##### 



Filed with Securities and Exchange Commission on March 22, 2002

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001

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

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|State of Florida                |  | 06-1522028                          
|                                |  |                                     
|(Jurisdiction of Incorporation) |  | (I.R.S. Employer Identification No.)

5817 Manatee Avenue West, Bradenton, Florida 34209
(Address of principal office including Zip Code)

Registrants telephone number, including area code (941) 794-6969

Securities registered under Section 12(b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each Class |  | Name of each exchange
on which registered
|                    |  |                                          
|Common              |  | None                                     

Securities registered under Section 12(g) of the Act:

Common Stock, $.10 par value
(Title of Class)

The number of shares of Common Stock in the Company outstanding on February 28,
2002 was 1,750,566.

Indicate by check mark whether the Company (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.   YESxNOo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.x

The aggregate market value of the voting stock held by non-affiliates of the
Company at February 28, 2002, was $25,295,679.

|                                                                                                                    |  |                                          
|------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|DOCUMENTS INCORPORATED BY REFERENCE
in this Form 10-K                                                               |  | Part of Form 10-K into
which incorporated
|                                                                                                                    |  |                                          
|Portions of
the Companys definitive Proxy Statement for its Annual Meeting of Shareholders to be held May 16, 2002 |  | Part III                                 





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##### 

TABLE OF CONTENTS



|                                                                                             |                                                                                                |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                                             | PART I                                                                                        
|                                                                                             | ITEM 1. BUSINESS                                                                              
|ITEM 2. PROPERTIES                                                                          
|ITEM 3. LEGAL PROCEEDINGS                                                                   
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 
|                                                                                             | PART II                                                                                       
|ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER MATTERS                     
|Item 6. SELECTED FINANCIAL DATA                                                             
|                                                                                             | ITEM 7.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                        
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                         
|ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|                                                                                             | PART III                                                                                      
|ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                    
|ITEM 11. EXECUTIVE COMPENSATION                                                             
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                     
|ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                     
|                                                                                             | PART IV                                                                                       
|Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                   
|EXHIBIT INDEX                                                                               
|SIGNATURES                                                                                  
|CONSOLIDATED FINANCIAL STATEMENTS                                                           
|                                                                                             | INDEPENDENT AUDITORS REPORT                                                                  
|                                                                                             | CONSOLIDATED BALANCE SHEETS                                                                   
|                                                                                             | CONSOLIDATED STATEMENTS OF INCOME                                                             
|                                                                                             | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                                               
|                                                                                             | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                         
|                                                                                             | NOTES TO FINANCIAL STATEMENTS                                                                 
|Accountant's Consent                                                                        




PART I




ITEM 1. BUSINESS

A. General Development of Business

First National Bancshares, Inc. (the Company) is a Bank Holding Company
formed in 1998 and incorporated in the State of Florida. Effective January 1,
1999, the Company merged First National Bank of Manatee (the Bank) into the
Company as a wholly owned subsidiary. In April 1999, the Bank changed its name
to 1st National Bank & Trust. The Company has no other subsidiaries.
Accordingly, the discussion of the Companys business and operations will refer
solely to the Bank.

The Bank is a national banking association opened for business on July 18,
1986. The Bank engages primarily in the business of attracting deposits from
the general public, and originating real estate, commercial, and consumer loans
and managing trust assets. The Banks principal market area is Manatee County,
Florida, located on the western coast of Florida.

As a national bank, the Bank is subject to the rules and regulations of
the Office of the Comptroller of the Currency (the Comptroller) and is a
member of the Federal Reserve System, with the primary supervisory authority
therein being the Board of Governors. The Banks deposits are insured by the
Federal Deposit Insurance Corporation (FDIC) up to applicable limits, and
thus it is subject to the rules and regulations of the FDIC.

The Banks principal office is located at 5817 Manatee Avenue West,
Bradenton, Florida 34209, and its telephone number is (941) 794-6969.

B. Narrative Description of Business

(1) Banking Services

The Bank offers a wide range of consumer and commercial banking services
traditionally offered by commercial banks, such as personal and commercial
checking accounts, negotiable order of withdrawal (NOW) accounts,
certificates of deposit, money market accounts, savings accounts, IRA accounts,
and automatic transfers. These depository services are further complemented by
direct deposit capabilities, night depository services, and bank by mail. The
Bank participates in three national automatic teller machine systems.

The Bank also originates a variety of loans, including, but not limited
to, commercial and consumer loans, as well as loans secured by deposit accounts
and other marketable collateral. Loans are also made to enable borrowers to
purchase, refinance, construct or improve residential or other real estate and
usually are secured by mortgages on such real estate. All loans are made in
compliance with applicable Federal and State regulations.

In December 1994, the Bank received permission from the Office of the
Comptroller of the Currency to open a Trust Department. The Bank hired an
experienced trust officer and after a period of organization began operations
and opened the department for solicitation of trust business in March of 1995.
At year-end 2001, the trust department had over $80,676,000 in assets under
management. The department showed a profit in 1996, its first full year of
operation, and profits have improved in each subsequent year.

The Bank opened its first branch office in October 1994 at 5324 Gulf
Drive, Holmes Beach. The Bank opened its second branch at the corner of State
Road 64 and 48th St. Ct. E. in May 1996. The branch was also large enough to
accommodate the Banks accounting, deposit and loan operations departments. The
Bank purchased a branch location on State Road 70 at the entrance to Braden
Woods Subdivision, which it opened in January 1997. In 1999, the Bank
purchased a branch location in Ellenton at the corner of Highway 301 and Old
Tampa Road, which it opened in November 2000.

1



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In December 2001, the Bank acquired a future branch location at the corner
of 53rd Avenue West and 36th Street West. The growth of the Bank has been such
that in January of 2000, the Bank moved its operations department to a rented
facility adjacent to the State Road 64 branch.

(2) Operating Strategy

The principal business of the Bank is to attract deposits from the general
public and to invest those funds in various types of loans and other
interest-earning assets. Other funds are provided for the operations of the
Bank by proceeds from the sale of investments and loans, from amortization and
repayment of outstanding loans, from borrowings, and from working capital.
Earnings of the Bank depend primarily upon the difference between (1) the
interest received by the Bank from loans, the securities held in its investment
portfolio, and other investments and (2) expenses incurred by the Bank in
connection with obtaining funds for lending (including interest paid on
deposits and other borrowings) and expenses relating to day-to-day operations.

The primary sources of the Banks funds for lending and for other general
business purposes are the Banks capital, deposits, loan repayments, borrowings
and funds provided from operations. The Bank expects that loan repayments and
funds provided from operations will be a relatively stable sources of funds,
while deposit inflows and outflows will be significantly influenced by
prevailing interest rates, money market and general economic conditions.
Generally, short-term borrowings are used to compensate for reductions in
normal sources of funds while long-term borrowings are used to support expanded
lending activities.

