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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the quarterly period ended March 31, 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



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FIRST NATIONAL BANKSHARES OF FLORIDA, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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 April 30, 2004
|Common Stock, $0.01 Par Value |  | 46,438,920 shares            



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FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

FORM 10-Q

March 31, 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 |  | 17  
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 27  
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 28  
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 28  
|                               |  |                                                                                      
|Item 2.                        |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities      |  | 28  
|                               |  |                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  | 28  
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 28  
|                               |  |                                                                                      
|Item 5.                        |  | Other Information                                                                     |  | 29  
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |  | 29  
|                               | 
|Signatures                     |  | 30                                                                                   
|                               | 
|Exhibits                       |  |                                                                                      



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##### Table of Contents

FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except par values and share data

Unaudited



|                                                                                                         |  |               |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                         |  | March 31,2004 |           |   | December 31,2003 |  
|ASSETS                                                                                                   |  |               |           |   |                  |   |           |  
|Cash and due from banks                                                                                  |  | $             | 91,961    |   |                  | $ | 99,664    |  
|Interest bearing deposits with banks                                                                     |  |               | 177       |   |                  |   | 5,128     |  
|Federal funds sold                                                                                       |  |               | 26,829    |   |                  |   | 866       |  
|Mortgage loans held for sale                                                                             |  |               | 20,629    |   |                  |   | 15,153    |  
|Securities available for sale                                                                            |  |               | 873,968   |   |                  |   | 764,543   |  
|Securities held to maturity (fair value of $11,816 and $12,531)                                          |  |               | 11,290    |   |                  |   | 12,029    |  
|Loans, net of unearned income of $519 and $774                                                           |  |               | 2,559,791 |   |                  |   | 2,449,382 |  
|Allowance for loan losses                                                                                |  |               | (29,141   | ) |                  |   | (28,104   | )
|                                                                                                         |  |               |           |   |                  |   |           |  
|NET LOANS                                                                                                |  |               | 2,530,650 |   |                  |   | 2,421,278 |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|Premises and equipment                                                                                   |  |               | 123,673   |   |                  |   | 120,117   |  
|Goodwill                                                                                                 |  |               | 173,929   |   |                  |   | 173,729   |  
|Other assets                                                                                             |  |               | 145,422   |   |                  |   | 138,629   |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                             |  | $             | 3,998,528 |   |                  | $ | 3,751,136 |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|LIABILITIES                                                                                              |  |               |           |   |                  |   |           |  
|Deposits:                                                                                                |  |               |           |   |                  |   |           |  
|Non-interest bearing                                                                                     |  | $             | 560,498   |   |                  | $ | 451,837   |  
|Interest bearing                                                                                         |  |               | 2,399,655 |   |                  |   | 2,268,152 |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|TOTAL DEPOSITS                                                                                           |  |               | 2,960,153 |   |                  |   | 2,719,989 |  
|                                                                                                         |  |              
|Short-term borrowings                                                                                    |  |               | 324,603   |   |                  |   | 354,051   |  
|Long-term debt                                                                                           |  |               | 296,479   |   |                  |   | 271,000   |  
|Other liabilities                                                                                        |  |               | 39,479    |   |                  |   | 40,981    |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES                                                                                        |  |               | 3,620,714 |   |                  |   | 3,386,021 |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|                                                                                                         |  |              
|STOCKHOLDERS EQUITY                                                                                     |  |               |           |   |                  |   |           |  
|Common stock - $0.01 par value Authorized - 500,000,000 shares Issued - 46,338,120 and 46,317,300 shares |  |               | 463       |   |                  |   | 463       |  
|Additional paid-in capital                                                                               |  |               | 343,320   |   |                  |   | 341,615   |  
|Retained earnings                                                                                        |  |               | 28,150    |   |                  |   | 21,139    |  
|Accumulated other comprehensive income                                                                   |  |               | 6,332     |   |                  |   | 1,898     |  
|Treasury stock  24,896 shares at cost                                                                   |  |               | (451      | ) |                  |   |          |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|TOTAL STOCKHOLDERS EQUITY                                                                               |  |               | 377,814   |   |                  |   | 365,115   |  
|                                                                                                         |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                               |  | $             | 3,998,528 |   |                  | $ | 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



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FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in thousands, except per share data

Unaudited



|                                                    |  |                             |        |      |   |       
|--------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                    |  | Three Months EndedMarch 31,
|                                                    |  | 2004                        |        | 2003
|INTEREST INCOME                                     |  |                             |        |      |   |       
|Loans, including fees                               |  | $                           | 35,346 |      | $ | 32,984
|Securities:                                         |  |                             |        |      |   |       
|Taxable                                             |  |                             | 7,134  |      |   | 3,945 
|Nontaxable                                          |  |                             | 695    |      |   | 782   
|Dividends                                           |  |                             | 332    |      |   | 214   
|Other                                               |  |                             | 16     |      |   | 38    
|                                                    |  |                             |        |      |   |       
|TOTAL INTEREST INCOME                               |  |                             | 43,523 |      |   | 37,963
|                                                    |  |                             |        |      |   |       
|INTEREST EXPENSE                                    |  |                             |        |      |   |       
|Deposits                                            |  |                             | 8,342  |      |   | 8,650 
|Short-term borrowings                               |  |                             | 454    |      |   | 532   
|Long-term debt                                      |  |                             | 2,123  |      |   | 797   
|                                                    |  |                             |        |      |   |       
|TOTAL INTEREST EXPENSE                              |  |                             | 10,919 |      |   | 9,979 
|                                                    |  |                             |        |      |   |       
|NET INTEREST INCOME                                 |  |                             | 32,604 |      |   | 27,984
|Provision for loan losses                           |  |                             | 1,400  |      |   | 1,732 
|                                                    |  |                             |        |      |   |       
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                             | 31,204 |      |   | 26,252
|                                                    |  |                             |        |      |   |       
|NON-INTEREST INCOME                                 |  |                             |        |      |   |       
|Service charges                                     |  |                             | 4,898  |      |   | 3,999 
|Insurance premiums, commissions and fees            |  |                             | 7,680  |      |   | 6,077 
|Securities commissions and fees                     |  |                             | 1,116  |      |   | 863   
|Trust                                               |  |                             | 814    |      |   | 623   
|Gain on sale of securities                          |  |                             | 163    |      |   | 311   
|Gain on sale of mortgage loans                      |  |                             | 1,020  |      |   | 1,926 
|Other                                               |  |                             | 1,019  |      |   | 1,305 
|                                                    |  |                             |        |      |   |       
|TOTAL NON-INTEREST INCOME                           |  |                             | 16,710 |      |   | 15,104
|                                                    |  |                             |        |      |   |       
|                                                    |  |                             | 47,914 |      |   | 41,356
|                                                    |  |                             |        |      |   |       
|NON-INTEREST EXPENSES                               |  |                             |        |      |   |       
|Salaries and employee benefits                      |  |                             | 19,494 |      |   | 16,766
|Net occupancy                                       |  |                             | 2,637  |      |   | 2,142 
|Equipment                                           |  |                             | 2,731  |      |   | 1,829 
|Amortization of intangibles                         |  |                             | 345    |      |   | 278   
|Merger                                              |  |                             |       |      |   | 1,014 
|Other                                               |  |                             | 7,322  |      |   | 6,220 
|                                                    |  |                             |        |      |   |       
|TOTAL NON-INTEREST EXPENSES                         |  |                             | 32,529 |      |   | 28,249
|                                                    |  |                             |        |      |   |       
|INCOME BEFORE INCOME TAXES                          |  |                             | 15,385 |      |   | 13,107
|Income taxes                                        |  |                             | 5,036  |      |   | 4,388 
|                                                    |  |                             |        |      |   |       
|NET INCOME                                          |  | $                           | 10,349 |      | $ | 8,719 
|                                                    |  |                             |        |      |   |       
|NET INCOME PER COMMON SHARE*:                       |  |                             |        |      |   |       
|Basic                                               |  | $                           | .22    |      | $ | .18   
|                                                    |  |                             |        |      |   |       
|Diluted                                             |  | $                           | .21    |      | $ | .18   
|                                                    |  |                             |        |      |   |       
|CASH DIVIDENDS PER COMMON SHARE*                    |  | $                           | .07    |      |   | N/A   
|                                                    |  |                             |        |      |   |       

