##### 



FIRST NATIONAL BANCSHARES, INC.
 CONSOLIDATED FINANCIAL STATEMENTS
 (INCLUDING WHOLLY OWNED SUBSIDIARY
 1ST NATIONAL BANK & TRUST)




---



##### 



FIRST NATIONAL BANCSHARES, INC.
 CONSOLIDATED FINANCIAL STATEMENTS
  TABLE OF CONTENTS
 PAGEINDEPENDENT AUDITORS REPORT
    
    F-1CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    F-2CONSOLIDATED STATEMENTS OF INCOME
    
    F-3CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    
    F-4CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    F-5NOTES TO FINANCIAL STATEMENTS
    
    F-6-19




---



##### 



INDEPENDENT AUDITORS REPORT
 
    CHRISTOPHER, SMITH, LEONARD,BRISTOW & STANELL, P.A.January 27, 2006Bradenton, Florida
 F-1




---



##### 



FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
 December 31,2005
    
    
    2004(in thousands)AssetsCash and due from banks
    
    $
    10,520
    
    
    $
    6,826Federal funds sold
    
    
    0
    
    
    
    0Cash and cash equivalents
    
    
    10,520
    
    
    
    6,826Interest-bearing deposits in banks
    
    
    657
    
    
    
    5,636Securities available for sale
    
    
    71,328
    
    
    
    57,795Federal Home Loan Bank stock, at cost
    
    
    1,375
    
    
    
    1,353Loans, net of allowance for loan losses of $2,846 and $2,362
    
    
    280,974
    
    
    
    233,395Foreclosed assets
    
    
    0
    
    
    
    0Premises and equipment, net
    
    
    7,409
    
    
    
    7,555Goodwill
    
    
    975
    
    
    
    975Intangible Assets
    
    
    213
    
    
    
    249Other assets
    
    
    5,240
    
    
    
    3,823TOTAL ASSETS
    
    $
    378,691
    
    
    $
    317,607Liabilities and Stockholders EquityDeposits:Non-interest bearing
    
    
    36,804
    
    
    $
    31,934Interest-bearing
    
    
    288,162
    
    
    
    236,848Total deposits
    
    
    324,966
    
    
    
    268,782Repurchase agreements
    
    
    4,221
    
    
    
    3,343Short-term debt
    
    
    3,500
    
    
    
    0Long-term debt
    
    
    12,950
    
    
    
    17,250Accrued expenses and other liabilities
    
    
    1,920
    
    
    
    1,377TOTAL LIABILITIES
    
    
    347,557
    
    
    
    290,752Stockholders equity:Common stock, $.10 par value, 25,000,000 shares
authorized; 3,402,848 shares issued
    
    
    340
    
    
    
    329Additional paid-in capital
    
    
    23,896
    
    
    
    22,239Retained earnings
    
    
    7,724
    
    
    
    4,267Accumulated other comprehensive income
    
    
    -826
    
    
    
    20Total stockholders equity
    
    
    31,134
    
    
    
    26,855TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    378,691
    
    
    $
    317,607
  F-2




---



##### 



FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands, except per share data)Interest and dividend income:Loans, including fees
    
    $
    17,301
    
    
    $
    13,785
    
    
    $
    10,933Debt securities:Taxable
    
    
    2,141
    
    
    
    1,494
    
    
    
    1,168Tax-exempt
    
    
    470
    
    
    
    341
    
    
    
    377Other
    
    
    303
    
    
    
    140
    
    
    
    139Total interest and dividend income
    
    
    20,215
    
    
    
    15,760
    
    
    
    12,617Interest expense:Deposits
    
    
    6,468
    
    
    
    3,714
    
    
    
    2,760Federal funds purchased and securities sold under
agreements to repurchase
    
    
    109
    
    
    
    87
    
    
    
    158Long-term debt
    
    
    589
    
    
    
    504
    
    
    
    226Total interest expense
    
    
    7,166
    
    
    
    4,305
    
    
    
    3,144Net interest income
    
    
    13,049
    
    
    
    11,455
    
    
    
    9,473Provision for loan losses
    
    
    481
    
    
    
    314
    
    
    
    448Net interest income, after provision for loan losses
    
    
    12,568
    
    
    
    11,141
    
    
    
    9,025Non-interest income:Customer service fees
    
    
    336
    
    
    
    372
    
    
    
    456Trust Services Fees
    
    
    1,481
    
    
    
    1,259
    
    
    
    621Financial Product Sales Commissions and fees
    
    
    294
    
    
    
    336
    
    
    
    252Net gain (loss) on available-for-sale securities
    
    
    5
    
    
    
    (0
    )
    
    
    87Net gain (loss) on sale of assets
    
    
    (8
    )
    
    
    (10
    )
    
    
    (1
    )Other
    
    
    545
    
    
    
    358
    
    
    
    452Total non-interest income (charges)
    
    
    2,653
    
    
    
    2,315
    
    
    
    1,867Non-interest expenses:Salaries and employee benefits
    
    
    6,037
    
    
    
    5,173
    
    
    
    4,686Occupancy and equipment
    
    
    1,498
    
    
    