The Banks customers are primarily individuals, professionals, and small
and medium size businesses located in Manatee County. The Banks business is
not dominated by any large customer. The Bank attempts to tailor its services
to the needs of its customers. The Banks main office is at a major
intersection in the center of one of Manatee Countys more established
residential areas. Its branch offices are located on Anna Maria Island, a close
knit island community, and along the I-75 corridor in the center of major new
residential development.

The Bank continually seeks to develop new business through an ongoing
program of personal calls on both current and potential customers; and utilizes
traditional local advertising media as well as direct mailings, telephone
contacts, and brochures to promote the Bank and develop loans and deposits. In
addition, the Banks directors have worked and/or lived in Manatee County for
many years and are involved in various local community activities which further
promote the Banks image as a locally-oriented independent institution.

In 1994, the Bank decided to add trust services to its list of products.
The Banks focus is on personal trusts and investments although it provides a
full range of trust products.

In November 1998, the Bank began selling mutual funds, annuities and other
life insurance products. This service is provided to customers seeking
investments not available through traditional bank deposits or Trust Department
services.

(3) Market Area

Manatee County, located on the western coast of Florida, is 41 miles south
of Tampa, 26 miles south of St. Petersburg and 10 miles north of Sarasota.
According to the Manatee County Chamber of Commerce, Manatee County had a
residential population of approximately 258,000 in 2000 and many more seasonal
residents. The Bank draws most of its business from within Manatee County and
estimates that more than 90% of its business comes from customers whose
businesses or residences are located within the county. However, the Bank
solicits and accepts business from outside of Manatee County.

2



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For purposes of the Community Reinvestment Act, the Banks Primary Market
Area comprises all of Manatee
County. Sarasota County and southern Hillsborough County represent a
secondary lending area. Both the primary and the secondary lending areas meet
the purposes of the Comptrollers Community Reinvestment Act Regulations and do
not exclude low and moderate income neighborhoods. The Bank plans to prudently
offer the full range of its services to all residents within its market area.

(4) Competition

The banking business in Florida in general, and in Manatee County in
particular, is highly competitive. The Bank competes with other commercial
banks in Manatee County and the surrounding area for all services customarily
provided by commercial banks. In addition, the Bank faces significant
competition from non-bank institutions, including savings and loan
associations, finance companies, insurance companies, mortgage companies,
mutual funds, credit unions, and other types of financial institutions.
Competition for deposits may have the effect of increasing rates of interest
the Bank will pay on deposits, which would increase the Banks cost of money
and possibly reduce its net earnings. Competition for loans may have the
effect of lowering the rate of interest the Bank will receive on its loans,
which would lower the Banks return on invested assets and possibly reduce its
net earnings. As of September 30, 2001, there were 24 commercial banks and
savings institutions with 84 offices in Manatee County.

The Banks main office is located adjacent to the Palma Sola Shopping
Center at the southeast corner of 59th Street and Manatee Avenue West. Republic
Bank (a Pinellas County community bank), American Bank, and Provident Bank have
branches within one block of the Banks principal office. The Banks island
office is located on a highly visible corner on Anna Maria Island. There are
two commercial banks located on the island. The Braden River Branch on highway
64 is 1/2 mile east of a Bank of America branch. The Highway 70 branch is
about 1/2 mile east of Bank of America. The Banks Ellenton branch is east
of a Southtrust branch and an American Bank branch.

(5) Loan Commitments

At December 31, 2001 and 2000, the Bank had commitments to originate and
disperse on loans of approximately $17,417,000 and $16,262,000 respectively.
Substantially all of both years figures include commitments to originate
construction real estate loans and pre-approved commercial lines of credit. The
Bank expects that all of the commitments at December 31, 2001 will be exercised
within the current year. In addition, at December 31, 2001 and 2000, the Bank
had in place letters of credit of approximately $301,000 and $1,013,000,
respectively. The Bank does not expect that any of the standby letters of
credit in place at December 31, 2001 will be exercised within the current year.
The Bank had no commitments to purchase loans at December 31, 2001 and 2000.

(6) Financial History

The Bank first opened to the public on July 18, 1986. As of December 31,
2001, the Company had total assets of $212,470,000 compared with total assets
of $197,043,000 at December 31, 2000 and $175,802,000 of total assets at
December 31, 1999. At year-end 2001, the Company had total deposits
$175,848,000, compared with Bank deposits of $170,271,000 at year end 2000 and
$152,184,000 of total deposits at year end 1999. In addition, the Company had
loans of $145,944,000 at the end of 2001, compared with $137,365,000 of loans
in the Bank at the end of 2000 and $122,007,000 of loans at the end of 1999.
For more detailed financial information see Managements Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements and related notes thereto appearing elsewhere in this Annual Report.

3



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##### 



(7) Employees

At December 31, 2001, the Company had no direct employees. The Bank
employed 74 employees, of which nine were executive officers, and eight were
part-time employees. The Companys employees are not represented by a
collective bargaining group, and the Company considers its relations with its
employees to be excellent. The Company provides employee benefits customary in
the banking industry, which include major medical insurance, group term life
insurance, a defined benefit pension plan, a 401-K plan, and vacation and sick
leave.




ITEM 2. PROPERTIES

First National Bancshares, Inc.s corporate office is located in the main
office of the Bank at 5817 Manatee Avenue West. This facility is a two story
building of approximately 6,000 square feet, which is adjacent to the Palma
Sola Shopping Center. The Bank moved into the building on August 17, 1987.

The Bank is party to a lease agreement (the Lease) with an unrelated
Florida general partnership (the Lessor), for the lease of the Building and
land on which the Building is situated. The Banks annual lease payments for
the Building and the land for the first two years was an amount equal to 12% of
all actual costs of land acquisition and construction (including certain
permanent equipment), brokerage commissions, engineering, architectural and
other professional costs, financing, and other associated costs incurred by the
Lessor necessary to effectuate completion of the project. The annual lease
payments beginning in the third year were adjusted according to a formula tied
to the Consumer Price Index. At the end of fiscal 2001, the Banks monthly
lease payments were $17,911 plus applicable sales tax. Lease payments for the
Building and land during 2001 totaled $228,000 including sales tax. The Lease
has an initial term of 20 years, which began in August 1987, and has four
5-year renewal options. In the event the Lessor wishes to sell the property,
the Bank has a first right of refusal to purchase the property. For accounting
purposes, a portion of the lease on the building is treated as a capital asset
and is depreciated, and the lease liability is also capitalized and amortized.
Subsequent to the year end, the Bank closed on the purchase of the leased
property.