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



See accompanying Notes to Consolidated Financial Statements



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FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

Unaudited



|                                                                                  |  |                             |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Three Months EndedMarch 31, |         
|                                                                                  |  | 2004                        |          |   | 2003 |  
|OPERATING ACTIVITIES                                                              |  |                             |          |   |      |   |          |  
|Net income                                                                        |  | $                           | 10,349   |   |      | $ | 8,719    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |          |   |      |   |          |  
|Depreciation and amortization                                                     |  |                             | 4,119    |   |      |   | 2,760    |  
|Provision for loan losses                                                         |  |                             | 1,400    |   |      |   | 1,732    |  
|Deferred taxes                                                                    |  |                             | (2,042   | ) |      |   | 611      |  
|Net gain on sale of securities                                                    |  |                             | (163     | ) |      |   | (311     | )
|Net gain on sale of mortgage loans                                                |  |                             | (1,020   | ) |      |   | (1,926   | )
|Proceeds from sale of mortgage loans                                              |  |                             | 59,420   |   |      |   | 104,278  |  
|Mortgage loans originated for sale                                                |  |                             | (63,876  | ) |      |   | (103,890 | )
|Net change in:                                                                    |  |                             |          |   |      |   |          |  
|Interest receivable                                                               |  |                             | (818     | ) |      |   | (2,985   | )
|Interest payable                                                                  |  |                             | 502      |   |      |   | (115     | )
|Other, net                                                                        |  |                             | 3,383    |   |      |   | 13,710   |  
|                                                                                  |  |                             |          |   |      |   |          |  
|Net cash flows from operating activities                                          |  |                             | 11,254   |   |      |   | 22,583   |  
|                                                                                  |  |                             |          |   |      |   |          |  
|INVESTING ACTIVITIES                                                              |  |                             |          |   |      |   |          |  
|Net change in:                                                                    |  |                             |          |   |      |   |          |  
|Interest bearing deposits with banks                                              |  |                             | 4,951    |   |      |   | (8,424   | )
|Federal funds sold                                                                |  |                             | (25,963  | ) |      |   | (7,940   | )
|Loans                                                                             |  |                             | (111,558 | ) |      |   | (77,308  | )
|Bank owned life insurance                                                         |  |                             | (10,400  | ) |      |   |         |  
|Securities available for sale:                                                    |  |                             |          |   |      |   |          |  
|Purchases                                                                         |  |                             | (139,973 | ) |      |   | (142,716 | )
|Sales                                                                             |  |                             | 5,039    |   |      |   | 28,169   |  
|Maturities                                                                        |  |                             | 31,776   |   |      |   | 54,218   |  
|Securities held to maturity:                                                      |  |                             |          |   |      |   |          |  
|Maturities                                                                        |  |                             | 744      |   |      |   | 228      |  
|Increase in premises and equipment                                                |  |                             | (6,156   | ) |      |   | (3,183   | )
|                                                                                  |  |                             |          |   |      |   |          |  
|Net cash flows from investing activities                                          |  |                             | (251,540 | ) |      |   | (156,956 | )
|                                                                                  |  |                             |          |   |      |   |          |  
|FINANCING ACTIVITIES                                                              |  |                             |          |   |      |   |          |  
|Net change in:                                                                    |  |                             |          |   |      |   |          |  
|Non-interest bearing deposits, savings and NOW                                    |  |                             | 135,299  |   |      |   | 122,454  |  
|Time deposits                                                                     |  |                             | 104,865  |   |      |   | 36,424   |  
|Short-term borrowings                                                             |  |                             | (29,448  | ) |      |   | (33,642  | )
|Increase in long-term debt                                                        |  |                             | 25,774   |   |      |   | 241      |  
|Decrease in long-term debt                                                        |  |                             | (295     | ) |      |   |         |  
|Net acquisition of treasury stock                                                 |  |                             | (370     | ) |      |   |         |  
|Capital contributions                                                             |  |                             |         |   |      |   | 8,844    |  
|Cash dividends paid                                                               |  |                             | (3,242   | ) |      |   | (5,360   | )
|                                                                                  |  |                             |          |   |      |   |          |  
|Net cash flows from financing activities                                          |  |                             | 232,583  |   |      |   | 128,961  |  
|                                                                                  |  |                             |          |   |      |   |          |  
|NET DECREASE IN CASH AND DUE FROM BANKS                                           |  |                             | (7,703   | ) |      |   | (5,412   | )
|Cash and due from banks at beginning of period                                    |  |                             | 99,664   |   |      |   | 117,359  |  
|                                                                                  |  |                             |          |   |      |   |          |  
|CASH AND DUE FROM BANKS AT END OF PERIOD                                          |  | $                           | 91,961   |   |      | $ | 111,947  |  
|                                                                                  |  |                             |          |   |      |   |          |  



See accompanying Notes to Consolidated
Financial Statements



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First National Bankshares of Florida, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



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 as a wholly owned subsidiary of F.N.B. Corporation (F.N.B.). On January 1, 2004, the Company was spun-off from 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 southwest 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 $3.3 million of overhead costs related to shared administrative and support functions for the three months ended March 31, 2003.



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 subsidiaries of the Company. All significant intercompany balances and transactions have been eliminated. The financial condition and results of operations of acquisitions
accounted for as purchases are included in the Companys financial statements from the date the acquisition was 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 declared a 3 percent common stock dividend payable on July 15, 2004 to shareholders of record as of June 30, 2004. Per
share amounts have been adjusted for the 3 percent stock dividend declared on April 19, 2004.



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.



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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 1 capital under present Federal Reserve Board guidelines.



New Accounting Standards:



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 (FAS) 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 staff will not object to the application of existing accounting practices to loan commitments accounted for as derivatives that are entered into on or before March 31, 2004, with appropriate disclosures. The Company does not anticipate this new
accounting standard to have a material impact on its financial condition or results of operations.



In December 2003, the Financial Accounting Standards Board (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



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##### Table of Contents

impairment. This accounting guidance will be effective for loans acquired in fiscal years beginning after 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 March 22, 2004, the Company announced the signing of a merger agreement pusuatn to which the Company will acquire all Southern Community Bancorp
(Southern), a bank holding company located in Orlando, Florida. Southern is the holding company for Southern Community Bank of Central Florida, Southern Community Bank of Southwest Florida and Southern Community Bank of South Florida. As
of March 31, 2004, Southern had $1.0 billion in total assets and $898.9 million in total deposits with 18 offices in central and south Florida. Under the terms of the merger agreement, the Company will exchange 1.62 shares of its common stock for
each share of Southern common stock in a tax-free merger. The exchange ratio is subject to reduction if the average closing price of the Companys common stock exceeds $20.00 per share over a specified period prior to the merger. The exchange
ratio is also subject to adjustment should the Company change the number of its outstanding shares as a result of a stock split, stock dividend, recapitalization or reclassification prior to the transaction closing. In order to mitigate the dilutive
impact of Southerns stock options, the Company plans to repurchase approximately 1.1 million of its common shares in the open market. The common share repurchase will be funded through the $25.0 million in trust preferred securities issued on
March 31, 2004.



