428   |                 |   | 18,631           |  |   |      |   |  |              |        |   |  |   | 390,059  
|                                                    |  |               |           |                 |  
|At or for the three months ended September
30, 2003 |  | CommunityBank |           | InsuranceAgency |   | WealthManagement |  |   | Other |   |  | Consolidated
|Interest income                                     |  |               | 41,580    |                 |   | 42               |  |   | 1     |   |  |              | (6      | ) |  |   | 41,617   
|Interest expense                                    |  |               | 10,605    |                 |   | 35               |  |   | 2     |   |  |              | (6      | ) |  |   | 10,636   
|Provision for loan loss                             |  |               | 952       |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 952      
|Non-interest income                                 |  |               | 6,299     |                 |   | 7,044            |  |   | 1,698 |   |  |              |        |   |  |   | 15,041   
|Non-interest expense                                |  |               | 25,064    |                 |   | 6,280            |  |   | 1,678 |   |  |              |        |   |  |   | 33,022   
|Intangible amortization                             |  |               | 252       |                 |   | 88               |  |   | 1     |   |  |              |        |   |  |   | 341      
|Income tax expense                                  |  |               | 3,389     |                 |   | 315              |  |   | 45    |   |  |              |        |   |  |   | 3,749    
|Net income (loss)                                   |  |               | 7,869     |                 |   | 456              |  |   | (26   | ) |  |              |        |   |  |   | 8,299    
|Total assets                                        |  |               | 3,671,350 |                 |   | 37,046           |  |   | 1,956 |   |  |              |        |   |  |   | 3,710,352
|Goodwill                                            |  |               | 156,789   |                 |   | 19,343           |  |   |      |   |  |              |        |   |  |   | 176,132  
|                                                    |  |               |           |                 |  
|At or for the nine months ended September
30, 2004  |  | CommunityBank |           | InsuranceAgency |   | WealthManagement |  |   | Other |   |  | Consolidated
|Interest income                                     |  | $             | 140,670   |                 | $ | 127              |  | $ | 6     |   |  | $            | (113    | ) |  | $ | 140,690  
|Interest expense                                    |  |               | 35,626    |                 |   | 179              |  |   |      |   |  |              | 1,658   |   |  |   | 37,463   
|Provision for loan loss                             |  |               | 2,675     |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 2,675    
|Non-interest income                                 |  |               | 20,762    |                 |   | 23,886           |  |   | 5,824 |   |  |              | (375    | ) |  |   | 50,097   
|Non-interest expense                                |  |               | 80,224    |                 |   | 18,797           |  |   | 4,887 |   |  |              | 1,176   |   |  |   | 105,084  
|Intangible amortization                             |  |               | 1,021     |                 |   | 277              |  |   | 3     |   |  |              |        |   |  |   | 1,301    
|Merger expenses                                     |  |               | 4,645     |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 4,645    
|Income tax expense                                  |  |               | 13,848    |                 |   | 2,005            |  |   | 374   |   |  |              | (1,226  | ) |  |   | 15,001   
|Net income (loss)                                   |  |               | 29,059    |                 |   | 3,032            |  |   | 569   |   |  |              | (2,096  | ) |  |   | 30,564   
|Total assets                                        |  |               | 5,474,493 |                 |   | 35,570           |  |   | 3,545 |   |  |              | (10,088 | ) |  |   | 5,503,520
|Goodwill                                            |  |               | 371,428   |                 |   | 18,631           |  |   |      |   |  |              |        |   |  |   | 390,059  
|                                                    |  |               |           |                 |  
|At or for the nine months ended September
30, 2003  |  | CommunityBank |           | InsuranceAgency |   | WealthManagement |  |   | Other |   |  | Consolidated
|Interest income                                     |  |               | 123,340   |                 |   | 156              |  |   | 1     |   |  |              | (22     | ) |  |   | 123,475  
|Interest expense                                    |  |               | 32,637    |                 |   | 61               |  |   | 7     |   |  |              | (22     | ) |  |   | 32,683   
|Provision for loan loss                             |  |               | 4,512     |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 4,512    
|Non-interest income                                 |  |               | 22,567    |                 |   | 20,135           |  |   | 4,966 |   |  |              |        |   |  |   | 47,668   
|Non-interest expense                                |  |               | 71,208    |                 |   | 16,525           |  |   | 5,070 |   |  |              |        |   |  |   | 92,803   
|Intangible amortization                             |  |               | 729       |                 |   | 193              |  |   | 2     |   |  |              |        |   |  |   | 924      
|Merger expenses                                     |  |               | 1,014     |                 |   |                 |  |   |      |   |  |              |        |   |  |   | 1,014    
|Income tax expense                                  |  |               | 12,046    |                 |   | 1,483            |  |   | 12    |   |  |              |        |   |  |   | 13,541   
|Net income (loss)                                   |  |               | 25,504    |                 |   | 2,222            |  |   | (122  | ) |  |              |        |   |  |   | 27,604   
|Total assets                                        |  |               | 3,671,350 |                 |   | 37,046           |  |   | 1,956 |   |  |              |        |   |  |   | 3,710,352
|Goodwill                                            |  |               | 156,789   |                 |   | 19,343           |  |   |      |   |  |              |        |   |  |   | 176,132  

|
|



18



---

##### Table of Contents

Unaudited Pro Forma Condensed Combined Financial Information



The following unaudited pro forma condensed combined financial information
presents how the pro forma combined income statements for the three and nine months ended September 30, 2004 and 2003 for the Company and Southern may have appeared had the merger been completed on January 1, 2003. The unaudited pro forma condensed
combined financial information shows the impact of the merger on the companies respective historical results of operations under the purchase method of accounting. The unaudited pro forma condensed combined financial information is presented
for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined on January 1, 2004 and had the impact of possible revenue enhancements, expense efficiencies and other
factors been considered.



Pro Forma Combined Income Statement

First National Bankshares of Florida and Southern Community Bancorp

For the
three month period ending September 30, 2004



|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|------------------------------------------- |  | ------------------------------------ | ---------- | ----------------------------- | - | --------------------- |  | - | ------------------ | -- |  | - | ----------
|                                            |  | Historical First National Bankshares |            | Historical Southern Community |   | Pro Forma Adjustments |  |   | Pro Forma Combined
|Total Interest Income                       |  | $                                    | 51,753     |                               | $ | 11,102                |  | $ | 39                 | a  |  | $ |           
|                                            |  |                                      |            |                               |   |                       |  |   | (375               | )b |  |   |           
|                                            |  |                                      |            |                               |   |                       |  |   | (33                | )c |  |   | 62,486    
|Total Interest Expense                      |  |                                      | 14,699     |                               |   | 3,710                 |  |   | (33                | )c |  |   |           
|                                            |  |                                      |            |                               |   |                       |  |   | (358               | )d |  |   |           
|                                            |  |                                      |            |                               |   |                       |  |   | 21                 | e  |  |   | 18,039    
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Net Interest Income                         |  |                                      | 37,054     |                               |   | 7,392                 |  |   | 1                  |    |  |   | 44,447    
|Provision                                   |  |                                      | 400        |                               |   | 399                   |  |   |                   |    |  |   | 799       
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Net Interest Income after provision         |  |                                      | 36,654     |                               |   | 6,993                 |  |   | 1                  |    |  |   | 43,648    
|                                            |  |                                      |            |                              
|Non-Interest Income                         |  |                                      | 15,631     |                               |   | 145                   |  |   |                   |    |  |   | 15,776    
|Non-Interest Expense                        |  |                                      | 39,194     |                               |   | 4,149                 |  |   | 435                | f  |  |   | 43,778    
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Income before taxes                         |  |                                      | 13,091     |                               |   | 2,989                 |  |   | (434               | )  |  |   | 15,646    
|Income Taxes                                |  |                                      | 4,167      |                               |   | 1,006                 |  |   | (167               | )g |  |   | 5,006     
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Net Income                                  |  | $                                    | 8,924      |                               | $ | 1,983                 |  | $ | (267               | )  |  | $ | 10,640    
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Basic weighted average shares outstanding   |  |                                      | 51,109,030 |                               |   | 7,229,701             |  |   | 3,648,830          |    |  |   | 61,987,561
|Diluted weighted average shares outstanding |  |                                      | 53,155,536 |                               |   | 7,736,969             |  |   | 3,904,848          |    |  |   | 64,797,353
|                                            |  |                                      |            |                              
|Basic earnings per share                    |  | $                                    | .17        |                               | $ | .27                   |  |   |                    |    |  | $ | .17       
|Diluted earnings per share                  |  |                                      | .17        |                               |   | .26                   |  |   |                    |    |  |   | .16       