As part of this lease, the Bank subleases nine parking spaces adjacent to
the Building in the Palma Sola Shopping Center, along with certain other
easements for landscaping, ingress and egress. These rights are leased to the
Bank and included under the terms of the lease for the Building.

Lease payments under the above lease agreements are adjusted annually for
increases in the Consumer Price Index. In no event, however, will the lease
payments for any lease year be less than the lease payments for the first year
of the Lease.

On October 31, 1994, the Bank opened its first branch in the business
district of the City of Holmes Beach on Anna Maria Island in Manatee County.
The property was acquired for cash from Crossland Savings & Loan Association of
New York and remodeled. As expected, this adversely impacted the earnings of
the Bank until deposits sufficient to support overhead were achieved in the
fourth quarter of 1995.

The Bank made a cash purchase of another branch on east State Road 64 and
opened it in May of 1996. The branch is located in one of the fastest growing
residential areas of the county. The building is approximately 10,000 square
feet and not only houses the Banks branch but also accounting, deposit
operations, and loan operations.

The Bank acquired another branch site for cash on State Road 70 at the
entrance to Braden Woods Subdivision in February of 1996. This site is also
located in the fast growing residential region of the county. That branch
opened for business in January of 1997.

In December 1997, the Bank acquired land for cash for a future branch in
the Lakewood Ranch development.

In 1999, the Bank purchased a site in Ellenton. The Bank opened the
Ellenton branch in November 2000 in one of Manatee Countys fastest growing
areas.

4



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The growth of the Bank has been such that in January of 2000, the Bank
moved its operations department to a rented facility adjacent to the current
office. This provided additional room for the Banks growing operations needs
as well as freeing up space for expansion of the branch.

All of the Banks branches are growing in their respective markets. The
branch facilities have proven to be suitable, adequate and effective as banking
facilities and the Bank expects to continue to utilize them fully.




ITEM 3. LEGAL PROCEEDINGS

As of the date of this Annual Report, the Company has no pending legal
proceedings.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted for approval by the Banks shareholders during the
fourth quarter of the fiscal year ended December 31, 2001.




PART II




ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

As a result of the merger of the Bank into the First National Bancshares,
Inc. on January 1, 1999 the then shareholders of the Bank now own 2 shares of
Company stock for each share of Bank stock previously held. Upon the merger,
all Bank Common Stock was held by the Company and all previous shareholders of
the Bank became shareholders in the Company. Accordingly, there is no active
trading market for the Common Stock of the Bank nor is it expected that one
will develop. The Company is aware of 39 sale transactions in Company stock
that occurred during fiscal 2001 and 28 transactions in 2000. The following
table shows the high and low prices for each quarter of 2000 and 2001 after
adjusting for the 5% stock dividends in each year.

|     |  |             |       |             |  |             |       |             |  |      |       |      |  |     |       |      |  |     |       |      |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|---- |  | ----------- | ----- | ----------- |  | ----------- | ----- | ----------- |  | ---- | ----- | ---- |  | --- | ----- | ---- |  | --- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|     |  | 1st Quarter |       | 2nd Quarter |  | 3rd Quarter |       | 4th Quarter |  | Year |       |      |  |    
|     |  |             |       |             |  |             |       |             |  |      |       |      |  |    
|     |  | Low         |       | High        |  | Low         |       | High        |  | Low  |       | High |  | Low |       | High |  | Low |       | High
|     |  |             |       |             |  |             |       |             |  |      |       |      |  |     |       |      |  |     |       |     
|2000 |  |             | 14.06 |             |  |             | 14.96 |             |  |      | 13.61 |      |  |     | 14.96 |      |  |     | 13.76 |      |  |  | 14.74 |  |  |  | 13.33 |  |  |  | 15.24 |  |  |  | 13.33 |  |  |  | 15.24 | 
|     |  |             |       |             |  |             |       |             |  |      |       |      |  |     |       |      |  |     |       |      |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|2001 |  |             | 12.70 |             |  |             | 14.29 |             |  |      | 13.15 |      |  |     | 14.29 |      |  |     | 13.00 |      |  |  | 17.00 |  |  |  | 12.15 |  |  |  | 15.00 |  |  |  | 12.70 |  |  |  | 17.00 | 
|     |  |             |       |             |  |             |       |             |  |      |       |      |  |     |       |      |  |     |       |      |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 

As of February 28, 2002, there were 710 holders of record of the Common
Stock of the Company.

The Bank paid its first and only cash dividend of $.15 per share in 1991.
In 1994 through 1998, the Bank paid annual stock dividends equal to 5% of the
shares outstanding each time. On January 1, 1999, the Banks stock was
exchanged two for one for Company stock. The Company also paid 5% stock
dividends in 1999 thru 2001. Future Bank dividends, if any, will be paid to the
Company. Future dividend payments to the holders of Common Stock of the
Company will be at the discretion of the Board of Directors of the Company and
will depend upon factors such as results of operations, capital requirements,
regulatory restrictions, tax considerations and general economic conditions.
The Banks capital requirements to open branches or acquire other institutions
may also impact the Banks ability to make dividend distributions to the
Company thus affecting the Companys ability to pay dividends. Additionally,
under certain circumstances, approval of the Comptroller may be required prior
to the payment of any dividends by the Bank, which would in turn affect the
Companys ability to pay dividends to its shareholders. Future
payment of dividends by the Bank to the Company and the Company to its
shareholders cannot be guaranteed.