The merger, which is scheduled to close in the
third quarter of 2004, is subject to shareholder and regulatory approvals.



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. The transaction, which was accounted for as a purchase, resulted in the recognition of approximately $103.2 million in nondeductible goodwill and $1.1 million in core deposit intangibles. The core deposit intangibles 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, which were recorded by SEB, 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.



7



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##### Table of Contents

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



The Company regularly evaluates the potential acquisition of, and holds discussions with, various acquisition candidates and as a general rule the Company
publicly announces such acquisitions only after a definitive merger agreement has been reached.



8



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##### Table of Contents

Securities



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



|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|----------------------------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|                                                                  |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities available for sale:                                    |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  |                |         |                     
|March 31, 2004                                                    |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|U.S. Treasury and other U.S. Government agencies and corporations |  | $              | 156,011 |                      | $ | 3,309                 |  | $ | (4         | ) |  | $ | 159,316
|Mortgage-backed securities of U.S. Government agencies            |  |                | 388,228 |                      |   | 4,643                 |  |   | (455       | ) |  |   | 392,416
|Other mortgage-backed securities                                  |  |                | 206,156 |                      |   | 1,718                 |  |   | (412       | ) |  |   | 207,462
|States of the U.S. and political subdivisions                     |  |                | 67,101  |                      |   | 1,460                 |  |   |           |   |  |   | 68,561 
|Other debt securities                                             |  |                | 18,873  |                      |   | 1,294                 |  |   |           |   |  |   | 20,167 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Total debt securities                                             |  |                | 836,369 |                      |   | 12,424                |  |   | (871       | ) |  |   | 847,922
|Equity securities                                                 |  |                | 26,035  |                      |   | 15                    |  |   | (4         | ) |  |   | 26,046 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  | $              | 862,404 |                      | $ | 12,439                |  | $ | (875       | ) |  | $ | 873,968
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  |                |         |                     
|                                                                  |  | 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:                                      |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  |                |         |                     
|March 31, 2004                                                    |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities of U.S. Government agencies            |  | $              | 639     |                      | $ | 14                    |  | $ |           |   |  | $ | 653    
|States of the U.S. and political subdivisions                     |  |                | 10,651  |                      |   | 515                   |  |   | (3         | ) |  |   | 11,163 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                                                                  |  | $              | 11,290  |                      | $ | 529                   |  | $ | (3         | ) |  | $ | 11,816 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|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 
|                                                                  |  |                |         |                      |   |                       |  |   |            |   |  |   |        



9



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##### Table of Contents

At March 31, 2004 and December 31, 2003, securities with a carrying value of $184.4 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 $332.4 million, and $270.6 million at March 31, 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 March 31, 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 |  | $                   | 4,992   |                  | $                      | (4   | )         |  | $                |  |            | $ |                 |  | $ | 4,992   |  | $ | (4   | )
|Mortgage-backed securities of U.S. government agencies            |  |                     | 79,566  |                  |                        | (455 | )         |  |                  |  |            |   |                 |  |   | 79,566  |  |   | (455 | )
|Other mortgage-backed securities                                  |  |                     | 41,048  |                  |                        | (412 | )         |  |                  |  |            |   |                 |  |   | 41,048  |  |   | (412 | )
|State of the U.S. and political subdivisions                      |  |                     | 1,801   |                  |                        |     |           |  |                  |  |            |   |                 |  |   | 1,801   |  |   |     |  
|Equity securities                                                 |  |                     | 44      |                  |                        | (4   | )         |  |                  |  |            |   |                 |  |   | 44      |  |   | (4   | )
|                                                                  |  |                     |         |                  |                        |      |           |  |                  |   |            |   |                  |  |   |         |  |   |      |  
|Total                                                             |  | $                   | 127,451 |                  | $                      | (875 | )         |  | $                |  |            | $ |                 |  | $ | 127,451 |  | $ | (875 | )
|                                                                  |  |                     |         |                  |                        |      |           |  |                  |   |            |   |                  |  |   |         |  |   |      |  



The Company does not
believe unrealized losses, individually or in the aggregate, as of March 31, 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):



|                                       |  |               |           |   |                  |   |           |  
|-------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                       |  | March 31,2004 |           |   | December 31,2003 |  
|Real Estate:                           |  |               |           |   |                  |   |           |  
|Residential                            |  | $             | 852,914   |   |                  | $ | 810,790   |  
|Commercial                             |  |               | 1,085,152 |   |                  |   | 1,017,291 |  
|Construction                           |  |               | 332,501   |   |                  |   | 311,266   |  
|Installment loans to individuals       |  |               | 74,791    |   |                  |   | 77,660    |  
|Commercial, financial and agricultural |  |               | 211,037   |   |                  |   | 227,117   |  
|Lease financing                        |  |               | 3,915     |   |                  |   | 6,032     |  
|Unearned income                        |  |               | (519      | ) |                  |   | (774      | )
|                                       |  |               |           |   |                  |   |           |  
|                                       |  | $             | 2,559,791 |   |                  | $ | 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 southwest and central Florida.



As of March 31, 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.



10



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##### Table of Contents

Non-Performing Assets



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



|                            |  |                |       |                   |   |      
|--------------------------- |  | -------------- | ----- | ----------------- | - | -----
|                            |  | March 31, 2004 |       | December 31, 2003
|Non-accrual loans           |  | $              | 4,263 |                   | $ | 5,521
|Restructured loans          |  |                |      |                   |   |     
|                            |  |                |       |                   |   |      
|Total non-performing loans  |  |                | 4,263 |                   |   | 5,521
|Other real estate owned     |  |                | 440   |                   |   |     
|                            |  |                |       |                   |   |      
|Total non-performing assets |  | $              | 4,703 |                   | $ | 5,521
|                            |  |                |       |                   |   |      



Loans past due 90 days
or more, on which interest accruals continue, were $1.3 million, and $163,000, at March 31, 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 ended |        |   | Year ended December 31,2003 |  
|                               |  | March 31, 2004     |        |   | March 31, 2003              |   |       
|Balance at beginning of period |  | $                  | 28,104 |   |                             | $ | 21,421 |   |  | $ | 21,421 |  
|Addition from acquisitions     |  |                    |        |   |                             |   | 2,506  |   |  |   | 2,506  |  
|Charge-offs                    |  |                    | (595   | ) |                             |   | (1,338 | ) |  |   | (4,578 | )
|Recoveries                     |  |                    | 232    |   |                             |   | 252    |   |  |   | 1,571  |  
|                               |  |                    |        |   |                             |   |        |   |  |   |        |  
|Net Charge-Offs                |  |                    | (363   | ) |                             |   | (1,086 | ) |  |   | (3,007 | )
|Provision for loan losses      |  |                    | 1,400  |   |                             |   | 1,732  |   |  |   | 7,184  |  
|                               |  |                    |        |   |                             |   |        |   |  |   |        |  
|Balance at end of period       |  | $                  | 29,141 |   |                             | $ | 24,573 |   |  | $ | 28,104 |  
|                               |  |                    |        |   |                             |   |        |   |  |   |        |  



Deposits



Following is a summary of deposits (in thousands):



|                                                |  |                |           |                   |   |          
|----------------------------------------------- |  | -------------- | --------- | ----------------- | - | ---------
|                                                |  | March 31, 2004 |           | December 31, 2003
|Non-interest bearing                            |  | $              | 560,498   |                   | $ | 451,837  
|Savings and NOW                                 |  |                | 1,373,379 |                   |   | 1,346,741
|Certificates of deposit and other time deposits |  |                | 1,026,276 |                   |   | 921,411  
|                                                |  |                |           |                   |   |          
|                                                |  | $              | 2,960,153 |                   | $ | 2,719,989
|                                                |  |                |           |                   |   |          



Time deposits
of $100,000 or more were $493.5 million and $415.8 million at March 31, 2004 and December 31, 2003, respectively.