    1,389
    
    
    
    1,233Legal, examination, and audit expenses
    
    
    327
    
    
    
    272
    
    
    
    267Data processing
    
    
    145
    
    
    
    142
    
    
    
    123Other
    
    
    1,855
    
    
    
    1,535
    
    
    
    1,312Total non-interest expenses
    
    
    9,862
    
    
    
    8,511
    
    
    
    7,621Income before income taxes
    
    
    5,359
    
    
    
    4,945
    
    
    
    3,271Income tax expenses
    
    
    1,902
    
    
    
    1,764
    
    
    
    1,120Net income
    
    $
    3,457
    
    
    $
    3,181
    
    
    $
    2,151Earnings per share:Basic
    
    $
    1.03
    
    
    $
    .98
    
    
    $
    .69Diluted
    
    $
    .98
    
    
    $
    .92
    
    
    $
    .64
  F-3




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##### 



FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
 AccumulatedShares of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    OtherCommon
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total(in thousands, except share data)Balance at December 31, 2002
    
    
    1,846,721
    
    
    $
    185
    
    
    $
    13,888
    
    
    $
    5,322
    
    
    $
    601
    
    
    $
    19,996Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,151
    
    
    
    0
    
    
    
    2,151Change in net unrealized gain (loss) on
securities available for sale, net of tax
effect
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (448
    )
    
    
    (448
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,7035% Stock Dividend (Fractional Shares Paid in Cash)
    
    
    94,554
    
    
    
    9
    
    
    
    2,005
    
    
    
    (2,019
    )
    
    
    0
    
    
    
    (5
    )Exercise of Stock Options
    
    
    53,465
    
    
    
    5
    
    
    
    316
    
    
    
    0
    
    
    
    0
    
    
    
    321Balance at December 31, 2003
    
    
    1,994,740
    
    
    $
    199
    
    
    $
    16,209
    
    
    $
    5,454
    
    
    $
    153
    
    
    $
    22,015Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    3,181
    
    
    
    0
    
    
    
    3,181Change in net unrealized gain (loss) on
securities available for sale, net of tax
effect
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (133
    )
    
    
    (133
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,048Acquisition of Trust Company of Florida and
Merger into 1stNational Bank &
Trust (Subsidiary)
    
    
    66,960
    
    
    
    7
    
    
    
    1,419
    
    
    
    0
    
    
    
    0
    
    
    
    1,42650% Stock Split (Fractional Shares Paid in Cash)
    
    
    1,038,555
    
    
    
    104
    
    
    
    0
    
    
    
    (108
    )
    
    
    0
    
    
    
    (4
    )5% Stock Dividend (Fractional Shares Paid in Cash)
    
    
    155,988
    
    
    
    16
    
    
    
    4,235
    
    
    
    (4,260
    )
    
    
    0
    
    
    
    (9
    )Exercise of Stock Options
    
    
    30,028
    
    
    
    3
    
    
    
    376
    
    
    
    0
    
    
    
    0
    
    
    
    379Balance at December 31, 2004
    
    
    3,286,271
    
    
    $
    329
    
    
    $
    22,239
    
    
    $
    4,267
    
    
    $
    20
    
    
    $
    26,855Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    3,457
    
    
    
    0
    
    
    
    3,457Change in net unrealized gain (loss) on
securities available for sale, net of tax
effect
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (846
    )
    
    
    (846
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,6115% Stock Dividend (Fractional Shares Paid in Cash)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Exercise of Stock Options
    
    
    116,577
    
    
    
    11
    
    
    
    1,079
    
    
    
    0
    
    
    
    0
    
    
    
    1,090Tax benefit from the exercise of Stock Options
    
    
    0
    
    
    
    0
    
    
    
    578
    
    
    
    0
    
    
    
    0
    
    
    
    578Balance at December 31, 2005
    
    
    3,402,848
    
    
    $
    340
    
    
    $
    23,896
    
    
    $
    7,724
    
    (
    $
    826
    )
    
    $
    31,134
  F-4




---



##### 



FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Cash flows from operating activities:Net income
    
    $
    3,457
    
    
    $
    3,181
    
    
    $
    2,151Adjustments to reconcile net income to net cash provided (used) by operating activities:Provision for loan losses
    
    
    481
    
    
    
    291
    
    
    
    347Provision for foreclosed asset losses
    
    
    0
    
    
    
    0
    
    
    
    0Net amortization of securities
    
    
    280
    
    
    
    354
    
    
    
    368Amortization of deferred loan (fees)
    
    
    373
    
    
    
    62
    
    
    
    126Depreciation
    
    
    582
    
    
    
    543
    
    
    
    524Amortization of intangibles
    
    
    36
    
    
    
    0
    
    
    
    0Realized loss (gain) on sales of available-for- sale securities, net
    
    
    (5
    )
    
    
    (0
    )
    
    
    (87
    )Realized loss (gain) on sales of fixed assets
    
    
    8
    
    
    
    9
    
    
    
    1Deferred income tax benefit
    
    
    (431
    )
    
    
    (202
    )
    