19



---

##### Table of Contents

Pro Forma Combined Income Statement

First National Bankshares of Florida and Southern Community Bancorp

For the three month period ending September 30, 2003



|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|------------------------------------------- |  | ------------------------------------ | ---------- | ----------------------------- | - | --------------------- |  | - | ------------------ | -- |  | - | ----------
|                                            |  | Historical First National Bankshares |            | Historical Southern Community |   | Pro Forma Adjustments |  |   | Pro Forma Combined
|Total Interest Income                       |  | $                                    | 41,617     |                               | $ | 11,493                |  | $ | 58                 | a  |  | $ |           
|                                            |  |                                      |            |                               |   |                       |  |   | (562               | )b |  |   | 52,606    
|Total Interest Expense                      |  |                                      | 10,636     |                               |   | 4,555                 |  |   | (536               | )d |  |   |           
|                                            |  |                                      |            |                               |   |                       |  |   | 32                 | e  |  |   | 14,687    
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Net Interest Income                         |  |                                      | 30,981     |                               |   | 6,938                 |  |   |                   |    |  |   | 37,919    
|Provision                                   |  |                                      | 952        |                               |   | 1,026                 |  |   |                   |    |  |   | 1,978     
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Net Interest Income after provision         |  |                                      | 30,029     |                               |   | 5,912                 |  |   |                   |    |  |   | 35,941    
|                                            |  |                                      |            |                              
|Non-Interest Income                         |  |                                      | 15,041     |                               |   | 2,049                 |  |   |                   |    |  |   | 17,090    
|Non-Interest Expense                        |  |                                      | 33,022     |                               |   | 4,538                 |  |   | 652                | f  |  |   | 38,212    
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Income before taxes                         |  |                                      | 12,048     |                               |   | 3,423                 |  |   | (652               | )  |  |   | 14,819    
|Income Taxes                                |  |                                      | 3,749      |                               |   | 1,276                 |  |   | (252               | )g |  |   | 4,773     
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Net Income                                  |  | $                                    | 8,299      |                               | $ | 2,147                 |  | $ | (400               | )  |  | $ | 10,046    
|                                            |  |                                      |            |                               |   |                       |  |   |                    |    |  |   |           
|Basic weighted average shares outstanding   |  |                                      | 47,475,241 |                               |   | 7,059,835             |  |   | 3,563,099          |    |  |   | 58,098,175
|Diluted weighted average shares outstanding |  |                                      | 48,415,199 |                               |   | 7,471,051             |  |   | 3,770,639          |    |  |   | 59,656,889
|                                            |  |                                      |            |                              
|Basic earnings per share                    |  | $                                    | .17        |                               | $ | .30                   |  |   |                    |    |  | $ | .17       
|Diluted earnings per share                  |  |                                      | .17        |                               |   | .29                   |  |   |                    |    |  |   | .17       



20



---

##### Table of Contents

Pro Forma Combined Income Statement

First National Bankshares of Florida and Southern Community Bancorp

For the nine month period ending September 30, 2004



|                                            |  |                                    |            |                             |   |                      |  |   |                   |    |  |   |           
|------------------------------------------- |  | ---------------------------------- | ---------- | --------------------------- | - | -------------------- |  | - | ----------------- | -- |  | - | ----------
|                                            |  | HistoricalFirst NationalBankshares |            | HistoricalSouthernCommunity |   | Pro FormaAdjustments |  |   | Pro FormaCombined
|Total Interest Income                       |  | $                                  | 140,690    |                             | $ | 37,604               |  | $ | 156               | a  |  | $ |           
|                                            |  |                                    |            |                             |   |                      |  |   | (1,500            | )b |  |   |           
|                                            |  |                                    |            |                             |   |                      |  |   | (62               | )c |  |   | 176,888   
|Total Interest Expense                      |  |                                    | 37,463     |                             |   | 13,417               |  |   | (62               | )c |  |   |           
|                                            |  |                                    |            |                             |   |                      |  |   | (1,430            | )d |  |   |           
|                                            |  |                                    |            |                             |   |                      |  |   | 84                | e  |  |   | 49,472    
|                                            |  |                                    |            |                             |   |                      |  |   |                   |    |  |   |           
|Net Interest Income                         |  |                                    | 103,227    |                             |   | 24,187               |  |   | 2                 |    |  |   | 127,416   
|Provision                                   |  |                                    | 2,675      |                             |   | 1,843                |  |   |                  |    |  |   | 4,518     
|                                            |  |                                    |            |                             |   |                      |  |   |                   |    |  |   |           
|Net Interest Income after provision         |  |                                    | 100,552    |                             |   | 22,344               |  |   | 2                 |    |  |   | 122,898   
|                                            |  |                                    |            |                            
|Non-Interest Income                         |  |                                    | 50,097     |                             |   | 1,589                |  |   |                  |    |  |   | 51,686    
|Non-Interest Expense                        |  |                                    | 105,084    |                             |   | 15,232               |  |   | 1,738             | f  |  |   | 122,054   
|                                            |  |                                    |            |                             |   |                      |  |   |                   |    |  |   |           
|Income before taxes                         |  |                                    | 45,565     |                             |   | 8,701                |  |   | (1,736            | )  |  |   | 52,530    
|Income Taxes                                |  |                                    | 15,001     |                             |   | 3,008                |  |   | (670              | )g |  |   | 17,339    
|                                            |  |                                    |            |                             |   |                      |  |   |                   |    |  |   |           
|Net Income                                  |  | $                                  | 30,564     |                             | $ | 5,693                |  | $ | (1,066            | )  |  | $ | 35,191    
|                                            |  |                                    |            |                             |   |                      |  |   |                   |    |  |   |           
|Basic weighted average shares outstanding   |  |                                    | 48,825,455 |                             |   | 7,195,871            |  |   | 3,631,756         |    |  |   | 59,653,082
|Diluted weighted average shares outstanding |  |                                    | 50,358,075 |                             |   | 7,715,299            |  |   | 3,893,911         |    |  |   | 61,967,285
|                                            |  |                                    |            |                            
|Basic earnings per share                    |  | $                                  | .63        |                             | $ | .79                  |  |   |                   |    |  | $ | 0.59      
|Diluted earnings per share                  |  |                                    | .61        |                             |   | .74                  |  |   |                   |    |  |   | 0.57      