5



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##### 






ITEM 6. SELECTED FINANCIAL DATA

SELECTED INCOME DATA

|                                                    |  |                                          |        |      |  |      |        |        |  |      |        |   |  |   |        |   |  |   |       |  
|--------------------------------------------------- |  | ---------------------------------------- | ------ | ---- |  | ---- | ------ | ------ |  | ---- | ------ | - |  | - | ------ | - |  | - | ----- | -
|                                                    |  | Years Ended December 31,                
|                                                    |  |                                         
|                                                    |  | 2001                                     |        | 2000 |  | 1999 |        | 1998** |  | 1997
|                                                    |  |                                          |        |      |  |      |        |        |  |     
|                                                    |  | (000's except per share & dividend data)
|Interest income                                     |  | $                                        | 14,164 |      |  | $    | 13,812 |        |  | $    | 11,743 |   |  | $ | 10,737 |   |  | $ | 9,277 |  
|Interest expense                                    |  |                                          | 6,699  |      |  |      | 7,334  |        |  |      | 5,687  |   |  |   | 5,659  |   |  |   | 4,904 |  
|Net interest income                                 |  |                                          | 7,465  |      |  |      | 6,477  |        |  |      | 6,056  |   |  |   | 5,078  |   |  |   | 4,373 |  
|Provision for loan losses                           |  |                                          | 250    |      |  |      | 152    |        |  |      | 227    |   |  |   | 154    |   |  |   | 255   |  
|Net interest income after
provision for loan losses |  |                                          | 7,215  |      |  |      | 6,325  |        |  |      | 5,829  |   |  |   | 4,924  |   |  |   | 4,118 |  
|Other non-interest income                           |  |                                          | 1,847  |      |  |      | 1,342  |        |  |      | 1,293  |   |  |   | 976    |   |  |   | 711   |  
|Other non-interest expenses                         |  |                                          | 6,209  |      |  |      | 5,522  |        |  |      | 5,084  |   |  |   | 4,572  |   |  |   | 3,986 |  
|Income before income taxes                          |  |                                          | 2,852  |      |  |      | 2,146  |        |  |      | 2,036  |   |  |   | 1,328  |   |  |   | 843   |  
|Provision for income taxes                          |  |                                          | 975    |      |  |      | 666    |        |  |      | 635    |   |  |   | 459    |   |  |   | 269   |  
|Net income (loss)                                   |  |                                          | 1,877  |      |  |      | 1,480  |        |  |      | 1,402  |   |  |   | 869    |   |  |   | 574   |  
|Earnings per share *                                |  |                                          | 1.08   |      |  |      | .85    |        |  |      | .81    |   |  |   | .54    |   |  |   | .33   |  
|Cash dividends declared                             |  |                                          | N/A    |      |  |      | N/A    |        |  |      | N/A    |   |  |   | N/A    |   |  |   | N/A   |  
|Stock dividends declared                            |  |                                          | 5      | %    |  |      | 5      | %      |  |      | 5      | % |  |   | 5      | % |  |   | 5     | %

SELECTED BALANCE SHEET DATA

|                                             |  |                                                   |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|-------------------------------------------- |  | ------------------------------------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                             |  | Year Ended December 31                           
|                                             |  |                                                  
|                                             |  | 2001                                              |           | 2000 |  | 1999 |           | 1998 |  | 1997
|                                             |  |                                                   |           |      |  |      |           |      |  |     
|                                             |  | (000's except per share & outstanding share data)
|Total assets                                 |  | $                                                 | 212,471   |      |  | $    | 197,043   |      |  | $    | 175,802   |  |  | $ | 158,218   |  |  | $ | 140,938   | 
|Average total assets                         |  |                                                   | 203,218   |      |  |      | 185,789   |      |  |      | 167,575   |  |  |   | 149,129   |  |  |   | 127,722   | 
|Net investment securities                    |  |                                                   | 37,903    |      |  |      | 41,061    |      |  |      | 40,849    |  |  |   | 41,397    |  |  |   | 45,182    | 
|Net loans                                    |  |                                                   | 144,302   |      |  |      | 135,932   |      |  |      | 120,708   |  |  |   | 99,279    |  |  |   | 82,814    | 
|Total deposits                               |  |                                                   | 175,849   |      |  |      | 170,271   |      |  |      | 152,184   |  |  |   | 136,887   |  |  |   | 121,188   | 
|Repurchase
agreements &
other borrowed money |  |                                                   | 17,966    |      |  |      | 9,918     |      |  |      | 9,032     |  |  |   | 7,083     |  |  |   | 6,461     | 
|Capital lease obligation                     |  |                                                   | 414       |      |  |      | 462       |      |  |      | 505       |  |  |   | 543       |  |  |   | 577       | 
|Total stockholders equity                   |  |                                                   | 17,047    |      |  |      | 14,635    |      |  |      | 12,575    |  |  |   | 12,011    |  |  |   | 11,117    | 
|Book value per share *                       |  |                                                   | 9.75      |      |  |      | 8.41      |      |  |      | 7.23      |  |  |   | 6.94      |  |  |   | 6.43      | 
|Average total equity                         |  |                                                   | 16,022    |      |  |      | 14,293    |      |  |      | 12,180    |  |  |   | 11,540    |  |  |   | 10,606    | 
|Average common shares
Outstanding *          |  |                                                   | 1,744,463 |      |  |      | 1,739,763 |      |  |      | 1,739,859 |  |  |   | 1,725,618 |  |  |   | 1,717,602 | 



---

|*  |  | Retroactively adjusted for 5% stock dividends paid in 1997 thru 2001 and a two
for one stock split in 1999.
|-- |  | -----------------------------------------------------------------------------------------------------------
|  
|** |  | Restated to reflect the consolidation of the Bank and the Company subsequent
to the 1998 year-end.         

6



---



##### 



Distribution of Assets, Liabilities and Stockholders Equity; Interest Rates
and Interest Differential:

|                                                                            |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |         |        |  |      |      |      |        |         |        |         |   |        |       |       |  |      |      |      |  
|--------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------- | ----------- | ------- | -------- | ------ | ----- | ------ | ------- | ---- | -------- | ---- | ---- | ------- | ------- | ------- | -------- | ------ | ------- | ------ |  | ---- | ---- | ---- | ------ | ------- | ------ | ------- | - | ------ | ----- | ----- |  | ---- | ---- | ---- | -
|                                                                            |                                                     |        |         | DECEMBER 31 |         |          |        |       |        |         |      |          |      |      |         |        
|                                                                            |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |        
|                                                                            |                                                     |        |         | 2001        |         | 2000     |        | 1999 
|                                                                            |                                                     |        |         |             |         |          |        |      
|                                                                            |                                                     |        |         | AVERAGE     |         |          |        |       |        | YIELD/  |      | AVERAGE  |      |      |         |         |         | YIELD/   |        | AVERAGE |        |  |      |      |      | YIELD/
|                                                                            |                                                     |        |         | BALANCE     |         | INTEREST |        | RATE  |        | BALANCE |      | INTEREST |      | RATE |         | BALANCE |         | INTEREST |        | RATE   
|                                                                            |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |        
|ASSETS                                                                      |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |         |        |  |      |      |      |        |         |        |         |   |        |       |       |  |      |     
|Interest-earning assets:                                                    |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |         |        |  |      |      |      |        |         |        |         |   |        |       |       |  |      |     
|                                                                            |                                                     | Loans* |         | $           | 140,931 |          |        | $     | 11,681 |         |      |          | 8.23 | %    |         | $       | 132,614 |          |        | $       | 11,421 |  |      |      | 8.61 | %      |         | $      | 108,557 |   |        | $     | 9,020 |  |      |      | 8.31 | %
|                                                                            | Taxable investment
securities                       |        | $       | 30,505      |         |          | $      | 1,731 |        |         |      | 5.69     | %    |      | $       | 31,922  |         |          | $      | 1,851   |        |  |      | 5.80 | %    |        | $       | 38,193 |         |   | $      | 2,074 |       |  |      | 5.43 | %   
|                                                                            | Tax-exempt investment
securities                    |        | $       | 8,864       |         |          | $      | 376   |        |         |      | 4.24     | %    |      | $       | 8,732   |         |          | $      | 369     |        |  |      | 4.23 | %    |        | $       | 7,281  |         |   | $      | 433   |       |  |      | 5.95 | %   
|                                                                            | Federal
funds sold &
interest bearing bank
balances |        | $       | 9,899       |         |          | $      | 376   |        |         |      | 3.80     | %    |      | $       | 2,819   |         |          | $      | 171     |        |  |      | 6.07 | %    |        | $       | 4,498  |         |   | $      | 215   |       |  |      | 4.78 | %   
|                                                                            |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |         |        |  |      |      |      |        |         |        |         |   |        |       |       |  |      |     
|Total interest-earning assets                                               |                                                     | $      | 190,199 |             |         | $        | 14,164 |       |        |         | 7.41 | %        |      | $    | 176,087 |         |         | $        | 13,812 |         |        |  | 7.84 | %    |      | $      | 158,529 |        |         | $ | 11,743 |       |       |  | 7.41 | %   
|Non-interest-earning assets:                                                |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |         |        |  |      |      |      |        |         |        |         |   |        |       |       |  |      |     
|Cash and due from banks                                                     |                                                     | $      | 4,973   |             |         |          |        |       |        |         |      |          |      | $    | 4,389   |         |         |          |        |         |        |  |      |      |      | $      | 4,231   |        |         |   |        |       |       |  |      |     
|Premises and equipment (net)                                                |                                                     | $      | 6,214   |             |         |          |        |       |        |         |      |          |      | $    | 4,842   |         |         |          |        |         |        |  |      |      |      | $      | 4,545   |        |         |   |        |       |       |  |      |     
|Other assets                                                                |                                                     | $      | 3,007   |             |         |          |        |       |        |         |      |          |      | $    | 3,257   |         |         |          |        |         |        |  |      |      |      | $      | 2,048   |        |         |   |        |       |       |  |      |     
|Less allowance for loan
losses, deferred fees &
securities market valuation |                                                     |        | ($1,175 | )           |         |          |        |       |        |         |      |          |      |      | ($2,786 | )       |         |          |        |         |        |  |      |      |      |        | ($1,778 | )      |         |   |        |       |       |  |      |     
|                                                                            |                                                     |        |         |             |         |          |        |       |        |         |      |          |      |      |         |         |         |          |        |         |        |  |      |      |      |        |         |        |         |   |        |       |       |  |      |     
|TOTAL                                                                       |                                                     | $      | 203,218 |             |         |          |        |       |        |         |      |          |      | $    | 185,789 |         |         |          |        |         |        |  |      |      |      | $      | 167,575 |        |         |   |        |       |       |  |      |     

7



---



##### 



|                                               |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |   | 
|---------------------------------------------- | ----------------------------- | - | ----------- |  | -------- | - | ----- |  | ------- |  | -------- | - | ---- | - | ------- |  | -------- | - | ------- |  |  |  | ----- | - | ------ | - | ------- |  |  | - | ----- |  |  |  | ----- | - | 
|                                               |                               |   | DECEMBER 31 |  |          |   |       |  |         |  |          |   |      |   |        
|                                               |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |        
|                                               |                               |   | 2001        |  | 2000     |   | 1999 
|                                               |                               |   |             |  |          |   |      
|                                               |                               |   | AVERAGE     |  |          |   |       |  | YIELD/  |  | AVERAGE  |   |      |   |         |  | YIELD/   |   | AVERAGE |  |  |  |       |   | YIELD/
|                                               |                               |   | BALANCE     |  | INTEREST |   | RATE  |  | BALANCE |  | INTEREST |   | RATE |   | BALANCE |  | INTEREST |   | RATE   
|                                               |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY           |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |  
|                                               | Interest-bearing liabilities: |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |   | 
|Demand deposits                                |                               | $ | 23,300      |  |          | $ | 261   |  |         |  | 1.12     | % |      | $ | 19,764  |  |          | $ | 238     |  |  |  | 1.20  | % |        | $ | 18,602  |  |  | $ | 225   |  |  |  | 1.21  | %
|Savings deposits                               |                               | $ | 12,516      |  |          | $ | 285   |  |         |  | 2.28     | % |      | $ | 14,654  |  |          | $ | 499     |  |  |  | 3.41  | % |        | $ | 16,746  |  |  | $ | 553   |  |  |  | 3.30  | %
|Time deposits                                  |                               | $ | 113,551     |  |          | $ | 5,510 |  |         |  | 4.85     | % |      | $ | 104,336 |  |          | $ | 5,927   |  |  |  | 5.68  | % |        | $ | 89,621  |  |  | $ | 4,330 |  |  |  | 4.83  | %
|Federal
funds purchased &
other borrowed money |                               | $ | 5,000       |  |          | $ | 302   |  |         |  | 6.04     | % |      | $ | 5,464   |  |          | $ | 332     |  |  |  | 6.08  | % |        | $ | 5,988   |  |  | $ | 358   |  |  |  | 5.98  | %
|Repurchase agreements                          |                               | $ | 8,342       |  |          | $ | 288   |  |         |  | 3.45     | % |      | $ | 4,629   |  |          | $ | 280     |  |  |  | 6.05  | % |        | $ | 3,073   |  |  | $ | 158   |  |  |  | 5.14  | %
|Other                                          |                               | $ | 436         |  |          | $ | 53    |  |         |  | 12.13    | % |      | $ | 482     |  |          | $ | 58      |  |  |  | 12.03 | % |        | $ | 523     |  |  | $ | 63    |  |  |  | 12.05 | %
|                                               |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |  
|Total interest-bearing
Liabilities             |                               | $ | 163,145     |  |          | $ | 6,699 |  |         |  | 4.11     | % |      | $ | 149,329 |  |          | $ | 7,334   |  |  |  | 4.91  | % |        | $ | 134,553 |  |  | $ | 5,687 |  |  |  | 4.23  | %
|Non-interest-bearing liabilities:              |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |  
|Demand deposits                                |                               | $ | 22,258      |  |          |   |       |  |         |  |          |   |      | $ | 21,294  |  |          |   |         |  |  |  |       |   |        | $ | 19,183  |  |  |   |       |  |  |  |       |  
|Other                                          |                               | $ | 1,928       |  |          |   |       |  |         |  |          |   |      | $ | 1,884   |  |          |   |         |  |  |  |       |   |        | $ | 1,659   |  |  |   |       |  |  |  |       |  
|                                               |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |  
|Total Liabilities                              |                               | $ | 187,331     |  |          |   |       |  |         |  |          |   |      | $ | 172,507 |  |          |   |         |  |  |  |       |   |        | $ | 155,395 |  |  |   |       |  |  |  |       |  
|Shareholders equity                           |                               | $ | 15,887      |  |          |   |       |  |         |  |          |   |      | $ | 13,282  |  |          |   |         |  |  |  |       |   |        | $ | 12,180  |  |  |   |       |  |  |  |       |  
|                                               |                               |   |             |  |          |   |       |  |         |  |          |   |      |   |         |  |          |   |         |  |  |  |       |   |        |   |         |  |  |   |       |  |  |  |       |  
|Total                                          |                               | $ | 203,218     |  |          |   |       |  |         |  |          |   |      | $ | 185,789 |  |          |   |         |  |  |  |       |   |        | $ | 167,575 |  |  |   |       |  |  |  |       |  
|Net interest on earnings                       |                               |   |             |  |          | $ | 7,465 |  |         |  |          |   |      |   |         |  |          | $ | 6,478   |  |  |  |       |   |        |   |         |  |  | $ | 6,055 |  |  |  |       |  
|Net yield on interest earning assets           |                               |   |             |  |          |   |       |  |         |  | 3.92     | % |      |   |         |  |          |   |         |  |  |  | 3.68  | % |        |   |         |  |  |   |       |  |  |  | 3.82  | %