    
    (38
    )Net change in:Other assets and liabilities, net
    
    
    616
    
    
    
    (870
    )
    
    
    (304
    )Net cash provided (used) by operating activities
    
    
    5,397
    
    
    
    3,368
    
    
    
    3,088Cash flows from investing activities:Net change in interest-bearing deposits in banks
    
    
    4,979
    
    
    
    2,776
    
    
    
    (2,958
    )Activity in available-for-sale securities:Sales
    
    
    0
    
    
    
    0
    
    
    
    5,842Maturities, prepayments and calls
    
    
    10,687
    
    
    
    6,742
    
    
    
    18,917Purchases
    
    
    (25,852
    )
    
    
    (18,932
    )
    
    
    (31,209
    )Loan originations and principal collections, net
    
    
    (48,436
    )
    
    
    (29,436
    )
    
    
    (48,213
    )Cash received in merger of Trust Company of Florida
    
    
    0
    
    
    
    112
    
    
    
    0Recoveries on loans charged off in prior years
    
    
    11
    
    
    
    4
    
    
    
    16Proceeds from sales of foreclosed assets
    
    
    0
    
    
    
    0
    
    
    
    0Proceeds from sales of fixed assets
    
    
    13
    
    
    
    0
    
    
    
    0Additions to premises and equipment
    
    
    (457
    )
    
    
    (297
    )
    
    
    (223
    )Net cash provided (used) by investing activities
    
    
    (59,055
    )
    
    
    (39,031
    )
    
    
    (57,828
    )Cash flows from financing activities:Net increase in deposits
    
    
    56,184
    
    
    
    35,455
    
    
    
    52,815Net change in federal funds purchased and securities sold under agreements
to repurchase
    
    
    4,378
    
    
    
    (7,958
    )
    
    
    (4,510
    )Proceeds from issuance of long-term debt net of principal payments
    
    
    (4,300
    )
    
    
    7,750
    
    
    
    5,000Proceeds from issuance of stock under stock option plan
    
    
    1,090
    
    
    
    379
    
    
    
    321Cash dividends paid on common stock
    
    
    0
    
    
    
    (13
    )
    
    
    (5
    )Net cash provided by financing activities
    
    
    57,352
    
    
    
    35,613
    
    
    
    53,621Net change in cash and cash equivalents
    
    
    3,694
    
    
    
    (50
    )
    
    
    (1,119
    )Cash and cash equivalents at beginning of year
    
    
    6,826
    
    
    
    6,876
    
    
    
    7,995Cash and cash equivalents at end of year
    
    
    10,520
    
    
    $
    6,826
    
    
    $
    6,876Supplementary cash flow information:Interest paid on deposits and borrowed funds
    
    $
    6,601
    
    
    $
    4,212
    
    
    $
    3,215Income taxes paid
    
    $
    2,234
    
    
    $
    1,803
    
    
    $
    1,044
  F-5




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##### 



FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
 NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Nature of Operations
  Use of Estimates
  Significant Group Concentrations of Credit Risk
  Cash and Cash Equivalents
  Interest-bearing Deposits in Banks
  Trading Activities
  Securities
   Loans
   F-6




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##### 



Allowance for Loan Losses
      Servicing
  Off-Balance Sheet Credit Related Financial Instruments
  F-7




---



##### 



Derivative Financial Instruments and Change in Accounting Principle
  Interest Rate Swap Agreement.
  Foreclosed Assets
  Premises and Equipment
  Goodwill and Intangible Assets
   Year ended December 31 (000s)2005
    
    2004
    
    2003Net Income
    
    $
    3,457
    
    
    $
    3,128
    
    
    $
    1,943Earnings per ShareBasic
    
    $
    1.03
    
    
    $
    .96
    
    
    $
    .62Diluted
    
    $
    .98
    
    
    $
    .90
    
    
    $
    .57
 Transfers of Financial Assets
  Income Taxes
  Retirement Plan
  Stock Compensation Plans
  F-8




---



##### 



Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Net income
    
    $
    3,457
    
    
    $
    3,181
    
    
    $
    2,151Additional expense had the Corporation
adopted SFAS No. 123
    
    
    (67
    )
    
    
    (101
    )
    
    
    (144
    )Pro forma net income
    
    
    3,390
    
    
    $
    3,080
    
    
    $
    2,007Basic
earnings per share  As reported
    
    
    1.03
    
    
    
    .98
    
    
    
    .69 Pro forma
    
    
    1.01
    
    
    
    .95
    
    
    
    .64Diluted
earnings per share  As reported
    
    
    .98
    
    
    
    .92
    
    
    
    .64 Pro forma
    
    
    .96
    
    
    
    .89
    
    
    
    .60
  Earnings Per Common Share
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Net income
    
    $
    3,457
    
    
    $
    3,181
    
    
    $
    2,151Average number of common shares outstanding
    
    
    3,351
    
    
    
    3,254
    
    
    
    3,132Effect of dilutive options
    
    
    196
    
    
    
    208
    
    
    
    209Average number of common shares
outstanding used to calculate diluted
earnings per common share
    
    
    3,547
    
    
    
    3,462
    
    
    