Short-Term Borrowings



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



|                                            |  |                |         |                   |   |        
|------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                            |  | March 31, 2004 |         | December 31, 2003
|Securities sold under repurchase agreements |  | $              | 279,603 |                   | $ | 248,051
|Federal funds purchased                     |  |                |        |                   |   | 86,000 
|Federal Home Loan Bank advances             |  |                | 45,000  |                   |   | 20,000 
|                                            |  |                |         |                   |   |        
|                                            |  | $              | 324,603 |                   | $ | 354,051
|                                            |  |                |         |                   |   |        



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##### Table of Contents

Long-Term Debt



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



|                                |  |                |         |                   |   |        
|------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                |  | March 31, 2004 |         | December 31, 2003
|Federal Home Loan Bank advances |  | $              | 211,662 |                   | $ | 211,944
|Subordinated debentures         |  |                | 84,012  |                   |   | 58,238 
|Other long-term debt            |  |                | 805     |                   |   | 818    
|                                |  |                |         |                   |   |        
|                                |  | $              | 296,479 |                   | $ | 271,000
|                                |  |                |         |                   |   |        



First National Bank of
Florida has available credit with the Federal Home Loan Bank of $596.5 million, of which $256.7 million was advanced as of March 31, 2004. These advances are secured by certain 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):



|                             |  |                |         |                   |   |        
|---------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                             |  | March 31, 2004 |         | December 31, 2003
|Commitments to extend credit |  | $              | 721,276 |                   | $ | 717,079
|Standby letters of credit    |  |                | 30,327  |                   |   | 34,842 



At March 31, 2004,
funding of approximately 79% 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. 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.



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##### Table of Contents

Earnings Per Share



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



Diluted earnings per common share are 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 the 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 one-for-one distribution ratio of the spin-off to the dilutive effect of such stock options of F.N.B. In addition, F.N.B. had convertible preferred stock outstanding during the three months ended March 31, 2003. F.N.B.
redeemed its preferred stock in exchange for F.N.B. common stock during the second quarter of 2003. As such, the dilutive effect of F.N.B.s preferred stock on the Companys prior periods 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 (dollars in thousands, except share data):



|                                  |  |                             |            |      |   |           
|--------------------------------- |  | --------------------------- | ---------- | ---- | - | ----------
|                                  |  | Three Months EndedMarch 31,
|                                  |  | 2004                        |            | 2003
|Basic                             |  |                             |            |      |   |           
|Net income                        |  | $                           | 10,349     |      | $ | 8,719     
|                                  |  |                             |            |      |   |           
|Average common shares outstanding |  |                             | 47,698,308 |      |   | 47,431,113
|                                  |  |                             |            |      |   |           
|Earnings per share                |  | $                           | .22        |      | $ | .18       
|                                  |  |                             |            |      |   |           



|                                                                        |  |                             |            |      |   |           
|----------------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ----------
|                                                                        |  | Three Months EndedMarch 31,
|                                                                        |  | 2004                        |            | 2003
|Diluted                                                                 |  |                             |            |      |   |           
|Earnings applicable to diluted earnings per share                       |  | $                           | 10,349     |      | $ | 8,719     
|                                                                        |  |                             |            |      |   |           
|Average common shares outstanding                                       |  |                             | 47,698,308 |      |   | 47,431,113
|Series A convertible preferred stock                                    |  |                             |           |      |   | 19,390    
|Series B convertible preferred stock                                    |  |                             |           |      |   | 262,071   
|Net effect of dilutive stock options based on the treasury stock method |  |                             | 1,248,491  |      |   | 596,435   
|                                                                        |  |                             |            |      |   |           
|                                                                        |  |                             | 48,946,799 |      |   | 48,309,009
|                                                                        |  |                             |            |      |   |           
|Earnings per share                                                      |  | $                           | .21        |      | $ | .18       
|                                                                        |  |                             |            |      |   |           



13



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##### Table of Contents

Cash Flow Information



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



|                                                  |  |                             |        |      |   |       
|------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                  |  | Three Months EndedMarch 31,
|                                                  |  | 2004                        |        | 2003
|Cash paid for:                                    |  |                             |        |      |   |       
|Interest                                          |  | $                           | 10,417 |      | $ | 10,094
|Income taxes                                      |  |                             |       |      |   | 1,076 
|                                                  |  |                            
|Noncash investing and financing activities:       |  |                             |        |      |   |       
|Acquisition of real estate in settlement of loans |  |                             | 440    |      |   | 126   



Stock-Based Compensation



Effective on the date of the spin-off, all
outstanding F.N.B. options held by the Companys employees were converted into 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 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 for the three months ended March 31, 2004 (dollars in
thousands, except per share data).



|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Net income (as reported)         |  | $ | 10,349 |  
|Compensation expense, net of tax |  |   | (499   | )
|                                 |  |   |        |  
|Pro forma net income             |  |   | 9,850  |  
|                                 | 
|Earnings per share:              |  |   |        |  
|Basic                            |  |   | .22    |  
|Basic pro forma                  |  |   | .21    |  
|                                 | 
|Diluted                          |  |   | .21    |  
|Diluted pro forma                |  |   | .20    |  
|                                 | 
|Assumptions                      |  |   |        |  
|Risk-free interest rate          |  |   | 3.64   | %
|Dividend yield                   |  |   | 1.56   | %
|Expected stock price volatility  |  |   | .29    | %
|Expected life (years)            |  |   | 6.04   |  
|Fair value of options granted    |  | $ | 7.52   |  



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##### Table of Contents

Retirement Plan



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



|                                         |  |                            |     |   |      |   |     |  
|---------------------------------------- |  | -------------------------- | --- | - | ---- | - | --- | -
|                                         |  | March 31,                  |    
|                                         |  | 2004                       |     |   | 2003 |  
|Service costs                            |  | $                          | 221 |   |      | $ | 215 |  
|Interest cost                            |  |                            | 198 |   |      |   | 171 |  
|Net amortization                         |  |                            | 134 |   |      |   | 114 |  
|                                         |  |                            |     |   |      |   |     |  
|Net benefit expense                      |  | $                          | 553 |   |      | $ | 500 |  
|                                         |  |                            |     |   |      |   |     |  
|                                         | 
|                                         |  | Assumptions as ofMarch 31, |    
|                                         |  | 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 EndedMarch 31, |       
|                                                                   |  | 2004                        |        |   | 2003 |  
|Net income                                                         |  | $                           | 10,349 |   |      | $ | 8,719 |  
|Other comprehensive income:                                        |  |                             |        |   |      |   |       |  
|Unrealized gains on securities:                                    |  |                             |        |   |      |   |       |  
|Unrealized holding gains arising during the period                 |  |                             | 4,602  |   |      |   | 1,293 |  
|Less: reclassification adjustment for gains included in net income |  |                             | (168   | ) |      |   | (326  | )
|                                                                   |  |                             |        |   |      |   |       |  
|Other comprehensive income (loss)                                  |  |                             | 4,434  |   |      |   | 967   |  
|                                                                   |  |                             |        |   |      |   |       |  
|Comprehensive income                                               |  | $                           | 14,783 |   |      | $ | 9,686 |  
|                                                                   |  |                             |        |   |      |   |       |  