21



---

##### Table of Contents

Pro Forma Combined Income Statement

First National Bankshares of Florida and Southern Community Bancorp

For the nine month period ending September 30, 2003



|                                            |  |                                    |            |                             |   |                      |  |   |                    |    |  |   |           
|------------------------------------------- |  | ---------------------------------- | ---------- | --------------------------- | - | -------------------- |  | - | ------------------ | -- |  | - | ----------
|                                            |  | HistoricalFirst NationalBankshares |            | HistoricalSouthernCommunity |   | Pro FormaAdjustments |  |   | Pro Forma Combined
|Total Interest Income                       |  | $                                  | 123,475    |                             | $ | 32,011               |  | $ | 175                | a  |  | $ |           
|                                            |  |                                    |            |                             |   |                      |  |   | (1,687             | )b |  |   | 153,974   
|Total Interest Expense                      |  |                                    | 32,683     |                             |   | 12,755               |  |   | (1,609             | )d |  |   |           
|                                            |  |                                    |            |                             |   |                      |  |   | 95                 | e  |  |   | 43,924    
|                                            |  |                                    |            |                             |   |                      |  |   |                    |    |  |   |           
|Net Interest Income                         |  |                                    | 90,792     |                             |   | 19,256               |  |   | 2                  |    |  |   | 110,050   
|Provision                                   |  |                                    | 4,512      |                             |   | 2,746                |  |   |                   |    |  |   | 7,258     
|                                            |  |                                    |            |                             |   |                      |  |   |                    |    |  |   |           
|Net Interest Income after provision         |  |                                    | 86,280     |                             |   | 16,510               |  |   | 2                  |    |  |   | 102,792   
|                                            |  |                                    |            |                            
|Non-Interest Income                         |  |                                    | 47,668     |                             |   | 3,977                |  |   |                   |    |  |   | 51,645    
|Non-Interest Expense                        |  |                                    | 92,803     |                             |   | 13,455               |  |   | 1,956              | f  |  |   | 108,214   
|                                            |  |                                    |            |                             |   |                      |  |   |                    |    |  |   |           
|Income before taxes                         |  |                                    | 41,145     |                             |   | 7,032                |  |   | (1,954             | )  |  |   | 46,223    
|Income Taxes                                |  |                                    | 13,541     |                             |   | 2,632                |  |   | (754               | )g |  |   | 15,419    
|                                            |  |                                    |            |                             |   |                      |  |   |                    |    |  |   |           
|Net Income                                  |  | $                                  | 27,604     |                             | $ | 4,400                |  | $ | (1,200             | )  |  | $ | 30,804    
|                                            |  |                                    |            |                             |   |                      |  |   |                    |    |  |   |           
|Basic weighted average shares outstanding   |  |                                    | 47,444,857 |                             |   | 6,884,651            |  |   | 3,474,683          |    |  |   | 57,804,191
|Diluted weighted average shares outstanding |  |                                    | 48,341,224 |                             |   | 7,270,503            |  |   | 3,669,423          |    |  |   | 59,281,150
|                                            |  |                                    |            |                            
|Basic earnings per share                    |  | $                                  | .58        |                             | $ | .64                  |  |   |                    |    |  | $ | 0.53      
|Diluted earnings per share                  |  |                                    | .57        |                             |   | .61                  |  |   |                    |    |  |   | 0.52      

---

Notes to the Unaudited Pro Forma Combined Condensed
Financial Information



|a. | To reflect the impact on interest income of the fair value adjustment on Southerns investment securities. The adjustment will be recognized over the remaining live of the
investment portfolio.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. | To reflect the impact on interest income of the amortization of the fair value adjustment on Southerns loan portfolio. Adjustment will be recognized over the remaining life of
the loan portfolio.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c. | To eliminate the impact on the Companys interest income and Southerns interest expense of a $10.0 million line of credit issued by First National Bank of Florida to
Southerns holding company. The rate on the line of credit was 3.56%
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d. | To reflect the impact on interest expense of the fair value adjustment on Southerns time deposits. The adjustment will be recognized over the remaining life of the time
deposit portfolio.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|e. | To reflect the impact on interest expense of the fair value adjustment on Southerns long-term debt. The adjustment will be recognized over the remaining life of the long-term
debt.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|f. | To reflect the amortization of the core deposits intangible. The core deposits intangible will be amortized straight line over a 10 year period.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------

|g. | To record the tax effect of the pro forma adjustments using our statutory tax rate of 38.6%
|-- | -------------------------------------------------------------------------------------------



22



---

##### Table of Contents

|PART | I.
|---- | --



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



You should read the following discussion in conjunction with our consolidated financial statements and the notes thereto included in this Form 10-Q. This
discussion contains forward-looking statements. Please see Cautionary Statement Regarding Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with these statements.



Separation from F.N.B. Corporation



We were incorporated under the laws of the State of Florida on August 12,
2003 as a wholly owned subsidiary of F.N.B. Corporation (F.N.B.). On January 1, 2004, we became an independent public company through a tax-free spin-off from F.N.B., with F.N.B. having no continuing ownership interest in us. The consolidated
financial statements for periods presented prior to the effective date of the spin-off reflect the historical financial position, results of operations, and cash flows of the businesses transferred to us from F.N.B. prior to the distribution.
However, this financial information is not necessarily indicative of what our results of operations or financial position would have been had we operated as an independent company during the periods presented.



In connection with the separation from F.N.B., we incurred approximately
$10.5 million in restructuring expenses during the fiscal year ended December 31, 2003. These expenses consisted of $5.3 million of early retirement expenses and involuntary separation costs, $4.2 million in professional fees, and approximately $1.0
million in fixed asset write-off and other expenses connected with the separation. On September 30, 2004, a liability associated with the separation of approximately $973,000 remained. This liability primarily consists of amounts due to terminated
employees under various benefit plans and employment agreements. Continued payments to these terminated employees will be made in accordance with the terms and provisions of such benefit plans and employment agreements.



Critical Accounting Policies



Our significant accounting policies are described in the Notes to
Consolidated Financial Statements under Summary of Significant Accounting Policies in our 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Certain policies inherently have a greater reliance on the
use of underlying factors, such as estimates, assumptions and judgments. Changes in these underlying factors have a greater possibility of producing results that could be materially different than originally reported and could have a material impact
on our future financial condition and results of operations.



Nine Months
Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003



Results of Operations



Net income was $30.6
million for the first nine months of 2004 compared to net income of $27.6 million for the first nine months of 2003. Basic earnings per share were $.63 and $.58 for the first nine months of 2004 and 2003, respectively. Diluted earnings per share
were $.61 and $.57 for the first nine months of 2004 and 2003, respectively. Common comparative ratios for results of operations include the return on average assets and the return on average equity. Our annualized return on average assets was .99%
for the first nine months of 2004 compared to 1.09% for the first nine months of 2003, while our annualized return on average equity was 10.20% and 9.62% for the same respective periods. Results of operations for the nine months ended September 30,
2004 includes Southern Community Bank (Southern) and Lupfer-Frakes Insurance, Inc. (Lupfer), which were acquired on September 3, 2004 and July 1, 2003, respectively.



23



---

##### Table of Contents

Diluted earnings per share for the nine months ended September 30, 2004 were reduced by $.05 per share
due to after-tax merger expenses of $2.9 million. Diluted earnings per share for the nine months ended September 30, 2003 were reduced by $.04 per share due to after-tax merger and restructuring expenses of $1.9 million.