    3,341
 Comprehensive Income
   Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Accumulated unrealized
holding gains on
available-for-sale
securities
    
    $
    (1,357
    )
    
    $
    (213
    )
    
    $
    (718
    )Tax effect
    
    
    511
    
    
    
    80
    
    
    
    270Net-of-tax amount
    
    $
    (846
    )
    
    $
    (133
    )
    
    $
    (448
    )
 F-9




---



##### 



December 31,2005
    
    
    2004(in thousands)Net comprehensive income (loss) on securities available for sale
    
    $
    (1,324
    )
    
    $
    32Tax effect
    
    
    498
    
    
    
    (12
    )Net-of-tax amount
    
    
    (826
    )
    
    
    20Accumulated other comprehensive income (loss)
    
    $
    (826
    )
    
    $
    20
 Recent accounting pronouncements
    NOTE 2RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS
  NOTE 3SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
  F-10




---



##### 



NOTE 4SECURITIES
  December 31, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(in thousands)Securities Available-for-SaleDebt securities:U.S. Government and federal agency
    
    $
    9,997
    
    
    $
    0
    
    
    
    ($194
    )
    
    $
    9,803State and Political Subdivisions
    
    
    12,755
    
    
    
    93
    
    
    
    (180
    )
    
    
    12,668Mortgage-backed
    
    
    49,900
    
    
    
    9
    
    
    
    (1,052
    )
    
    
    48,857Total debt securities available for sale
    
    
    72,652
    
    
    
    102
    
    
    
    (1,426
    )
    
    
    71,328
 December 31, 2004Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)Securities Available-for-SaleDebt securities:U.S. Government and federal agency
    
    $
    9,491
    
    
    $
    57
    
    
    
    ($65
    )
    
    $
    9,483State and Political Subdivisions
    
    
    10,292
    
    
    
    316
    
    
    
    (31
    )
    
    
    10,577Mortgage-backed
    
    
    37,980
    
    
    
    69
    
    
    
    (314
    )
    
    
    37,735Total debt securities available for sale
    
    
    57,763
    
    
    
    442
    
    
    
    (410
    )
    
    
    57,795
 st
  Available for SaleAmortized
    
    
    FairCost
    
    
    Value(in thousands)Within 1 year
    
    $
    4,671
    
    
    $
    4,661Over 1 year through 5 years
    
    
    12,180
    
    
    
    11,997After 5 years through 10 years
    
    
    5,193
    
    
    
    5,134Over 10 years
    
    
    708
    
    
    
    67822,752
    
    
    
    22,470Mortgage-backed securities
    
    
    49,900
    
    
    
    48,858$
    72,652
    
    
    $
    71,328
  F-11




---



##### 



Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(in thousands)Securities Available for SaleDebt Securities:U.S. Government and Federal Agencies
    
    
    60
    
    
    
    4,940
    
    
    
    134
    
    
    
    2,863Mortgage-backed
    
    
    392
    
    
    
    24,507
    
    
    
    660
    
    
    
    21,756State and Political Subdivisions
    
    
    94
    
    
    
    3,333
    
    
    
    86
    
    
    
    2,572Total debt securities
    
    $
    546
    
    
    $
    32,780
    
    
    $
    880
    
    
    $
    27,191
   NOTE 5LOANS
  December 31,2005
    
    
    2004(in thousands)Mortgage loans on real estate:Residential 1-4 family
    
    $
    87,103
    
    
    $
    65,219Commercial
    
    
    162,247
    
    
    
    134,645Construction
    
    
    15,476
    
    
    
    10,709Second mortgages
    
    
    701
    
    
    
    3,941Equity lines of credit
    
    
    5,163
    
    
    
    5,081Total mortgage loans on real estate
    
    
    270,690
    
    
    
    219,595Commercial loans
    
    
    11,895
    
    
    
    13,933Consumer installment loans:Personal
    
    
    1,869
    
    
    
    2,436Credit cards
    
    
    161
    
    
    
    216Total consumer installment loans
    
    
    2,030
    
    
    
    2,652Total loans
    
    
    284,615
    
    
    
    236,180Less: Allowance for loan losses
    
    
    (2,846
    )
    
    
    (2,362
    )Net deferred loan fees
    
    
    (795
    )
    
    
    (423
    )Loans, net
    
    
    280,974
    
    
    $
    233,395
 F-12




---



##### 



Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Balance at beginning of year
    
    $
    2,362
    
    
    $
    2,067
    
    
    $
    1,704Provision for loan losses
    
    
    481
    
    
    
    314
    
    
    
    448Loans charged-off
    
    
    (8
    )
    
    
    (23
    )
    
    
    (101
    )Recoveries of loans previously charged-off
    
    
    11
    
    
    
    4
    
    
    
    16Balance at end of year
    
    $
    2,846
    
    
    $
    2,362
    
    
    $
    2,067
  NOTE 6PREMISES AND EQUIPMENT
  December 31,2005
    
    
    2004(in thousands)Premises:Land
    
    
    2,623
    
    
    $
    2,623Buildings & Improvements
    
    
    4,958
    
    
    