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##### Table of Contents

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):



|                                               |  |               |           |                 |   |                  |  |       |       |  |              |        |   |  |   |          
|---------------------------------------------- |  | ------------- | --------- | --------------- | - | ---------------- |  | ----- | ----- |  | ------------ | ------ | - |  | - | ---------
|At or for the three monthsended March 31, 2004 |  | CommunityBank |           | InsuranceAgency |   | WealthManagement |  | Other |       |  | Consolidated
|Interest income                                |  | $             | 43,527    |                 | $ | 51               |  | $     |      |  | $            | (55    | ) |  | $ | 43,523   
|Interest expense                               |  |               | 10,472    |                 |   | 74               |  |       | 1     |  |              | 372    |   |  |   | 10,919   
|Provision for loan loss                        |  |               | 1,400     |                 |   |                 |  |       |      |  |              |       |   |  |   | 1,400    
|Non-interest income                            |  |               | 7,028     |                 |   | 7,930            |  |       | 1,964 |  |              | (212   | ) |  |   | 16,710   
|Non-interest expense                           |  |               | 24,651    |                 |   | 6,283            |  |       | 1,586 |  |              | 9      |   |  |   | 32,529   
|Intangible amortization                        |  |               | 252       |                 |   | 92               |  |       | 1     |  |              |       |   |  |   | 345      
|Income tax expense                             |  |               | 4,493     |                 |   | 646              |  |       | 149   |  |              | (252   | ) |  |   | 5,036    
|Net income (loss)                              |  |               | 9,539     |                 |   | 978              |  |       | 228   |  |              | (396   | ) |  |   | 10,349   
|Total assets                                   |  |               | 3,965,214 |                 |   | 36,146           |  |       | 2,718 |  |              | (5,550 | ) |  |   | 3,998,528
|Goodwill                                       |  |               | 155,299   |                 |   | 18,630           |  |       |      |  |              |       |   |  |   | 173,929  



|                                               |  |               |  |                 |  |                  |   |  |       |   |  |             
|---------------------------------------------- |  | ------------- |  | --------------- |  | ---------------- | - |  | ----- | - |  | ------------
|At or for the three monthsended March 31, 2003 |  | CommunityBank |  | InsuranceAgency |  | WealthManagement |   |  | Other |   |  | Consolidated
|Interest income                                |  | 37,931        |  | 39              |  |                 |   |  | (7    | ) |  | 37,963      
|Interest expense                               |  | 9,971         |  | 13              |  | 2                |   |  | (7    | ) |  | 9,979       
|Provision for loan loss                        |  | 1,732         |  |                |  |                 |   |  |      |   |  | 1,732       
|Non-interest income                            |  | 7,305         |  | 6,310           |  | 1,489            |   |  |      |   |  | 15,104      
|Non-interest expense                           |  | 21,541        |  | 5,071           |  | 1,637            |   |  |      |   |  | 28,249      
|Intangible amortization                        |  | 225           |  | 52              |  | 1                |   |  |      |   |  | 278         
|Income tax expense                             |  | 3,936         |  | 505             |  | (53              | ) |  |      |   |  | 4,388       
|Net income (loss)                              |  | 8,056         |  | 760             |  | (97              | ) |  |      |   |  | 8,719       
|Total assets                                   |  | 3,639,170     |  | 24,898          |  | 1,793            |   |  |      |   |  | 3,665,861   
|Goodwill                                       |  | 156,700       |  | 10,865          |  |                 |   |  |      |   |  | 167,565     



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##### 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 Important Note Regarding Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with these statements.



Separation from F.N.B.



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., our subsidiaries 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 March 31, 2004, a liability associated with separation of approximately $3.0 million 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.



First Three Months of 2004 as Compared to First Three Months of 2003



Net income was $10.3 million for the first three months of 2004 compared to net income of $8.7 million for the first three
months of 2003. Basic earnings per share were $.22 and $.18 for the first three months of 2004 and 2003, respectively. Diluted earnings per share were $.21 and $.18 for the first three 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 return on average assets was 1.09% for the first three months of 2004 compared to 1.25% for the first three months of 2003, while our return on
average equity was 11.19% for the first three months 2004 and 12.72% for the same period in 2003. Results of operations for the three months ended March 31, 2004 include Southern Exchange Bank (SEB) and Lupfer-Frakes Insurance, Inc. (Lupfer-Frakes),
which were acquired on March 31, 2003 and July 1, 2003, respectively.



Diluted earnings per share for the three months ended March 31, 2003 were reduced $.01 per share due to after-tax merger expenses of $659,000.



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##### Table of Contents

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



|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|----------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---------------------- | - | ---------- |  | ---- | -------------- |  | - | ---------------------- | - | ---------- | - | ------ |  | ---- | -
|                                                                        |  | Three Months Ended March 31, |          
|                                                                        |  | 2004                         |           |   | 2003                   |  
|                                                                        |  | AverageBalance               |           |   | InterestIncome/Expense |   | Yield/Rate |  |      | AverageBalance |  |   | InterestIncome/Expense |   | Yield/Rate |  
|Interest earning-assets:                                                |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Interest bearing deposits with banks                                    |  | $                            | 2,403     |   |                        | $ | 6          |  | 1.00 | %              |  | $ | 3,714                  |   |            | $ | 7      |  | .76  | %
|Federal funds sold                                                      |  |                              | 4,036     |   |                        |   | 10         |  | 1.00 |                |  |   | 12,037                 |   |            |   | 31     |  | 1.04 |  
|Taxable investment securities (1)                                       |  |                              | 720,732   |   |                        |   | 7,466      |  | 4.17 |                |  |   | 366,575                |   |            |   | 4,159  |  | 4.60 |  
|Non-taxable investment securities (2)                                   |  |                              | 77,823    |   |                        |   | 1,069      |  | 5.52 |                |  |   | 79,596                 |   |            |   | 1,353  |  | 6.89 |  
|Loans (3)                                                               |  |                              | 2,509,380 |   |                        |   | 35,346     |  | 5.67 |                |  |   | 2,072,235              |   |            |   | 32,984 |  | 6.46 |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Total interest-earning assets                                           |  |                              | 3,314,374 |   |                        |   | 43,897     |  | 5.33 |                |  |   | 2,534,157              |   |            |   | 38,534 |  | 6.17 |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Cash and due from banks                                                 |  |                              | 92,236    |   |                        |   |            |  |      |                |  |   | 97,105                 |   |            |   |        |  |      |  
|Allowance for loan losses                                               |  |                              | (28,895   | ) |                        |   |            |  |      |                |  |   | (21,976                | ) |            |   |        |  |      |  
|Premises and equipment                                                  |  |                              | 121,793   |   |                        |   |            |  |      |                |  |   | 78,920                 |   |            |   |        |  |      |  
|Other assets                                                            |  |                              | 308,883   |   |                        |   |            |  |      |                |  |   | 139,275                |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|                                                                        |  | $                            | 3,808,391 |   |                        |   |            |  |      |                |  | $ | 2,827,481              |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Liabilities                                                             |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Interest-bearing liabilities:                                           |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Deposits:                                                               |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Interest-bearing demand                                                 |  | $                            | 511,082   |   |                        | $ | 532        |  | .42  |                |  | $ | 419,118                |   |            | $ | 590    |  | .57  |  
|Savings                                                                 |  |                              | 851,208   |   |                        |   | 1,924      |  | .91  |                |  |   | 749,079                |   |            |   | 2,875  |  | 1.56 |  
|Other time                                                              |  |                              | 977,084   |   |                        |   | 5,886      |  | 2.42 |                |  |   | 639,889                |   |            |   | 5,185  |  | 3.29 |  
|Short-term borrowings                                                   |  |                              | 297,968   |   |                        |   | 454        |  | .61  |                |  |   | 271,604                |   |            |   | 532    |  | .79  |  
|Long-term debt                                                          |  |                              | 290,195   |   |                        |   | 2,123      |  | 2.94 |                |  |   | 51,723                 |   |            |   | 797    |  | 6.25 |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Total interest - bearing liabilities                                    |  |                              | 2,927,537 |   |                        |   | 10,919     |  | 1.50 |                |  |   | 2,131,413              |   |            |   | 9,979  |  | 1.90 |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Non-interest bearing demand                                             |  |                              | 475,369   |   |                        |   |            |  |      |                |  |   | 378,727                |   |            |   |        |  |      |  
|Other liabilities                                                       |  |                              | 33,501    |   |                        |   |            |  |      |                |  |   | 39,356                 |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|                                                                        |  |                              | 3,436,407 |   |                        |   |            |  |      |                |  |   | 2,549,496              |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Stockholders equity                                                    |  |                              | 371,984   |   |                        |   |            |  |      |                |  |   | 277,985                |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|                                                                        |  | $                            | 3,808,391 |   |                        |   |            |  |      |                |  | $ | 2,827,481              |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Excess of interest - earning assets over interest - bearing liabilities |  | $                            | 386,837   |   |                        |   |            |  |      |                |  | $ | 402,744                |   |            |   |        |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Net interest income                                                     |  |                              |           |   |                        | $ | 32,978     |  |      |                |  |   |                        |   |            | $ | 28,555 |  |      |  
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Net interest spread                                                     |  |                              |           |   |                        |   |            |  | 3.83 | %              |  |   |                        |   |            |   |        |  | 4.27 | %
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  
|Net interest margin (4)                                                 |  |                              |           |   |                        |   |            |  | 4.00 | %              |  |   |                        |   |            |   |        |  | 4.57 | %
|                                                                        |  |                              |           |   |                        |   |            |  |      |                |  |   |                        |   |            |   |        |  |      |  