24



---

##### Table of Contents

The following table provides information regarding the average balances and yields and rates on interest
earning assets and interest bearing liabilities (dollars in thousands):



|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ---------------------- | - | ---------- |  | ---- | -------------- |  | - | ---------------------- | - | ---------- | - | ------- |  | ---- | -
|                                                                    |  | Nine Months Ended September 30, |          
|                                                                    |  | 2004                            |           |   | 2003                   |  
|                                                                    |  | AverageBalance                  |           |   | InterestIncome/Expense |   | Yield/Rate |  |      | AverageBalance |  |   | InterestIncome/Expense |   | Yield/Rate |  
|Interest earning assets:                                            |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Interest bearing deposits with banks                                |  | $                               | 917       |   |                        | $ | 7          |  | 1.02 | %              |  | $ | 793                    |   |            | $ | 9       |  | 1.52 | %
|Federal funds sold                                                  |  |                                 | 5,594     |   |                        |   | 36         |  | .86  |                |  |   | 12,483                 |   |            |   | 108     |  | 1.16 |  
|Taxable investment securities (1)                                   |  |                                 | 782,030   |   |                        |   | 24,569     |  | 4.20 |                |  |   | 628,748                |   |            |   | 18,603  |  | 3.96 |  
|Non-taxable investment securities (2)                               |  |                                 | 81,593    |   |                        |   | 3,415      |  | 5.59 |                |  |   | 80,288                 |   |            |   | 3,887   |  | 6.47 |  
|Loans (3)                                                           |  |                                 | 2,720,831 |   |                        |   | 113,858    |  | 5.59 |                |  |   | 2,208,550              |   |            |   | 102,553 |  | 6.21 |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Total interest earning assets                                       |  |                                 | 3,590,965 |   |                        |   | 141,885    |  | 5.28 |                |  |   | 2,930,862              |   |            |   | 125,160 |  | 5.71 |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Cash and due from banks                                             |  |                                 | 92,788    |   |                        |   |            |  |      |                |  |   | 101,855                |   |            |   |         |  |      |  
|Allowance for loan losses                                           |  |                                 | (30,667   | ) |                        |   |            |  |      |                |  |   | (24,694                | ) |            |   |         |  |      |  
|Premises and equipment                                              |  |                                 | 125,573   |   |                        |   |            |  |      |                |  |   | 110,636                |   |            |   |         |  |      |  
|Other assets                                                        |  |                                 | 347,127   |   |                        |   |            |  |      |                |  |   | 270,924                |   |            |   |         |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|                                                                    |  | $                               | 4,125,786 |   |                        |   |            |  |      |                |  | $ | 3,389,583              |   |            |   |         |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Liabilities                                                         |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Interest bearing liabilities:                                       |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Deposits:                                                           |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Interest bearing demand                                             |  | $                               | 559,391   |   |                        |   | 2,096      |  | .50  |                |  | $ | 438,386                |   |            |   | 1,909   |  | .58  |  
|Savings                                                             |  |                                 | 875,871   |   |                        |   | 6,128      |  | .93  |                |  |   | 842,558                |   |            |   | 8,183   |  | 1.30 |  
|Other time                                                          |  |                                 | 1,040,361 |   |                        |   | 19,049     |  | 2.45 |                |  |   | 850,831                |   |            |   | 17,530  |  | 2.75 |  
|Short-term borrowings                                               |  |                                 | 371,947   |   |                        |   | 2,361      |  | .85  |                |  |   | 265,637                |   |            |   | 1,644   |  | .83  |  
|Long-term debt                                                      |  |                                 | 319,713   |   |                        |   | 7,829      |  | 3.27 |                |  |   | 151,180                |   |            |   | 3,417   |  | 3.02 |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Total interest bearing liabilities                                  |  |                                 | 3,167,283 |   |                        |   | 37,463     |  | 1.58 |                |  |   | 2,548,592              |   |            |   | 32,683  |  | 1.71 |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Non-interest bearing demand                                         |  |                                 | 519,545   |   |                        |   |            |  |      |                |  |   | 421,005                |   |            |   |         |  |      |  
|Other liabilities                                                   |  |                                 | 38,508    |   |                        |   |            |  |      |                |  |   | 36,467                 |   |            |   |         |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|                                                                    |  |                                 | 3,725,336 |   |                        |   |            |  |      |                |  |   | 3,006,064              |   |            |   |         |  |      |  
|Stockholders equity                                                |  |                                 | 400,450   |   |                        |   |            |  |      |                |  |   | 383,519                |   |            |   |         |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|                                                                    |  | $                               | 4,125,786 |   |                        |   |            |  |      |                |  | $ | 3,389,583              |   |            |   |         |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Excess of interest earning assets over interest bearing liabilities |  | $                               | 423,682   |   |                        |   |            |  |      |                |  | $ | 382,270                |   |            |   |         |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Net interest income                                                 |  |                                 |           |   |                        | $ | 104,422    |  |      |                |  |   |                        |   |            | $ | 92,477  |  |      |  
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Net interest spread                                                 |  |                                 |           |   |                        |   |            |  | 3.70 | %              |  |   |                        |   |            |   |         |  | 4.00 | %
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  
|Net interest margin (4)                                             |  |                                 |           |   |                        |   |            |  | 3.88 | %              |  |   |                        |   |            |   |         |  | 4.22 | %
|                                                                    |  |                                 |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |         |  |      |  

---

|(1) | The average balances and yields earned on securities are based on historical cost.
|--- | ----------------------------------------------------------------------------------

|(2) | The amounts are reflected on a fully taxable equivalent basis using the federal statutory tax rate of 35%, adjusted for certain federal tax preferences.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Average balances include non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is
immaterial.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



25



---

##### Table of Contents

Net Interest Income



Net interest income, our primary source of earnings, is the amount by which interest and fees generated by interest earning assets, primarily loans and
securities, exceed interest expense on deposits and borrowed funds. Net interest income, on a fully taxable equivalent basis, totaled $104.4 million for the first nine months of 2004, an increase of 12.9% as compared to $92.5 million for the same
period 2003. Interest income grew $16.7 million to $141.9 million for the first nine months of 2004 compared to $125.2 million for same period in 2003 as we increased our interest earning assets by $660.1 million. The yield on interest earning
assets decreased 43 basis points due to repricing of our interest earning assets and a focus on originating variable and adjustable rate commercial and consumer loans, which were priced lower than existing portfolio yields. Interest expense
increased 14.6% to $37.5 million for the first nine months of 2004 compared to $32.7 million for the same period in 2003 as interest bearing liabilities grew $618.7 million, or 24.3%. The impact on interest expense caused by the increase in interest
bearing liabilities was mitigated by our ability to effectively manage the interest rate paid. The cost of funds decreased from 1.71% during the nine months ended September 30, 2003 to 1.58% during the nine months ended September 30, 2004. Net
interest margin decreased from 4.22% for the nine months ended September 30, 2003 to 3.88% for the nine months ended September 30, 2004. The impact of future rate changes on our net interest income is discussed further under the Liquidity and
Interest Rate Sensitivity caption below.