    4,930Equipment
    
    
    3,421
    
    
    
    3,29111,002
    
    
    
    10,844Accumulated depreciation
    
    
    (3,593
    )
    
    
    (3,289
    )$
    7,409
    
    
    $
    7,555
   2006
    
    $
    2852007
    
    
    2522008
    
    
    1402009
    
    
    892010
    
    
    46Thereafter
    
    
    191$
    1,003
  F-13




---



##### 



NOTE 7DEPOSITS
   2006
    
    $
    105,9942007
    
    
    11,1872008
    
    
    8732009
    
    
    3552010
    
    
    1,499Thereafter
    
    
    0Total
    
    $
    119,908
  NOTE 8SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
  NOTE 9LONG-TERM DEBT
    December 31,Fixed Rate2005
    
    
    2004(in thousands)Due in 2005
    
    
    
    
    
    
    4,300Due in 2006
    
    
    4,300
    
    
    
    4,300Due in 2007
    
    
    3,800
    
    
    
    3,800Due in 2008
    
    
    3,300
    
    
    
    3,300Due in 2009
    
    
    1,550
    
    
    
    1,550Thereafter
    
    
    0
    
    
    
    0Total long-term debt
    
    $
    12,950
    
    
    $
    17,250
 F-14




---



##### 



NOTE 10INCOME TAXES
  Years Ended December 312005
    
    
    2004
    
    
    2003(in thousands)Current tax provision:Federal
    
    $
    1,963
    
    
    $
    1,635
    
    
    $
    970State
    
    
    360
    
    
    
    298
    
    
    
    1872,323
    
    
    
    1,933
    
    
    
    1,157Deferred tax benefit:Federal
    
    
    (360
    )
    
    
    (143
    )
    
    
    (31
    )State
    
    
    (61
    )
    
    
    (26
    )
    
    
    (6
    )(421
    )
    
    
    (169
    )
    
    
    (37
    )$
    1,902
    
    
    $
    1,764
    
    
    $
    1,120
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Statutory federal tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Increase (decrease) resulting from:State taxes, net of federal tax
benefit
    
    
    3.6
    
    
    
    3.6
    
    
    
    3.6TEFRA deduction
    
    
    (2.1
    )
    
    
    (2.2
    )
    
    
    (4.1
    )Other, net
    
    
    0
    
    
    
    .3
    
    
    
    .7Effective tax rate
    
    
    35.5
    %
    
    
    35.7
    %
    
    
    34.2
    %
  December 31,2005
    
    
    2004(in thousands)Deferred tax assets:Deferred loan fees
    
    
    299
    
    
    
    159Deferred Compensation
    
    
    77
    
    
    
    77Net unrealized loss on securities available-for-sale
    
    
    498
    
    
    
    0Allowance for loan losses
    
    
    1,007
    
    
    
    827Total Deferred Tax Assets
    
    
    1,881
    
    
    $
    1,063Deferred tax liabilities:Net unrealized gain on securities available-for-sale
    
    
    0
    
    
    
    13Employee pension plan
    
    
    473
    
    
    
    505Depreciation
    
    
    109
    
    
    
    188Other
    
    
    2
    
    
    
    2Total Deferred Tax Liabilities
    
    $
    584
    
    
    $
    708Net Deferred Tax Asset
    
    $
    1,297
    
    
    $
    355
 F-15




---



##### 



NOTE 11OFF-BALANCE SHEET ACTIVITIES
 Credit-Related Financial Instruments.
   Contract Amount2005
    
    
    2004(in thousands)Commitments to grant loans
    
    $
    25,377
    
    
    $
    23,831Unfunded commitments under lines of credit
    
    
    13,520
    
    
    
    12,516Standby letters of credit
    
    
    1,583
    
    
    
    1,690
    NOTE 12  ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 Derivative Financial Instruments
 Risk Management Policies  Hedging Instruments
 Interest Rate Risk Management  Cash Flow Hedging Instruments
 F-16




---



##### 



Interest Rate Risk Management  Fair Value Hedging Instruments
 Interest Rate Risk Management  Derivative Instruments Not Designated As Hedging Instruments
 NOTE 13LEGAL CONTINGENCIES
  F-17




---



##### 



NOTE
14MINIMUM REGULATORY CAPITAL REQUIREMENTS
    Minimum To Be WellCapitalized Under PromptMinimum Capital
    
    
    Corrective ActionActual
    
    
    Requirement
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(dollars in thousands)December 31, 2005:Total Capital to Risk Weighted Assets:Consolidated
    
    $
    33,617
    
    
    
    12.03
    %
    
    $
    22,358
    
    
    
    8.0
    %
    
    $
    N/A
    
    
    
    N/A1st National Bank & Trust
    
    
    31,959
    
    
    
    11.46
    
    
    
    22,294
    
    
    
    8.0
    
    
    
    27,868
    
    
    
    10.0Tier 1 Capital to Risk Weighted Assets:Consolidated
    
    
    30,771
    
    
    
    11.01
    
    
    
    11,179
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/A1st National Bank & Trust
    
    
    29,113
    
    
    