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---

|(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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



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 $33.0 million for the first three months of 2004, an increase of 15.5% as compared to
$28.6 million for the same period 2003. We were able to grow net interest income by increasing interest-earning assets and effectively managing interest paid on deposits. With rates at a historical low point, we expect to have limited ability to
lower certain deposit rates further. Net interest income consisted of interest income of $43.9 million and interest expense of $10.9 million for the first three months of 2004 compared to $38.5 million and $10.0 million, respectively, for the same
period in 2003. The yield on interest-earning assets decreased by 84 basis points and the rate paid on interest-bearing liabilities decreased by 40 basis points. Net interest margin decreased from 4.57% for the three months ended March 31, 2003 to
4.00% for the three months ended March 31, 2004. The decline in the margin can be attributed to the acquisition of SEB, and the acceleration of prepayments and repricing of interest-earning assets and additional interest expense on borrowings
obtained in connection with the spin-off from F.N.B. 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 three months ended March 31, 2004 as compared to the three months ended March 31, 2003 (in
thousands):



|                                     |  |        |       |   |      |   |        |     |  |   |       |  
|------------------------------------ |  | ------ | ----- | - | ---- | - | ------ | --- |  | - | ----- | -
|                                     |  | Volume |       |   | Rate |   |        | Net | 
|Interest Income                      |  |        |       |   |      |   |        |     |  |   |       |  
|Interest bearing deposits with banks |  | $      | (9    | ) |      | $ | 8      |     |  | $ | (1    | )
|Federal funds sold                   |  |        | (20   | ) |      |   | (1     | )   |  |   | (21   | )
|Securities:                          |  |        |       |   |      |   |        |     |  |   |       |  
|Taxable                              |  |        | 3,661 |   |      |   | (354   | )   |  |   | 3,307 |  
|Non-taxable                          |  |        | (29   | ) |      |   | (255   | )   |  |   | (284  | )
|Loans                                |  |        | 5,620 |   |      |   | (3,258 | )   |  |   | 2,362 |  
|                                     |  |        |       |   |      |   |        |     |  |   |       |  
|Net Change                           |  | $      | 9,223 |   |      | $ | (3,860 | )   |  | $ | 5,363 |  
|                                     |  |        |       |   |      |   |        |     |  |   |       |  
|Interest Expense                     |  |        |       |   |      |   |        |     |  |   |       |  
|Deposits:                            |  |        |       |   |      |   |        |     |  |   |       |  
|Interest bearing demand              |  | $      | 291   |   |      | $ | (349   | )   |  | $ | (58   | )
|Savings                              |  |        | 463   |   |      |   | (1,414 | )   |  |   | (951  | )
|Other time                           |  |        | 1,407 |   |      |   | (706   | )   |  |   | 701   |  
|Short-term borrowings                |  |        | 58    |   |      |   | (136   | )   |  |   | (78   | )
|Long-term debt                       |  |        | 1,498 |   |      |   | (172   | )   |  |   | 1,326 |  
|                                     |  |        |       |   |      |   |        |     |  |   |       |  
|                                     |  |        | 3,717 |   |      |   | (2,777 | )   |  |   | 940   |  
|                                     |  |        |       |   |      |   |        |     |  |   |       |  
|Net Change                           |  | $      | 5,506 |   |      | $ | (1,083 | )   |  | $ | 4,423 |  
|                                     |  |        |       |   |      |   |        |     |  |   |       |  



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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 three months of 2004, interest income on loans increased 7.2% from $33.0 million to $35.3 million, as average loans increased by $437.1 million. Interest income on investment securities increased $3.0
million to $8.5 million for the first three months of 2004, as the average balance of investment securities increased $352.4 million to $798.6 million. The increase in the average balance of investment securities was primarily attributable to the
acquisition of SEB.



Interest expense on deposits decreased
$308,000, or 3.6%, for the first three months of 2004 while average interest-bearing deposits increased by $531.3 million. The average balance in interest-bearing demand, savings, and time deposits increased $92.0 million, $102.1 million, and $337.2
million, respectively. We continued to generate non-interest-bearing deposits successfully as such deposits increased by $96.6 million, or 17.8%, for the first three months of 2004 as compared to the same period in 2003. Interest expense on
short-term borrowings decreased by $78,000 and the interest rate paid decreased by 18 basis points for the first three months of 2004 as compared to the first three month of 2003. Interest expense on long-term debt increased $1.3 million in 2004
solely from a $238.5 million increase in average long-term debt as the rate paid decreased 331 basis points. The increase in the average long-term debt is attributable to SEBs FHLB borrowings and the debt incurred in connection with the
spin-off.



The provision for loan losses charged to operations
is a direct result of managements analysis of the adequacy of the allowance for loan losses, which takes into consideration factors, including qualitative factors, relevant to the collectibility of the existing portfolio. The provision for
loan losses decreased from $1.7 million for the first three months of 2003 to $1.4 million for the same period in 2004.