The following
table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the nine months ended September 30, 2004 as
compared to the nine months ended September 30, 2003 (in thousands):



|                                     |  |        |        |   |      |   |        |     |  |   |        |  
|------------------------------------ |  | ------ | ------ | - | ---- | - | ------ | --- |  | - | ------ | -
|                                     |  | Volume |        |   | Rate |   |        | Net | 
|Interest income                      |  |        |        |   |      |   |        |     |  |   |        |  
|Interest bearing deposits with banks |  | $      | 2      |   |      | $ | (4     | )   |  | $ | (2     | )
|Federal funds sold                   |  |        | (49    | ) |      |   | (23    | )   |  |   | (72    | )
|Securities:                          |  |        |        |   |      |   |        |     |  |   |        |  
|Taxable                              |  |        | 4,778  |   |      |   | 1,188  |     |  |   | 5,966  |  
|Non-taxable                          |  |        | 64     |   |      |   | (536   | )   |  |   | (472   | )
|Loans                                |  |        | 19,848 |   |      |   | (8,543 | )   |  |   | 11,305 |  
|                                     |  |        |        |   |      |   |        |     |  |   |        |  
|Net change                           |  | $      | 24,643 |   |      | $ | (7,918 | )   |  | $ | 16,725 |  
|                                     |  |        |        |   |      |   |        |     |  |   |        |  
|Interest expense                     |  |        |        |   |      |   |        |     |  |   |        |  
|Deposits:                            |  |        |        |   |      |   |        |     |  |   |        |  
|Interest bearing demand              |  | $      | 374    |   |      | $ | (187   | )   |  | $ | 187    |  
|Savings                              |  |        | 332    |   |      |   | (2,387 | )   |  |   | (2,055 | )
|Other time                           |  |        | 2,977  |   |      |   | (1,458 | )   |  |   | 1,519  |  
|Short-term borrowings                |  |        | 676    |   |      |   | 41     |     |  |   | 717    |  
|Long-term debt                       |  |        | 4,107  |   |      |   | 305    |     |  |   | 4,412  |  
|                                     |  |        |        |   |      |   |        |     |  |   |        |  
|                                     |  |        | 8,466  |   |      |   | (3,686 | )   |  |   | 4,780  |  
|                                     |  |        |        |   |      |   |        |     |  |   |        |  
|Net change                           |  | $      | 16,177 |   |      | $ | (4,232 | )   |  | $ | 11,945 |  
|                                     |  |        |        |   |      |   |        |     |  |   |        |  



26



---

##### Table of Contents

The amount of change not solely due to rate or volume changes was allocated between the change due to
rate and the change due to volume based on the net size of the rate and volume changes.



For the first nine months of 2004, interest income on loans increased 11.0% from $102.6 million to $113.9 million as average loans increased by $512.3 million. Southerns loan portfolio increased our average loan
balances by $63.5 million and interest income by $2.6 million. Interest income on investment securities increased $5.4 million for the first nine months of 2004 as the average balance of investment securities increased $154.6 million.



Interest expense on deposits decreased 1.3% to $27.3 million for the first
nine months of 2004 despite a $343.8 million increase in average interest bearing deposits. The decrease in interest expense on deposits was accomplished by a 26 basis point reduction of the rate paid on these deposits. We continued to successfully
generate non-interest-bearing deposits as such deposits increased by $98.5 million to $519.5 million for the first nine months of 2004 as compared to the same period in 2003. Interest expense on short-term borrowings increased by $717,000 as the
average balance of these borrowings increased $106.3 million for the first nine months of 2004 as compared to the first nine month of 2003. Interest expense on long-term debt increased $4.4 million for the nine months ended September 30, 2004
primarily from a $168.5 million increase in average long-term debt. The increase in average long-term debt is a result of additional FHLB borrowings and debt incurred in connection with the spin-off from F.N.B.



Non-Interest Income



Total non-interest income increased 5.1% from $47.7 million for the first nine months of 2003 to $50.1 million for the same
period in 2004. Service charges on deposit accounts increased 9.1% to $15.0 million during the first nine months of 2004 from $13.8 million for the same period in 2003. Income from wealth management services increased $735,000, or 14.8%, to $5.7
million for the first nine months of 2004 compared to $5.0 million for the same period in 2003. Insurance commissions and fees increased 19.7% to $23.3 million for the first nine months of 2004 compared to $19.5 million for the same period in 2003.
The Lupfer acquisition contributed insurance commissions and fees of $3.2 million in the first nine months of 2004. Gains on the sale of mortgage loans for the first nine months of 2004 decreased 49.8% to $2.5 million as compared to $5.0 million for
the same period in 2003. The gains on the sale of mortgage loans generated in 2003 were a direct result of homeowner refinancings driven by mortgage interest rates declining to historical low levels. As mortgage rates increase, we do not anticipate
the level of gains experienced in 2003 to continue.



Non-Interest Expense



Total non-interest expense increased $12.3 million to
$105.1 million for the first nine months in 2004 compared to $92.8 million for the same period in 2003. During the nine months ended September 30, 2004, we incurred $4.6 million in merger related costs associated with Southern. Total non-interest
expense for the nine months ended September 30, 2003 include $1.0 million in merger related costs associated with the acquisition of Charter Banking Corp. and $1.9 million in restructuring expenses associated with the spin-off from F.N.B. For the
first nine months of 2004, salary and employee benefits increased $3.3 million from $57.0 million for the same period in 2003 to $60.3 million in 2004. The increase is due to increased health care costs and the acquisitions of SEB and Lupfer in
2003. Other non-interest expenses totaled $22.2 million for 2004, a $2.3 million increase from 2003.



27



---

##### Table of Contents

Income Taxes



Our income tax expense was $15.0 million for the first nine months of 2004 compared to $13.5 million for the same period in 2003. The 2004 effective tax
rate of 32.9% was lower than the 35.0% federal statutory tax rate due to the tax benefits resulting from tax-free interest and dividend income.



Third Quarter of 2004 as Compared to Third Quarter of 2003



Results of Operations



Net income was $8.9 million, or $.17 per diluted share, for the third quarter of 2004 compared to net income of $8.3 million, or $.17 per diluted share,
for the third quarter of 2003. Basic earnings per share were $.17 for both the three months ended September 30, 2004 and 2003. Common comparative ratios for results of operations include the return on average assets and the return on average equity.
Our annualized return on average assets and annualized return on average equity were .78% and 7.73%, respectively, for the third quarter of 2004 compared to .89% and 7.33% for the same period in 2003. Diluted earnings per share for three months
ended September 30, 2004 were reduced by $.05 due to after-tax merger expenses of $2.9 million. Diluted earnings per share for the three months ended September 30, 2003 were reduced $.03 due to after-tax restructuring expenses of $1.2 million
incurred in connection with the spin-off from F.N.B. Results of operations for the three months ended September 30, 2004 include Southern, which was acquired on September 3, 2004.



Net Interest Income



Net interest income, on a fully taxable equivalent basis, totaled $37.5 million for the third quarter of 2004, representing an 18.9% increase over
the third quarter of 2003. Interest income, on a fully taxable equivalent basis, grew $10.0 million to $52.2 million for the third quarter of 2004 compared to $42.2 million for same period in 2003 as the average balance of our interest earning
assets increased by $787.8 million. Interest expense increased $4.1 million to $14.7 million for the third quarter of 2004 compared to $10.6 million for the same period in 2003 as the average balance of our interest bearing liabilities grew $731.2
million. Net interest margin decreased from 3.97% for the three months ended September 30, 2003 to 3.79% for the same period in 2004.



For the third quarter of 2004, interest income on loans increased 23.4% from $34.2 million to $42.2 million as average loans increased by $703.0 million.
Interest income on investment securities increased 25.1% to $10.0 million for the third quarter of 2004 as the average balance of investment securities increased $86.8 million to $907.5 million.



Interest expense on deposits increased $1.4 million to $10.2 million for the
third quarter of 2004 due to a $387.9 million increase in average interest bearing deposits. Interest expense on long-term debt increased $1.7 million to $3.1 million for the third quarter of 2004 due to a $131.3 million increase in average
long-term debt.