    10.44
    
    
    
    11,147
    
    
    
    4.0
    
    
    
    16,721
    
    
    
    6.0Tier 1 Capital to Average Assets:Consolidated
    
    
    30,771
    
    
    
    8.39
    
    
    
    14,666
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/A1st National Bank & Trust
    
    
    29,113
    
    
    
    7.97
    
    
    
    14,620
    
    
    
    4.0
    
    
    
    18,275
    
    
    
    5.0December 31, 2004:Total Capital to Risk Weighted Assets:Consolidated
    
    $
    27,972
    
    
    
    11.7
    %
    
    $
    19,116
    
    
    
    8.0
    %
    
    $
    N/A
    
    
    
    N/A1st National Bank & Trust
    
    
    27,835
    
    
    
    11.7
    
    
    
    19,112
    
    
    
    8.0
    
    
    
    23,890
    
    
    
    10.0Tier 1 Capital to Risk Weighted Assets:Consolidated
    
    
    25,610
    
    
    
    10.7
    
    
    
    9,558
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/A1st National Bank & Trust
    
    
    25,473
    
    
    
    10.7
    
    
    
    9,556
    
    
    
    4.0
    
    
    
    14,334
    
    
    
    6.0Tier 1 Capital to Average Assets:Consolidated
    
    
    25,610
    
    
    
    8.2
    
    
    
    12,520
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/A1st National Bank & Trust
    
    
    25,473
    
    
    
    8.1
    
    
    
    12,515
    
    
    
    4.0
    
    
    
    15,643
    
    
    
    5.0
 F-18




---



##### 



NOTE 15EMPLOYEE BENEFIT PLANS
 Pension Plan
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    3,551
    
    
    $
    2,871
    
    
    $
    2,131Service cost
    
    
    369
    
    
    
    358
    
    
    
    261Interest cost
    
    
    219
    
    
    
    191
    
    
    
    168Actuarial loss
    
    
    428
    
    
    
    134
    
    
    
    356Benefits paid
    
    
    -630
    
    
    
    (3
    )
    
    
    (45
    )Benefit obligation at end of year
    
    $
    3,937
    
    
    
    3,551
    
    
    
    2,871Change in plan assets:Fair value of plan assets at beginning of year
    
    
    3,352
    
    
    
    2,614
    
    
    
    2,129Actual return on plan assets
    
    
    -277
    
    
    
    362
    
    
    
    (227
    )Employer contribution
    
    
    273
    
    
    
    379
    
    
    
    757Benefits paid
    
    
    -630
    
    
    
    (3
    )
    
    
    (45
    )Fair value of plan assets at end of year
    
    
    2,718
    
    
    
    3,352
    
    
    
    2,614Funded status
    
    
    -1,218
    
    
    
    (199
    )
    
    
    (257
    )Unrecognized net actuarial loss
    
    
    2,253
    
    
    
    1,519
    
    
    
    1,587Unrecognized prior service cost
    
    
    128
    
    
    
    21
    
    
    
    26Prepaid pension cost recognized
    
    $
    1,163
    
    
    $
    1,341
    
    
    $
    1,356Accumulated benefit obligation
    
    $
    2,701
    
    
    $
    2,663
    
    
    $
    2,004
  December 31,2005
    
    2004Discount rate
    
    
    5.50
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
 F-19




---



##### 



Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Service cost
    
    $
    369
    
    
    $
    358
    
    
    $
    262Interest cost
    
    
    219
    
    
    
    191
    
    
    
    168Expected return on plan assets
    
    
    (252
    )
    
    
    (234
    )
    
    
    (168
    )Amortization of prior service cost
    
    
    7
    
    
    
    4
    
    
    
    2Recognized net actuarial loss
    
    
    109
    
    
    
    75
    
    
    
    92$
    452
    
    
    $
    394
    
    
    $
    356
  Years Ended December 31,2005
    
    2004
    
    2003Discount rate
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.25
    %Expected long-term rate of return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Annual salary increase
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
   Years Ended December 31,2005
    
    2004Asset CategoryEquity securities
    
    
    0
    %
    
    
    53
    %Fixed Income
    
    
    0
    %
    
    
    47
    %Other
    
    
    0
    %
    
    
    0
    %Cash
    
    
    100
    %
    
    
    0
    %Total
    
    
    100
    %
    
    
    100
    %
    Asset Category
    
    Target RangeCash
    
    0% to 10%Equities
    
    40% to 60%Fixed Income
    
    40% to 60%
 F-20




---



##### 



2006
    
    $
    45,2432007
    
    
    47,4222008
    
    
    55,4652009
    
    
    66,2142010
    
    
    153,736Years 2011-2015
    
    
    1,224,411
  4 01(k) Plan
 NOTE 16STOCK COMPENSATION PLANS
   2005
    
    
    2004
    
    
    2003Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected life
    
    3.9 years
    
    6.0 years
    
    5.9 yearsExpected volatility
    
    
    18.3
    %
    
    
    16.2
    %
    
    
    11.3
    %Risk-free interest rate
    
    
    4.23
    %
    
    
    3.93
    %
    
    
    2.88
    %
 F-21




---



##### 



2005
    
    
    2004
    
    