Non-Interest Income



Total non-interest income increased 10.6% from $15.1 million for the first three months of 2003 to $16.7 million for the same period in 2004. Service
charges on deposit accounts increased 22.5% during the first three months of 2004 to $4.9 million from $4.0 million for the same period in 2003. Income from wealth management services increased $444,000, or 29.9%, to $1.9 million for the first three
months of 2004 compared to $1.5 million for the same period in 2003. Insurance commissions and fees increased 26.4% from $6.1 million for the first three months of 2003 to $7.7 million for the same period in 2004. The Lupfer-Frakes acquisition
contributed insurance commissions and fees of $1.4 million in the first three months of 2004. Gains on the sale of mortgage loans for the first three months of 2004 decreased 47.0% to $1.0 million as compared to $1.9 million for the same period in
2003. The gains on the sale of mortgage loans generated in 2003 were a direct result of homeowner refinancing to fixed-rate products driven by mortgage interest rates declining to historic 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 15.2% from $28.2
million for the first three months of 2003 to $32.5 million for the same period in 2004. We recorded merger costs associated with SEB of $1.0 million in 2003, which were related to employment obligations. For the first three months of 2004, salary
and employee benefits increased $2.7 million, to $19.5 million, from $16.8 million for the same period in 2003. The increase is due to increased health care costs and the acquisitions of SEB and Lupfer-Frakes in 2003. Other non-interest expense
totaled $7.3 million for 2004, a $1.1 million increase from 2003.



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Our income tax expense was $5.0 million for the first three months of 2004 compared to $4.4 million for
the same period in 2003. The 2004 effective tax rate of 32.7% 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 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 core 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 March 31, 2004, outstanding advances were $256.7 million, or 6.4% of total assets, while FHLB availability was $596.5 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 March 31, 2004, provide the parent company a source of short-term funding.



Our core deposits, total deposits excluding time deposits greater than
$100,000, increased $162.5 million for the first three months of 2004 and $110.7 million for the same period in 2003, providing the primary source of financing for our lending activities, including origination of mortgage loans held for sale in the
secondary market. Mortgage loans originated for resale in the secondary market totaled $63.9 million for the first three months of 2004, as compared to $103.9 million for the same period of 2003.



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. 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 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 1.43 at March 31, 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.



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Following is the gap analysis as of March 31, 2004 (dollars in thousands):



|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|------------------------------------------------------------- |  | -------------- | --------- | - | ---------- | - | ------- | -------- |  | - | ----------- | - |  | ----- | ---------- | - |  | - | ---------
|                                                              |  | Within3 Months |           |   | 4-12Months |   |         | 1-5Years |  |   | Over5 years |   |  | Total
|Interest Earning Assets                                       |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Interest bearing deposits with banks                          |  | $              | 177       |   |            | $ |         |          |  | $ |             |   |  | $     |            |   |  | $ | 177      
|Federal funds sold                                            |  |                | 26,829    |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   | 26,829   
|Securities                                                    |  |                | 83,075    |   |            |   | 136,763 |          |  |   | 437,992     |   |  |       | 227,428    |   |  |   | 885,258  
|Loans, net of unearned income                                 |  |                | 1,142,881 |   |            |   | 504,931 |          |  |   | 863,170     |   |  |       | 69,438     |   |  |   | 2,580,420
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|                                                              |  | $              | 1,252,962 |   |            | $ | 641,694 |          |  | $ | 1,301,162   |   |  | $     | 296,866    |   |  | $ | 3,492,684
|Other assets                                                  |  |                |           |   |            |   |         |          |  |   |             |   |  |       | 505,844    |   |  |   | 505,844  
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Total                                                         |  | $              | 1,252,962 |   |            | $ | 641,694 |          |  | $ | 1,301,162   |   |  | $     | 802,710    |   |  | $ | 3,998,528
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Interest Bearing Liabilities                                  |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Deposits:                                                     |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Interest checking                                             |  | $              | 124,696   |   |            | $ |         |          |  | $ |             |   |  | $     | 562,002    |   |  | $ | 686,698  
|Savings                                                       |  |                | 251,463   |   |            |   |         |          |  |   |             |   |  |       | 435,218    |   |  |   | 686,681  
|Time deposits                                                 |  |                | 139,969   |   |            |   | 376,498 |          |  |   | 507,277     |   |  |       | 2,532      |   |  |   | 1,026,276
|Borrowings                                                    |  |                | 422,701   |   |            |   | 10,045  |          |  |   | 158,217     |   |  |       | 30,119     |   |  |   | 621,082  
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|                                                              |  | $              | 938,829   |   |            | $ | 386,543 |          |  | $ | 665,494     |   |  | $     | 1,029,871  |   |  | $ | 3,020,737
|Other liabilities                                             |  |                |           |   |            |   |         |          |  |   |             |   |  |       | 599,977    |   |  |   | 599,977  
|Stockholders equity                                          |  |                |           |   |            |   |         |          |  |   |             |   |  |       | 377,814    |   |  |   | 377,814  
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Total                                                         |  | $              | 938,829   |   |            | $ | 386,543 |          |  | $ | 665,494     |   |  | $     | 2,007,662  |   |  | $ | 3,998,528
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Period Gap                                                    |  | $              | 314,133   |   |            | $ | 255,151 |          |  | $ | 635,668     |   |  | $     | (1,204,952 | ) |  |   |          
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Cumulative Gap                                                |  | $              | 314,133   |   |            | $ | 569,284 |          |  | $ | 1,204,952   |   |  |       |            |   |  |   |          
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Cumulative Gap as a Percent of Total Assets                   |  |                | 7.86      | % |            |   | 14.24   | %        |  |   | 30.13       | % |  |       |            |   |  |   |          
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          
|Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative) |  |                | 1.33      |   |            |   | 1.43    |          |  |   | 1.61        |   |  |       | 1.16       |   |  |   |          
|                                                              |  |                |           |   |            |   |         |          |  |   |             |   |  |       |            |   |  |   |          



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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 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:



|                                        |  |                |    |  |                  |   
|--------------------------------------- |  | -------------- | -- |  | ---------------- | --
|                                        |  | March 31, 2004 |    |  | December 31,2003 |   
|Net interest income change (12 months): |  |                |    |  |                  |   
|- 100 basis points                      |  | (4.5           | )% |  | (7.1             | )%
|+ 200 basis points                      |  | 2.7            | %  |  | 4.4              | % 
|                                        |  |               
|Economic value of equity:               |  |                |    |  |                  |   
|- 100 basis points                      |  | .1             | %  |  | (6.4             | )%
|+ 200 basis points                      |  | (1.0           | )% |  | .4               | % 



The preceding measures
indicate that the balance sheet structure as of March 31, 2004 is somewhat less susceptible to large and immediate rate changes than as of three months ago. This is largely a function of additional fixed rate medium-term funding in the form of FHLB
advances and certificates of deposit. Commercial loan volume has increased, thereby creating a more even match with the majority of interest-bearing liabilities. The risk of declining rates remains moderate; however, we do not view a decrease in
rates as a probable event.



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 rate 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 sales 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 March 31, 2004 and December 31, 2003, we had $7.4 million and $5.2 million in forward sales agreements, respectively.



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Lending Activity



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



|                                       |  |                |           |   |                   |   |           |  
|-------------------------------------- |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                       |  | March 31, 2004 |           |   | December 31, 2003 |  
|Real Estate:                           |  |                |           |   |                   |   |           |  
|Residential                            |  | $              | 852,914   |   |                   | $ | 810,790   |  
|Commercial                             |  |                | 1,085,152 |   |                   |   | 1,017,291 |  
|Construction                           |  |                | 332,501   |   |                   |   | 311,266   |  
|Installment loans to individuals       |  |                | 74,791    |   |                   |   | 77,660    |  
|Commercial, financial and agricultural |  |                | 211,037   |   |                   |   | 227,117   |  
|Lease financing                        |  |                | 3,915     |   |                   |   | 6,032     |  
|Unearned income                        |  |                | (519      | ) |                   |   | (774      | )
|                                       |  |                |           |   |                   |   |           |  
|                                       |  | $              | 2,559,791 |   |                   | $ | 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.