Non-Interest Income



Non-interest income increased 3.9% during the third quarter of 2004 to $15.6
million compared to $15.0 million for the same period of 2003. Income from wealth management services was $1.7 million for the three months ended September 30, 2004 and for the same period in 2003. Insurance commissions and fees decreased 1.4% to
$6.8 million for the third quarter of 2004 from $6.9 million for the same period in 2003. The recent hurricanes in our markets contributed to the reduction in insurance commissions as insurance carriers provided payment relief to those individuals
directly affected. For the remainder of the year, we do not anticipate insurance commissions to be at historical



28



---

##### Table of Contents

levels. In addition, we recorded $1.3 million in contingent revenue under profit sharing agreements with our insurance
carriers during 2004. With the recent hurricanes in our markets, it is probable we will not earn any contingent commissions under these profit sharing agreements in 2005. Gains on the sale of mortgage loans increased $446,000 during this same
period.



Non-Interest Expense



Non-interest expenses increased $6.2 million during the third quarter of
2004 to $39.2 million compared to $33.0 million for the same period of 2003. Non-interest expenses for the three months ended September 30, 2004 includes $4.6 million of merger expenses associated with the acquisition of Southern. Non-interest
expense for the three months ended September 30, 2003 includes $1.9 million in restructuring related expenses associated with the spin-off from F.N.B.



Income Taxes



Our income tax expense was $4.2 million for the third quarter of 2004 compared to $3.7 million for the same period in 2003. The effective tax rate for the
three months ended September 30, 2004 was 31.8%. Our effective tax rate was lower than the 35.0% federal statutory tax rate due to the tax benefits resulting from tax-free interest and dividend income.



Liquidity and Interest Rate Sensitivity



Our goal in liquidity management is to meet the cash flow requirements of
depositors and borrowers as well as our operating cash needs, with cost-effective funding. Liquidity is centrally managed on a daily basis by treasury personnel. In addition, our Corporate Asset/Liability Committee (ALCO), which includes members of
executive management, reviews liquidity on a periodic basis and approves significant changes in strategies which affect balance sheet or cash flow positions. Our board of directors has established an Asset/Liability Policy in order to achieve and
maintain earnings performance consistent with long-term goals while maintaining acceptable levels of interest rate risk, a well-capitalized balance sheet and adequate levels of liquidity. This policy designates the ALCO as the body
responsible for meeting this objective.



Liquidity sources from
assets include payments from loans and investments as well as the ability to sell loans and investment securities. Liquidity sources from liabilities are generated through growth in deposits and, to a lesser extent, the use of wholesale sources
which include federal funds purchased, repurchase agreements and public deposits. In addition, our banking subsidiary has the ability to borrow from the Federal Home Loan Bank (FHLB). FHLB advances are a competitively priced and reliable source of
funds. As of September 30, 2004, outstanding advances were $311.1 million, or 5.7% of total assets, while FHLB availability was $821.4 million, or 14.9% of total assets.



The principal source of cash for the parent company is dividends from its subsidiaries. The parent company has availability
to borrow up to $75.0 million through unsecured lines of credit with several major domestic banks. These lines, which were unused as of September 30, 2004, provide the parent company a liquid source of short-term funding.



The ALCO regularly monitors various liquidity ratios and forecasts of cash
position. Management believes that we have sufficient liquidity available to meet our normal operating and contingency funding cash needs.



Our financial performance is at risk from interest rate fluctuations. This interest rate risk arises due to differences between the amount of interest
earning assets and interest bearing liabilities subject to repricing over a period of time, the difference between the change in various interest rates and the embedded options in certain



29



---

##### Table of Contents

financial instruments. We utilize an asset/liability model to measure the impact of our balance sheet strategies. We use
net interest income simulations, gap analysis and the economic value of equity to measure interest rate risk.



The following gap analysis measures our interest rate risk by comparing the difference between the amount of interest earning assets and interest bearing
liabilities subject to repricing over a period of time. The ratio of rate sensitive assets to rate sensitive liabilities maturing over a one-year period was 1.21 at September 30, 2004, as compared to 1.38 at December 31, 2003. A ratio of more than
one indicates a higher level of repricing assets over repricing liabilities, assuming the current interest rate environment.



Following is the gap analysis as of September 30, 2004 (dollars in thousands):



|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|-------------------------------------------------------------- |  | --------------- | --------- | - | ----------- | - | ------- | --------- |  | - | ------------ | - |  | ----- | ---------- | - |  | - | ---------
|                                                               |  | Within 3 Months |           |   | 4-12 Months |   |         | 1-5 Years |  |   | Over 5 years |   |  | Total
|Interest earning assets                                        |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Interest bearing deposits with banks                           |  | $               | 349       |   |             | $ |         |           |  | $ |              |   |  | $     |            |   |  | $ | 349      
|Federal funds sold                                             |  |                 | 820       |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   | 820      
|Securities                                                     |  |                 | 36,688    |   |             |   | 111,025 |           |  |   | 407,119      |   |  |       | 430,597    |   |  |   | 985,429  
|Loans, net of unearned income                                  |  |                 | 1,676,542 |   |             |   | 678,565 |           |  |   | 1,133,801    |   |  |       | 196,777    |   |  |   | 3,685,685
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|                                                               |  | $               | 1,714,399 |   |             | $ | 789,590 |           |  | $ | 1,540,920    |   |  | $     | 627,374    |   |  | $ | 4,672,283
|Other assets                                                   |  |                 |           |   |             |   |         |           |  |   |              |   |  |       | 831,237    |   |  |   | 831,237  
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Total                                                          |  | $               | 1,714,399 |   |             | $ | 789,590 |           |  | $ | 1,540,920    |   |  | $     | 1,458,611  |   |  | $ | 5,503,520
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Interest bearing liabilities                                   |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Deposits:                                                      |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Interest checking                                              |  | $               | 203,756   |   |             | $ |         |           |  | $ |              |   |  | $     | 680,922    |   |  | $ | 884,678  
|Savings                                                        |  |                 | 427,566   |   |             |   |         |           |  |   |              |   |  |       | 623,297    |   |  |   | 1,050,863
|Time deposits                                                  |  |                 | 181,858   |   |             |   | 576,605 |           |  |   | 552,936      |   |  |       | 26,296     |   |  |   | 1,337,695
|Borrowings                                                     |  |                 | 586,423   |   |             |   | 85,139  |           |  |   | 163,664      |   |  |       | 30,000     |   |  |   | 865,226  
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|                                                               |  | $               | 1,399,603 |   |             | $ | 661,744 |           |  | $ | 716,600      |   |  | $     | 1,360,515  |   |  | $ | 4,138,462
|Other liabilities                                              |  |                 |           |   |             |   |         |           |  |   |              |   |  |       | 678,742    |   |  |   | 678,742  
|Stockholders equity                                           |  |                 |           |   |             |   |         |           |  |   |              |   |  |       | 686,316    |   |  |   | 686,316  
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Total                                                          |  | $               | 1,399,603 |   |             | $ | 661,744 |           |  | $ | 716,600      |   |  | $     | 2,725,573  |   |  | $ | 5,503,520
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Period Gap                                                     |  | $               | 314,796   |   |             | $ | 127,846 |           |  | $ | 824,320      |   |  | $     | (1,266,962 | ) |  |   |          
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Cumulative Gap                                                 |  | $               | 314,796   |   |             | $ | 442,642 |           |  | $ | 1,266,962    |   |  |       |            |   |  |   |          
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Cumulative Gap as a Percent of Total Assets                    |  |                 | 5.72      | % |             |   | 8.04    | %         |  |   | 23.02        | % |  |       |            |   |  |   |          
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          
|Rate Sensitive Assets/ Rate Sensitive Liabilities (Cumulative) |  |                 | 1.22      |   |             |   | 1.21    |           |  |   | 1.46         |   |  |       | 1.13       |   |  |   |          
|                                                               |  |                 |           |   |             |   |         |           |  |   |              |   |  |       |            |   |  |   |          



Net interest income
simulations measure the short-term earnings exposure from changes in market rates of interest in a more rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest
income under varying hypothetical rate scenarios. The economic value of equity (EVE) measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of
liabilities at a point in time. A



30



---

##### Table of Contents

decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance
sheet assuming that the rate change remains in effect over the life of the current balance sheet.