2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    205
    
    
    $
    11.48
    
    
    
    144
    
    
    $
    15.42
    
    
    
    164
    
    
    $
    10.49Granted
    
    
    36
    
    
    
    24.96
    
    
    
    27
    
    
    
    25.05
    
    
    
    27
    
    
    
    22.21Stock Splits
    
    
    0
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    0Stock Dividends
    
    
    0
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    9Exercised
    
    
    (117
    )
    
    
    9.35
    
    
    
    (30
    )
    
    
    12.62
    
    
    
    (56
    )
    
    
    5.77Forfeited
    
    
    (2
    )
    
    
    9.51
    
    
    
    (11
    )
    
    
    15.88
    
    
    
    (0
    )Outstanding at end of year
    
    
    122
    
    
    
    17.51
    
    
    
    205
    
    
    $
    11.48
    
    
    
    144
    
    
    $
    15.42Options exercisable at year-end
    
    
    76
    
    
    $
    12.94
    
    
    
    175
    
    
    $
    9.62
    
    
    
    116
    
    
    $
    13.98Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    5.48
    
    
    
    
    
    
    $
    9.68
    
    
    
    
    
    
    $
    4.49
  Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual

    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$8.10 - $13.90
    
    
    52
    
    
    4.5 years
    
    $
    9.93
    
    
    
    52
    
    
    $
    9.93$14.01 - $18.20
    
    
    13
    
    
    6.0 years
    
    
    14.88
    
    
    
    13
    
    
    
    14.88$20.57 - $26.04
    
    
    57
    
    
    4.4 years
    
    
    24.96
    
    
    
    11
    
    
    
    24.40Outstanding at end of year
    
    
    122
    
    
    4.6 years
    
    $
    17.51
    
    
    
    76
    
    
    $
    12.94
 NOTE 17RELATED PARTY TRANSACTIONS
   NOTE 18RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES
    F-22




---



##### 



NOTE 19FAIR VALUE OF FINANCIAL INSTRUMENTS
   Cash and cash equivalents
 Interest bearing deposits in banks
 Securities
 Loans receivable
 Deposit liabilities
 Short-term borrowings
 Long-term borrowings
 F-23




---



##### 



Accrued interest
  December 31,2005
    
    
    2004Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(in thousands)Financial assets:Cash and cash equivalents
    
    $
    10,520
    
    
    $
    10,520
    
    
    $
    6,826
    
    
    $
    6,826Interest-bearing deposits in banks
    
    
    657
    
    
    
    657
    
    
    
    5,636
    
    
    
    5,636Securities available-for-sale
    
    
    71,328
    
    
    
    71,328
    
    
    
    57,795
    
    
    
    57,795Federal Home Loan Bank stock
    
    
    1,375
    
    
    
    1,375
    
    
    
    1,353
    
    
    
    1,353Loans, net
    
    
    280,974
    
    
    
    280,342
    
    
    
    233,395
    
    
    
    233,847Accrued interest receivable
    
    
    1,421
    
    
    
    1,421
    
    
    
    1,109
    
    
    
    1,109Financial liabilities:Deposits
    
    
    324,966
    
    
    
    325,068
    
    
    
    268,782
    
    
    
    268,582Federal funds purchased and
repurchase agreements
    
    
    7,721
    
    
    
    7,721
    
    
    
    3,343
    
    
    
    3,343Long-term debt
    
    
    12,950
    
    
    
    13,258
    
    
    
    17,250
    
    
    
    17,250Accrued interest payable
    
    
    1,310
    
    
    
    1,310
    
    
    
    745
    
    
    
    745Off-balance sheet credit related financial
instruments:Commitments to extend credit
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    36
 NOTE 20CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
  December 31,2005
    
    
    2004Balance Sheets
    
    (in thousands)AssetsCash and due from banks
    
    $
    1,037
    
    
    $
    89Investment in common stock of 1st National Bank
& Trust
    
    
    29,476
    
    
    
    26,718Other assets
    
    
    666
    
    
    
    48Total assets
    
    
    31,179
    
    
    $
    26,855Liabilities and Stockholders Equity
Total liabilities
    
    
    45
    
    
    
    0Stockholders equity
    
    
    31,134
    
    
    
    26,855Total liabilities and stockholders equity
    
    $
    31,179
    
    
    $
    26,855
 F-24




---



##### 



Years Ended December 31,2005
    
    
    2004
    
    
    2003Statements of Income

    
    (in thousands)Total income
    
    
    2
    
    
    
    0
    
    
    
    0Operating expenses
    
    
    188
    
    
    
    61
    
    
    
    70Income before income taxes and equity in
undistributed net income of 1st National
Bank & Trust
    
    
    (186
    )
    
    
    (61
    )
    
    
    (70
    )Applicable income tax provision (benefit)
    
    
    (38
    )
    
    
    (23
    )
    
    
    (26
    )(148
    )
    
    
    (38
    )
    
    
    (44
    )Equity in undistributed net income
(loss) of 1st National Bank & Trust
    
    
    3,605
    
    
    