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 88.7% of the loan portfolio at March 31, 2004.



The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market area of southwest 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 March 31, 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
either to 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.



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



|                            |  |               |       |                  |   |      
|--------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                            |  | March 31,2004 |       | December 31,2003
|Non-accrual loans           |  | $             | 4,263 |                  | $ | 5,521
|Restructured loans          |  |               |      |                  |   |     
|                            |  |               |       |                  |   |      
|Total non-performing loans  |  |               | 4,263 |                  |   | 5,521
|Other real estate owned     |  |               | 440   |                  |   |     
|                            |  |               |       |                  |   |      
|Total non-performing assets |  | $             | 4,703 |                  | $ | 5,521
|                            |  |               |       |                  |   |      



Loans past due 90 days
or more, on which interest accruals continue, were $1.3 million, and $163,000 at March 31, 2004 and December 31, 2003, respectively.



All loans where 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 in 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 decreased to $1.4 million for the first three months of 2004 compared with $1.7 million for the same period in 2003. Factors considered in the level of the provision during 2004 included the decrease
in non accrual loans, the level of net charge-offs and increased loan concentrations, primarily in commercial real estate loans.



Charge-offs reflect the realization of losses in the portfolio that were recognized previously through provisions for credit losses. For the three months
ended March 31, 2004 charge-offs, net of any subsequent recovery, totaled $363,000 compared to $1.1 million for the same period in 2003.



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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 $7.1 million from December 31, 2003. Book value per share was $8.16 at March 31, 2004, compared to $7.88 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 has a $17.0 million subordinated loan commitment with a correspondent bank which qualifies as Tier 2 capital.



Following are the capital ratios as of March 31, 2004 for the Company and our
banking subsidiary, First National Bank of Florida:



|                                          |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|----------------------------------------- |  | ------ | ------- | ----- | ---------------------------- | - | ------ | --------------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | --- | -
|                                          |  | Actual |         |       | Well CapitalizedRequirements |   |        | Minimum CapitalRequirements |        
|                                          |  | Amount |         | Ratio |                              |   | Amount |                             | Ratio   |  |      | Amount |  | Ratio |        
|Total Capital (to risk-weighted assets):  |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|Consolidated                              |  | $      | 297,224 |       | 10.9                         | % |        | $                           | 271,101 |  | 10.0 | %      |  | $     | 216,881 |  | 8.0 | %
|First National Bank                       |  |        | 275,451 |       | 10.2                         |   |        |                             | 270,065 |  | 10.0 |        |  |       | 216,052 |  | 8.0 |  
|                                          |  |        |         |       |                              |  
|Tier 1 Capital (to risk-weighted assets): |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|Consolidated                              |  |        | 251,082 |       | 9.3                          |   |        |                             | 162,661 |  | 6.0  |        |  |       | 108,440 |  | 4.0 |  
|First National Bank                       |  |        | 229,310 |       | 8.5                          |   |        |                             | 162,039 |  | 6.0  |        |  |       | 108,026 |  | 4.0 |  
|                                          |  |        |         |       |                              |  
|Tier 1 Capital (to average assets):       |  |        |         |       |                              |   |        |                             |         |  |      |        |  |       |         |  |     |  
|Consolidated                              |  |        | 251,082 |       | 6.9                          |   |        |                             |         |  | 5.0  |        |  |       |         |  | 4.0 |  
|First National Bank                       |  |        | 229,310 |       | 6.3                          |   |        |                             | 180,883 |  | 5.0  |        |  |       | 144,707 |  | 4.0 |  



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Important Note Regarding Forward-Looking Statements



Certain statements contained 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, the Corporations financial performance and could cause actual results to differ materially from those expressed or implied in such forward-looking
statements. The Company does not undertake to publicly update or revise it 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 Disclosures about Market Risk



The information required 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.



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ITEM 4. Controls and Procedures



An evaluation was performed during the quarter ended March 31, 2004 under the supervision and with the participation of the Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on that evaluation, management, including the CEO and CFO, concluded that the Companys disclosure controls and procedures were effective
as of March 31, 2004. In connection with such evaluation, there has been no change in the Companys internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.



PART II



Item 1. Legal Proceedings



Our
subsidiaries are subject to routine claims and lawsuits incidental to our business. We do not believe that the ultimate liability arising out of these claims and lawsuits will have a material adverse effect on our business.



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 March 31, 2004:



|         |  |                  |     |  |                             |       |                                                            |   |                                                                             |  
|-------- |  | ---------------- | --- |  | --------------------------- | ----- | ---------------------------------------------------------- | - | --------------------------------------------------------------------------- | -
|Month    |  | Shares Purchased |     |  | Average PricePaid Per Share |       | Shares Purchased as Part of Publicly AnnouncedPrograms (1) |   | Maximum Sharesthat may yet tobe PurchasedUnder PubliclyAnnouncedProgram (1)
|January  |  |                 |     |  |                             |      |                                                            |  |                                                                             | 
|February |  | 50,000           | (2) |  | $                           | 17.43 |                                                            |  |                                                                             | 
|March    |  |                 |     |  |                             |      |                                                            |  |                                                                             | 

---

|(1) |  | On March 22, 2004, we announced a plan to repurchase approximately 1.1 million shares of our common stock. These shares will be repurchased to offset the dilutive impact of stock
options to be assumed by us issued in connection with our planned acquisition of Southern Community Bancorp, which is expected to be completed during the third quarter of 2004. We began repurchasing shares under this plan in April 2004.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Purchased in open market transactions.
|--- |  | --------------------------------------



Item 3. Defaults Upon Senior Securities



Not applicable



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



Not applicable



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Item 5. Other Information



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



Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------



| | 2.1 |  | Agreement and Plan of Merger, dated as of March 19, 2004, by and between the Company and Southern Community Bancorp (incorporated by reference to exhibit 2.1 of the Form 8-K filed
by the Company on March 26, 2004).
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1 |  | Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Companys Form 10 filed on October 31, 2003).
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------



| | 3.2 |  | By-Laws of the Company (incorporated by reference to Exhibit 3.2 of the Companys Form 10 filed on October 31, 2003).
| | --- |  | ---------------------------------------------------------------------------------------------------------------------



| | 31 |  | Certifications 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.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



We filed or furnished the following reports on Form 8-K during the first quarter of 2004:



March 26, 2004  We reported the issuance of a press release announcing
that we have entered into an Agreement and Plan of Merger to acquire Southern Community Bancorp.



January 21, 2004  We reported the issuance of a press release on January 16, 2004, announcing our financial results for the three months and year
ended December 31, 2003.



January 6, 2004  We announced
completion of the spin-off from F.N.B. Corporation and the commencement of regular way trading of our common shares on the New York Stock Exchange effective January 2, 2004.



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |                                                                                                              
|------------------- |  | -------------------------------------------------------------------------------------------------------------
|                    |  | First National Bankshares of Florida, Inc.                                                                   
|                    |  | (Registrant)                                                                                                 
|                    | 
|Dated: May 10, 2004 |  | /s/ Gary L. Tice                                                                                             
|                    |  | Gary L. Tice Chairman and Chief Executive
Officer(Principal Executive Officer)                               
|                    | 
|Dated: May 10, 2004 |  | /s/ Robert T. Reichert                                                                                       
|                    |  | Robert T. Reichert Senior Vice President,
Chief Financial Officer and Treasurer (Principal Financial Officer)



30