The following table presents an analysis of the potential sensitivity of our annual net interest income and EVE to sudden and sustained changes in market rates:



|                                        |  |                   |    |  |                  |   
|--------------------------------------- |  | ----------------- | -- |  | ---------------- | --
|                                        |  | September 30,2004 |    |  | December 31,2003 |   
|Net interest income change (12 months): |  |                   |    |  |                  |   
| 100 basis points                      |  | (2.4              | )% |  | (7.1             | )%
|+ 200 basis points                      |  | 2.1               | %  |  | 4.4              | % 
|                                        |  |                  
|Economic value of equity:               |  |                   |    |  |                  |   
| 100 basis points                      |  | 4.1               | %  |  | (6.4             | )%
|+ 200 basis points                      |  | (7.1              | )% |  | .4               | % 



The balance sheet
structure as of September 30, 2004 indicates we are well positioned to realize improvement in earnings from increasing rates over the next twelve months. Loan growth has been concentrated in the form of variable products while funding has been
medium term and fixed rate. The balance sheet structure will result in improving next interest income when rates increase with a negative impact on equity in the same scenario. The economic value of equity result in the +200 basis point scenario
reflects our assumed shortening of our deposit base and extension of our mortgage related products. The risk of declining rates is acceptable considering the current interest rate term structure and anticipated Federal Reserve Board interest rate
movements.



The preceding measures assume no change in
asset/liability compositions. Thus, the measures do not reflect actions the ALCO may undertake in response to such changes in interest rates.



The computation of the prospective effects of hypothetical interest changes requires numerous assumptions regarding characteristics of new business and
the behavior of existing positions. These business assumptions are based upon our experience, business plans and published industry experience. Key assumptions employed in the model include asset prepayment speeds, the relative price sensitivity of
certain assets and liabilities and the expected life of non-maturity deposits. Because these assumptions are inherently uncertain, actual results will differ from simulated results.



Changes in the interest rate environment can cause significant fluctuations
in the market value of mortgage loans originated for resale in the secondary market. We utilize forward loan commitments on mortgage loans to offset the risk of decreases in the market values of the loans as a result of increases in interest rates.
At September 30, 2004 and December 31, 2003, we had $2.2 million and $5.2 million in forward sales agreements, respectively.



31



---

##### Table of Contents

Lending Activity



Following is a summary of loans (dollars in thousands):



|                                       |  |                   |           |   |                   |   |           |  
|-------------------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | -
|                                       |  | September 30,2004 |           |   | December 31, 2003 |  
|Real Estate:                           |  |                   |           |   |                   |   |           |  
|Residential                            |  | $                 | 1,032,576 |   |                   | $ | 810,790   |  
|Commercial                             |  |                   | 1,618,923 |   |                   |   | 1,017,291 |  
|Construction                           |  |                   | 641,837   |   |                   |   | 311,266   |  
|Installment loans to individuals       |  |                   | 86,665    |   |                   |   | 77,660    |  
|Commercial, financial and agricultural |  |                   | 329,584   |   |                   |   | 227,117   |  
|Lease financing                        |  |                   | 1,100     |   |                   |   | 6,032     |  
|Unearned income                        |  |                   | (3,224    | ) |                   |   | (774      | )
|                                       |  |                   |           |   |                   |   |           |  
|                                       |  | $                 | 3,707,461 |   |                   | $ | 2,449,382 |  
|                                       |  |                   |           |   |                   |   |           |  



We strive to minimize
credit losses by utilizing credit approval standards, diversifying our loan portfolio by industry and borrower, and conducting ongoing review and management of the loan portfolio.



During the first nine months of 2004, we grew our loan portfolio in our existing markets by $393.5 million or 16%. The
acquisition of Southern contributed $864.5 million in total loans. Our loan portfolio is well-diversified with a significant portion of the portfolio being made up of loans secured by real estate. Residential, commercial and construction loans
secured by real estate accounted for 88.8% of the loan portfolio at September 30, 2004.



The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market area of south and central Florida. With the forecasted growth in our primary market over
the upcoming years, we anticipate organic growth in our loan portfolio to continue at historical levels.



As of September 30, 2004, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate category of loans.



Non-Performing Assets



Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured loans. Non-accrual loans represent loans on which interest accruals have been discontinued. It is our policy to discontinue interest accruals when principal or interest is due
and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, all unpaid interest is reversed. Payments on non-accrual loans are generally applied to
either principal or interest or both, depending on managements evaluation of collectibility. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest has been paid or the loan becomes both well
secured and in the process of collection. Consumer installment loans are generally charged off against the allowance for loan losses upon reaching 90 to 180 days past due, depending on the installment loan type. Restructured loans are loans in which
the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress.



Non-performing loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The potential risk of loss on these loans
is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses are recognized where appropriate.



32



---

##### Table of Contents

Following is a summary of non-performing assets (in thousands):



|                            |  |                   |        |                  |   |      
|--------------------------- |  | ----------------- | ------ | ---------------- | - | -----
|                            |  | September 30,2004 |        | December 31,2003
|Non-accrual loans           |  | $                 | 11,316 |                  | $ | 5,521
|Restructured loans          |  |                   |       |                  |   |     
|                            |  |                   |        |                  |   |      
|Total Non-Performing Loans  |  |                   | 11,316 |                  |   | 5,521
|Other real estate owned     |  |                   | 743    |                  |   |     
|                            |  |                   |        |                  |   |      
|Total Non-Performing Assets |  | $                 | 12,059 |                  | $ | 5,521
|                            |  |                   |        |                  |   |      



Loans past due 90 days
or more, on which interest accruals continue, were $492,000 and $163,000 at September 30, 2004 and December 31, 2003, respectively.



All loans as to which information exists about possible credit problems that would cause us to have serious doubts about the borrowers ability to
comply with the current terms of the loan have been reflected within the table summarizing non-performing loans and loans past due 90 days or more.



Allowance and Provision for Loan Losses



The allowance for loan losses consists of an allocated and an unallocated component. Managements analysis of the allocated portion of the allowance
for loan losses includes the evaluation of the loan portfolio based upon our internal loan grading system, evaluation of portfolio industry concentrations and the historical loss experience of the remaining balances of the various homogeneous loan
pools which comprise the loan portfolio. Specific factors used in the internal loan grading system include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral
position and residual value of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower.



The unallocated portion of the allowance is determined based on managements assessment of historical loss on the remaining portfolio segments in
conjunction with the current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration, portfolio growth, concentrations of credit risk and other factors, including regulatory guidance. This
determination inherently involves a higher degree of uncertainty, considers current risk factors that may not have yet manifested themselves in our historical loss factors used to determine the allocated component of the allowance, and recognizes
that knowledge of the portfolio may be incomplete.