    3,219
    
    
    
    2,195Net income
    
    $
    3,457
    
    
    $
    3,181
    
    
    $
    2,151
 Statements of Cash Flows

    
    2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    3,457
    
    
    $
    3,181
    
    
    $
    2,151Adjustments to reconcile net income to net cash provided by operating activities:Equity in undistributed net loss (income) of 1st National
Bank & Trust
    
    
    (3,605
    )
    
    
    (3,219
    )
    
    
    (2,195
    )Decrease (increase) in other assets
    
    
    6
    
    
    
    13
    
    
    
    (61
    )Net cash provided by operating activities
    
    
    (142
    )
    
    
    (25
    )
    
    
    (105
    )Cash flows from investing activities:Capital Investment in 1st National Bank & Trust
    
    
    0
    
    
    
    (572
    )
    
    
    0Net cash used for investing activities
    
    
    0
    
    
    
    (572
    )
    
    
    0Cash flows from financing activities:Proceeds from issuance of treasury stock under stock option plan
    
    
    1,090
    
    
    
    379
    
    
    
    321Cash dividends paid on common stock
    
    
    0
    
    
    
    (13
    )
    
    
    (5
    )Net cash used for financing activities
    
    
    1,090
    
    
    
    366
    
    
    
    316Net increase (decrease) in cash and cash equivalents
    
    
    948
    
    
    
    (231
    )
    
    
    211Cash and cash equivalents at beginning of year
    
    
    89
    
    
    
    320
    
    
    
    109Cash and cash equivalents at end of year
    
    $
    1,037
    
    
    $
    89
    
    
    $
    320
 NOTE 21SEGMENT REPORTING
  
 F-25




---



##### 



FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
 NOTE 25QUARTERLY DATA (UNAUDITED)
 Years Ended December 31,2005
    
    
    2004Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(in thousands, except per share data)Interest and dividend income
    
    $
    5,466
    
    
    $
    5,232
    
    
    $
    4,886
    
    
    $
    4,631
    
    
    $
    4,281
    
    
    $
    4,050
    
    
    $
    3,751
    
    
    $
    3,678Interest expense
    
    
    (2,330
    )
    
    
    (1,889
    )
    
    
    (1,591
    )
    
    
    (1,356
    )
    
    
    (1,235
    )
    
    
    (1,074
    )
    
    
    (1,018
    )
    
    
    (978
    )Provision for loan losses
    
    
    (129
    )
    
    
    (158
    )
    
    
    (153
    )
    
    
    (41
    )
    
    
    (12
    )
    
    
    (102
    )
    
    
    (70
    )
    
    
    (130
    )Net interest income, after
provision for loan losses
    
    
    3,007
    
    
    
    3,185
    
    
    
    3,142
    
    
    
    3,234
    
    
    
    3,034
    
    
    
    2,874
    
    
    
    2,663
    
    
    
    2,570Non-interest income (charges)
    
    
    639
    
    
    
    666
    
    
    
    737
    
    
    
    611
    
    
    
    593
    
    
    
    583
    
    
    
    598
    
    
    
    542Non-interest expenses
    
    
    (2,549
    )
    
    
    (2,566
    )
    
    
    (2,408
    )
    
    
    (2,339
    )
    
    
    (2,089
    )
    
    
    (2,152
    )
    
    
    (2,185
    )
    
    
    (2,086
    )Income before income taxes
    
    
    1,097
    
    
    
    1,285
    
    
    
    1,471
    
    
    
    1,506
    
    
    
    1,538
    
    
    
    1,305
    
    
    
    1,076
    
    
    
    1,026Provision for income taxes
    
    
    (399
    )
    
    
    (452
    )
    
    
    (515
    )
    
    
    (536
    )
    
    
    (553
    )
    
    
    (467
    )
    
    
    (383
    )
    
    
    (361
    )Net income
    
    $
    698
    
    
    $
    833
    
    
    $
    956
    
    
    $
    970
    
    
    $
    985
    
    
    $
    838
    
    
    $
    693
    
    
    $
    665Earnings per common share:Basic
    
    $
    0.21
    
    
    $
    0.24
    
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.30
    
    
    $
    0.26
    
    
    $
    0.21
    
    
    $
    0.20Diluted
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.27
    
    
    $
    0.28
    
    
    $
    0.28
    
    
    $
    0.24
    
    
    $
    0.20
    
    
    $
    0.19Comprehensive IncomeNet Income
    
    
    698
    
    
    
    833
    
    
    
    956
    
    
    
    970
    
    
    
    985
    
    
    
    838
    
    
    
    693
    
    
    
    665Change in unrealized
gain (loss) on
securities available
for sale
    
    
    (453
    )
    
    
    (181
    )
    
    
    363
    
    
    
    (575
    )
    
    
    (204
    )
    
    
    561
    
    
    
    (811
    )
    
    
    321Comprehensive Income
    
    $
    245
    
    
    $
    652
    
    
    $
    1,319
    
    
    $
    395
    
    
    $
    781
    
    
    $
    1,399
    
    
    $
    (118
    )
    
    $
    986