---

|* |  | For the purpose of these computations, non-accruing loans are included in the
daily average loan amounts outstanding
|- |  | --------------------------------------------------------------------------------------------------------------------

8



---



##### 



The following table sets forth a summary of the changes in interest and fees
earned and interest paid resulting from changes in volume and changes in rates.

|                                               |  |                              |       |                              |  |     |         |        |  |      |       |     |  |   |       |   |  |   |     |   |  |   |       |  
|---------------------------------------------- |  | ---------------------------- | ----- | ---------------------------- |  | --- | ------- | ------ |  | ---- | ----- | --- |  | - | ----- | - |  | - | --- | - |  | - | ----- | -
|                                               |  | 2001 Compared to 2000        |       | 2000 Compared to 1999       
|                                               |  |                              |       |                             
|                                               |  | Increase (Decrease) Due to * |       | Increase (Decrease) Due to *
|                                               |  |                              |       |                             
|                                               |  | Volume                       |       | Rate                         |  | Net |         | Volume |  | Rate |       | Net
|                                               |  |                              |       |                              |  |     |         |        |  |      |       |    
|                                               |  | (THOUSANDS OF DOLLARS)      
|Interest earned on:                            |  |                              |       |                              |  |     |         |        |  |      |       |     |  |   |       |   |  |   |     |   |  |   |       |  
|Loans (domestic)                               |  | $                            | 716   |                              |  |     | ($456   | )      |  | $    | 260   |     |  | $ | 2,009 |   |  | $ | 405 |   |  | $ | 2,414 |  
|Taxable investment securities                  |  |                              | (82   | )                            |  |     | (38     | )      |  |      | (120  | )   |  |   | (360  | ) |  |   | 7   |   |  |   | (353  | )
|Tax-exempt investment securities               |  |                              | 6     |                              |  |     | 1       |        |  |      | 7     |     |  |   | 86    |   |  |   | 39  |   |  |   | 125   |  
|Federal
funds sold &
interest bearing balances |  |                              | 429   |                              |  |     | (224    | )      |  |      | 205   |     |  |   | (80   | ) |  |   | 36  |   |  |   | (44   | )
|                                               |  |                              |       |                              |  |     |         |        |  |      |       |     |  |   |       |   |  |   |     |   |  |   |       |  
|Total interest earning assets                  |  | $                            | 1,069 |                              |  |     | ($717   | )      |  | $    | 352   |     |  | $ | 1,655 |   |  | $ | 487 |   |  | $ | 2,142 |  
|Interest paid on:                              |  |                              |       |                              |  |     |         |        |  |      |       |     |  |   |       |   |  |   |     |   |  |   |       |  
|Demand deposits                                |  | $                            | 43    |                              |  |     | ($20    | )      |  | $    | 23    |     |  | $ | 14    |   |  |   | ($2 | ) |  | $ | 12    |  
|Savings deposits                               |  |                              | (73   | )                            |  |     | (141    | )      |  |      | (214  | )   |  |   | (69   | ) |  |   | 15  |   |  |   | (54   | )
|Time deposits                                  |  |                              | 523   |                              |  |     | (940    | )      |  |      | (417  | )   |  |   | 707   |   |  |   | 891 |   |  |   | 1,598 |  
|Federal funds purchased                        |  |                              | (28   | )                            |  |     | (2      | )      |  |      | (30   | )   |  |   | (32   | ) |  |   | 5   |   |  |   | (27   | )
|Repurchase Agreements                          |  |                              | 225   |                              |  |     | (217    | )      |  |      | 8     |     |  |   | 80    |   |  |   | 43  |   |  |   | 123   |  
|Other                                          |  |                              | (6    | )                            |  |     | 1       |        |  |      | (5    | )   |  |   | (5    | ) |  |   | 0   |   |  |   | (5    | )
|                                               |  |                              |       |                              |  |     |         |        |  |      |       |     |  |   |       |   |  |   |     |   |  |   |       |  
|Total interest bearing liabilities             |  | $                            | 684   |                              |  |     | ($1,319 | )      |  |      | ($635 | )   |  | $ | 695   |   |  | $ | 952 |   |  | $ | 1,647 |  



---

|* |  | The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Portfolio

The following table sets forth the carrying amount (book value) of investment
securities at the dates indicated:

|                                                |  |                        |        |      |  |      |        |  |  |   |        | 
|----------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                |  | December 31           
|                                                |  |                       
|                                                |  | 2001                   |        | 2000 |  | 1999
|                                                |  |                        |        |      |  |     
|                                                |  | (thousands of dollars)
|U.S. Treasury and other U.S
Government agencies |  | $                      | 27,843 |      |  | $    | 31,108 |  |  | $ | 31,581 | 
|States and political subdivisions               |  | $                      | 9,136  |      |  | $    | 9,074  |  |  | $ | 8,441  | 
|Other                                           |  | $                      | 923    |      |  | $    | 879    |  |  | $ | 827    | 
|                                                |  |                        |        |      |  |      |        |  |  |   |        | 
|TOTAL                                           |  | $                      | 37,902 |      |  | $    | 41,061 |  |  | $ | 40,849 | 

9



---



##### 



The following table sets forth the maturities of investment securities at par
value on December 31, 2001 and the weighted average yields of such securities
calculated on the basis of the cost and effective yields weighted for the
projected life of each security. Tax equivalent adjustments have not been made
in calculating yields on obligations of state and political subdivisions.
Mortgage backed securities are categorized by average life. Callable bonds are
categorized by their projected call date under current market conditions.