The
provision for loan losses charged to operations in each period presented is a direct result of managements assessment of the adequacy of the allowance for loan losses at the end of each period. Factors considered in managements
assessment include growth in the loan portfolio, changes in the composition of the loan portfolio, concentrations of credit risk, current trends in net charge-offs, trends in non-performing loans and current economic conditions in the markets in
which we operate. The provision for loan losses was $2.7 million for the first nine months of 2004 compared with $4.5 million for the same period in 2003. The provision for loan losses totaled $400,000 for the third quarter of 2004, as compared to
$952,000 for the third quarter of 2003. Factors considered in the level of the provision during 2004 included the level of non accrual loans, the level of loans charged-off and increased loan concentrations, primarily in commercial real estate loans
and the results of our ongoing evaluation of our commercial loan portfolio.



33



---

##### Table of Contents

Charge-offs reflect the realization of losses in the portfolio that were recognized previously through
provisions for credit losses. For the nine months ended September 30, 2004, charge-offs, net of any subsequent recovery, totaled $886,000 compared to $2.2 million for the same period in 2003.



Capital Resources



Capital management is a continuous process. We and our subsidiaries are subject to various regulatory capital requirements
administered by the federal banking agencies. The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong
capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.



Stockholders equity increased through earnings retention by $20.6 million since December 31, 2003. Additionally, the acquisition of Southern
increased stockholders equity by $304.9 million. As a result, book value per share increased to $11.57 at September 30, 2004, compared to $7.65 at December 31, 2003.



We have $67.0 million in debentures to an unconsolidated subsidiary trust which qualifies as Tier 1 capital under present
Federal Reserve Board guidelines. In addition, our banking subsidiary, First National Bank of Florida, has borrowed $17.0 million under a $20.0 million subordinated loan commitment with a correspondent bank, which qualifies as Tier 2 capital.
Additionally, Southern had $13.0 million outstanding in subordinated loans with several correspondent banks which were assumed by FNBFL and also qualify as Tier 2 capital.



Following are the capital ratios as of September 30, 2004 for the Company and our banking subsidiary, First National Bank of
Florida (dollars in thousands):



|                                          |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|----------------------------------------- |  | ------ | ------- | ----- | ---------------------------- | - | ------ | --------------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | --- | -
|                                          |  | Actual |         |       | Well CapitalizedRequirements |   |        | Minimum CapitalRequirements |        
|                                          |  | Amount |         | Ratio |                              |   | Amount |                             | Ratio   |  |      | Amount |  | Ratio |        
|Total Capital (to risk-weighted assets):  |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|Consolidated                              |  | $      | 393,667 |       | 10.2                         | % |        | $                           | 386,860 |  | 10.0 | %      |  | $     | 309,488 |  | 8.0 | %
|First National Bank                       |  |        | 387,796 |       | 10.0                         |   |        |                             | 386,456 |  | 10.0 |        |  |       | 309,165 |  | 8.0 |  
|                                          |  |        |         |       |                              |  
|Tier 1 Capital (to risk-weighted assets): |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|Consolidated                              |  |        | 323,360 |       | 8.4                          |   |        |                             | 232,116 |  | 6.0  |        |  |       | 154,744 |  | 4.0 |  
|First National Bank                       |  |        | 317,489 |       | 8.2                          |   |        |                             | 231,873 |  | 6.0  |        |  |       | 154,582 |  | 4.0 |  
|                                          |  |        |         |       |                              |  
|Tier 1 Capital (to average assets):       |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|Consolidated                              |  |        | 323,360 |       | 7.9                          |   |        |                             | 205,463 |  | 5.0  |        |  |       | 164,371 |  | 4.0 |  
|First National Bank                       |  |        | 317,489 |       | 7.8                          |   |        |                             | 204,590 |  | 5.0  |        |  |       | 163,672 |  | 4.0 |  



34



---

##### Table of Contents

Important Note Regarding Forward-Looking Statements



Certain statements in this Form 10-Q are forward-looking within the meaning of the Private Securities Litigation
Reform Act of 1995, which statements generally can be identified by the use of forward-looking terminology, such as may, will, expect, estimate, anticipate, believe,
target, plan, project, or continue or the negatives thereof or other variations thereon or similar terminology, and are made on the basis of managements plans and current analyses of the Company,
its business and the industry as a whole. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative
changes. The above factors in some cases have affected, and in the future could affect, our financial performance and could cause actual results to differ materially from those expressed or implied in such forward-looking statements. We do not
undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.



ITEM 3. Quantitative and Qualitative Disclosure of Market Risk



The information called for by this item is provided under the caption Liquidity and Interest Rate Sensitivity under Item 2 - Managements Discussion and Analysis of Financial Condition and Results of
Operations and incorporated herein by reference.



ITEM 4. Controls and Procedures



An evaluation was performed during the quarter ended September 30, 2004 under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2004.
There have been no significant changes in our internal controls over financial reporting since the date of the evaluation.



PART II



Item 1. Legal Proceedings



None
applicable.



Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities



The following table provides information regarding our repurchases of shares of our common stock during the three months ended September 30, 2004:



|          |  |                    |  |                             |       |                                                        |   |                                                                             |        
|--------- |  | ------------------ |  | --------------------------- | ----- | ------------------------------------------------------ | - | --------------------------------------------------------------------------- | -------
|Period    |  | SharesPurchased(1) |  | Average PricePaid Per Share |       | SharesPurchased asPart ofPubliclyAnnouncedPrograms (2) |   | Maximum Sharesthat may yet tobe PurchasedUnder PubliclyAnnouncedProgram (2)
|July      |  |                   |  | $                           |      |                                                        |  |                                                                             | 736,913
|August    |  |                   |  |                             |      |                                                        |  |                                                                             | 736,913
|September |  | 60,000             |  |                             | 24.27 |                                                        |  |                                                                             | 736,913

---

|(1) | Purchased in open market transactions.
|--- | --------------------------------------

|(2) | On March 22, 2004, we announced a plan to repurchase up to 1.1 million shares of our common stock in connection with the acquisition of Southern Community Bancorp, which was
completed on September 3, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35



---

##### Table of Contents

Item 3. Defaults Upon Senior Securities



Not applicable



Item 4. Submission of Matters to a Vote of Security Holders



Not applicable



Item 5. Other Information



The Secretary of the Corporation must receive written notice of any proposal submitted by a shareholder of the Corporation for consideration at the Annual Meeting of Shareholders on or prior to the date which is 120 days prior to the date
on which the Corporation first mailed its proxy materials for the prior years Annual Meeting of Shareholders. Accordingly, any shareholder proposal must be submitted to the Corporation by November 19, 2004 to be considered at the 2005 Annual
Meeting of Shareholders.



Item 6. Exhibits



| | (a) | The following exhibits are filed with this Report:
| | --- | --------------------------------------------------



| | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 32 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | -- | ----------------------------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

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 Bankshares of Florida, Inc.  
|                        |  | (Registrant)                                
|                        | 
|Dated: November 9, 2004 |  | /s/ Gary L. Tice                            
|                        |  | Gary L. Tice                                
|                        |  | President and Chief Executive Officer       
|                        |  | (principal executive officer)               
|                        | 
|Dated: November 9, 2004 |  | /s/ Robert T. Reichert                      
|                        |  | Robert T. Reichert                          
|                        |  | Senior Vice President,                      
|                        |  | Chief Financial Officer and Treasurer       
|                        |  | (principal financial and accounting officer)



37