Maturing
(thousands of dollars)

|                                          |               |   |          |       |                   |  |                  |      |           |   |        |        |       |  |        |      |       |   |        |    |       |  |      |     |  |   |     |    |  |  |      |     |  |   |        |        |  |  |      |      |  
|----------------------------------------- | ------------- | - | -------- | ----- | ----------------- |  | ---------------- | ---- | --------- | - | ------ | ------ | ----- |  | ------ | ---- | ----- | - | ------ | -- | ----- |  | ---- | --- |  | - | --- | -- |  |  | ---- | --- |  | - | ------ | ------ |  |  | ---- | ---- | -
|                                          |               |   | Within   |       | After One But     |  | After Five But   |      | After     |   |        |        |       |  |        |      |      
|                                          |               |   | One Year |       | Within Five Years |  | Within Ten Years |      | Ten Years |   | Total 
|                                          |               |   |          |       |                   |  |                  |      |           |   |       
|                                          |               |   | Amount   |       | Yield             |  | Amount           |      | Yield     |   | Amount |        | Yield |  | Amount |      | Yield |   | Amount |    | Yield
|U.S. Treasury & Government Agencies       |               |   |          |       |                   |  |                  |      |           |   |        |        |       |  |        |      |       |   |        |    |       |  |      |     |  |   |     |    |  |  |      |     |  |   |        |        |  |  |      |     
|                                          | Fixed rate    |   | $        | 1,000 |                   |  |                  | 5.57 | %         |   | $      | 2,500  |       |  |        | 5.25 | %     |   | $      | 00 |       |  |      | N/A |  |   | $   | 00 |  |  |      | N/A |  |   | $      | 3,500  |  |  |      | 5.34 | %
|                                          | Floating Rate |   | $        | 00    |                   |  |                  | N/A  |           |   | $      | 00     |       |  |        | N/A  |       |   | $      | 00 |       |  |      | N/A |  |   | $   | 00 |  |  |      | N/A |  |   | $      | 00     |  |  |      | N/A  |  
|U.S. government agencies,
MBSs and CMOs |               |   |          |       |                   |  |                  |      |           |   |        |        |       |  |        |      |       |   |        |    |       |  |      |     |  |   |     |    |  |  |      |     |  |   |        |        |  |  |      |     
|                                          | Fixed rate    |   | $        | 1,729 |                   |  |                  | 5.64 | %         |   | $      | 18,816 |       |  |        | 5.68 | %     |   | $      | 00 |       |  |      | N/A |  |   | $   | 00 |  |  |      | N/A |  |   | $      | 20,545 |  |  |      | 5.68 | %
|                                          | Floating rate |   | $        | 211   |                   |  |                  | 4.13 | %         |   | $      | 933    |       |  |        | 6.35 | %     |   | $      | 00 |       |  |      | N/A |  |   | $   | 00 |  |  |      | N/A |  |   | $      | 1,144  |  |  |      | 4.33 | %
|States and political subdivisions         |               | $ | 260      |       |                   |  | 3.60             | %    |           | $ | 1,255  |        |       |  | 4.30   | %    |       | $ | 6,610  |    |       |  | 4.22 | %   |  | $ | 685 |    |  |  | 4.73 | %   |  | $ | 8,810  |        |  |  | 4.25 | %   
|Other                                     |               | $ | 00       |       |                   |  | N/A              |      |           | $ | 2,325  |        |       |  | 5.51   | %    |       | $ | 00     |    |       |  | N/A  |     |  | $ | 00  |    |  |  | N/A  |     |  | $ | 2,325  |        |  |  | 5.51 | %   
|                                          |               |   |          |       |                   |  |                  |      |           |   |        |        |       |  |        |      |       |   |        |    |       |  |      |     |  |   |     |    |  |  |      |     |  |   |        |        |  |  |      |     
|TOTAL                                     |               | $ | 3,200    |       |                   |  | 5.35             | %    |           | $ | 25,829 |        |       |  | 5.51   | %    |       | $ | 6,610  |    |       |  | 4.22 | %   |  | $ | 685 |    |  |  | 4.73 | %   |  | $ | 36,324 |        |  |  | 5.25 | %   

10



---



##### 



Loan Portfolio

The following table shows the maturity of fixed rate loans outstanding as of
December 31, 2001. Also provided are the amounts with maturities beyond one
year classified according to the sensitivity changes in interest rates. These
numbers exclude loans on non-accrual.

Maturing or Repricing Opportunities

|            |                          |   |          |        |                   |   |            |        |       |   |       |       |  |   |         |         | 
|----------- | ------------------------ | - | -------- | ------ | ----------------- | - | ---------- | ------ | ----- | - | ----- | ----- |  | - | ------- | ------- | 
|            |                          |   | Within   |        | After One But     |   | After      |        |       |   |      
|            |                          |   | One Year |        | Within Five Years |   | Five Years |        | Total
|            |                          |   |          |        |                   |   |            |        |      
|Loans with: |                          |   |          |        |                   |   |            |        |       |   |       |       |  |   |         |        
|            | 1-4 Family 1st Mortgages |   | $        | 14,923 |                   |   | $          | 28,544 |       |   | $     | 350   |  |   | $       | 43,817  | 
|            | All Other Loans          |   | $        | 36,855 |                   |   | $          | 60,941 |       |   | $     | 4,331 |  |   | $       | 102,127 | 
|            |                          |   |          |        |                   |   |            |        |       |   |       |       |  |   |         |        
|Total       |                          | $ | 51,778   |        |                   | $ | 89,485     |        |       | $ | 4,681 |       |  | $ | 145,944 |        

Non-accrual, Past Due and Restructured Loans

The following table summarizes the Banks non-accrual, past due and
restructured loans:

|                                                                                   |       |   |                        |   |      |   |   |   | 
|---------------------------------------------------------------------------------- | ----- | - | ---------------------- | - | ---- | - | - | - | 
|                                                                                   |       |   | December 31           
|                                                                                   |       |   | (Thousands of Dollars)
|                                                                                   |       |   | 2001                   |   | 2000
|                                                                                   |       |   |                        |   |     
|Non-accrual loans:                                                                 |       | $ | 0                      |   |      | $ | 0 |  
|Accruing loans past
due 90 days or more:                                           |       | $ | 0                      |   |      | $ | 0 |  
|Restructured loans:                                                                |       | $ | 0                      |   |      | $ | 0 |  
|                                                                                   |       |   |                        |   |      |   |   |  
|                                                                                   | Total |   | $                      | 0 |      |   | $ | 0 | 
|Interest Income not collected that would
have been collected under original terms: |       | $ | 0                      |   |      | $ | 0 |  
|Commitments to lend additional funds:                                              |       | $ | 0                      |   |      | $ | 0 |  

Potential Problem Loans



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2001 the Bank had no loans for which payments presently
are current but the borrowers are experiencing or have recently
experienced financial difficulties

Foreign Outstandings None.

Certain International Developments None.

Loan Concentrations Loan concentrations are considered to exist when there
are amounts lent to a multiple number of borrowers engaged in similar
activities that exceed 10% of total loans and would cause them to be similarly
impacted by economic or other conditions. Motels

11



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##### 



are now a concentration for the Bank at more than $19,000,000 and 13% of the
loan portfolio. With the exception of one loan, the portfolio of motel loans
has been unaffected by the events of 9/11. All of the loans are current on
their payments. The motels are mostly family owned and vacation destination
oriented properties that are oriented to the vacation business and do not rely
on the overnight stay business. Despite the continued performance of our motel
portfolio, the concentration of motel mortgages has caused Bank management to
include a special allocation of $173,000 in its loan loss reserve calculations.
This allocation will continue until there is ample time to realize the long
term effects 9/11 has had on the vacation industry.

Summary of Loan Loss Experience

This table summarizes the Banks loan loss experience for the years ended
December 31, 2001 and 2000.

|                                                       |                   |                            |       |                        |       |      |       |    |       | 
|------------------------------------------------------ | ----------------- | -------------------------- | ----- | ---------------------- | ----- | ---- | ----- | -- | ----- | 
|                                                       |                   |                            |       | Year Ended December 31
|                                                       |                   |                            |       |                       
|                                                       |                   |                            |       | 2001                   |       | 2000
|                                                       |                   |                            |       |                        |       |     
|                                                       |                   |                            |       | (thousands of dollars)
|Loan Loss Reserve                                      |                   |                            |       |                        |       |      |       |   
|                                                       |                   | Balance at January 1       |       | $                      | 1,373 |      |       | $  | 1,254 | 
|Charge-offs:                                           |                   |                            |       |                        |       |      |       |   
|                                                       |                   | Commercial and other loans |       |                        | 0     |      |       |    | 0     | 
|                                                       |                   | Real estate                |       |                        | 10    |      |       |    | 0     | 
|                                                       |                   | Installment/consumer       |       |                        | 73    |      |       |    | 34    | 
|                                                       |                   |                            |       |                        |       |      |       |   
|                                                       | Total Charge-offs |                            | $     | 83                     |       |      | $     | 34 |      
|                                                       | Recoveries:       |                            |       |                        |       |      |       |    |      
|                                                       |                   | Commercial and other loans |       | $                      | 11    |      |       | $  | 0     | 
|                                                       |                   | Real estate                |       |                        | 0     |      |       |    | 0     | 
|                                                       |                   | Installment/consumer       |       |                        | 0     |      |       |    | 1     | 
|                                                       |                   |                            |       |                        |       |      |       |   
|                                                       | Total Recoveries  |                            | $     | 11                     |       |      | $     | 1  |      
|Net charge-offs (recoveries)                           |                   |                            | 72    |                        |       |      | 33    |   
|Additions charged to operations *                      |                   |                            | 250   |                        |       |      | 152   |   
|                                                       |                   |                            |       |                        |       |      |       |   
|Loan Loss Reserve
Balance at December 31               |                   | $                          | 1,551 |                        |       | $    | 1,373 |   
|Ratio of net charge-offs
to average loans outstanding: |                   |                            | .05   | %                      |       |      | .04   | % 



---

|* |  | The amount charged to operations and the related balance in the allowance for
loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior loan
loss experience, amounts and timing of future cash flows, and managements
estimate of future potential losses.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



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##### 



Deposits

The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:

|                                     |       |   |                        |         |      |  |        |      |      |   |         |         |  |  |      |      |  
|------------------------------------ | ----- | - | ---------------------- | ------- | ---- |  | ------ | ---- | ---- | - | ------- | ------- |  |  | ---- | ---- | -
|                                     |       |   | Year Ended December 31
|                                     |       |   |                       
|                                     |       |   | 2001                   |         | 2000
|                                     |       |   |                        |         |     
|                                     |       |   | Amount                 |         | Rate |  | Amount |      | Rate
|                                     |       |   |                        |         |      |  |        |      |     
|                                     |       |   | (thousands of dollars)
|Domestic bank offices:               |       |   |                        |         |      |  |        |      |      |   |         |         |  |  |      |     
|Non-interest-bearing
demand deposits |       | $ | 22,258                 |         |      |  | 0      | %    |      | $ | 21,294  |         |  |  | 0    | %   
|Interest-bearing demand
Deposits     |       | $ | 23,300                 |         |      |  | 1.12   | %    |      |   | 19,764  |         |  |  | 1.20 | %   
|Savings deposits                     |       |   | 12,516                 |         |      |  | 2.28   | %    |      |   | 14,654  |         |  |  | 3.41 | %   
|Time deposits                        |       |   | 113,551                |         |      |  | 4.88   | %    |      |   | 104,336 |         |  |  | 5.68 | %   
|                                     |       |   |                        |         |      |  |        |      |      |   |         |         |  |  |      |     
|                                     | Total |   | $                      | 171,625 |      |  |        | 3.55 | %    |   | $       | 160,048 |  |  |      | 4.16 | %

Return on Average Equity and Average Assets

The following table shows operating and capital ratios of the Bank for each of
the last three years.

|                                       |  |                        |       |      |  |      |       |   |  |  |       |  
|-------------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                       |  | Year Ended December 31
|                                       |  |                       
|                                       |  | 2001                   |       | 2000 |  | 1999
|                                       |  |                        |       |      |  |     
|Return on average assets               |  |                        | .92   | %    |  |      | .80   | % |  |  | 0.84  | %
|Return on average equity               |  |                        | 11.71 | %    |  |      | 11.15 | % |  |  | 11.51 | %
|Dividend pay out ratio                 |  |                        | 0.00  | %    |  |      | 0.00  | % |  |  | 0.00  | %
|Average equity to average assets ratio |  |                        | 7.88  | %    |  |      | 7.15  | % |  |  | 7.27  | %

13



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##### 



Short-Term Borrowings

The following table shows the distribution of the Banks short-term borrowings
and the weighted average interest rates thereon at the end of each of the last
three years. Also provided are the maximum amount of borrowings and the
average amounts outstanding as well as weighted average interest rates for the
last three years.

|                                                |      |  |                        |        |            |  |            |      |       |  |   |       |  
|----------------------------------------------- | ---- |  | ---------------------- | ------ | ---------- |  | ---------- | ---- | ----- |  | - | ----- | -
|                                                |      |  | Over Night Funds       |        |            |  |            |      |       |  |  
|                                                |      |  | Purchased &            |        |            |  |            |      |       |  |  
|                                                |      |  | Securities Sold Under  |        |            |  |            |      | Other
|                                                |      |  | Agreements to          |        | Commercial |  | Short-Term
|                                                |      |  | Repurchase*            |        | Paper      |  | Borrowings
|                                                |      |  |                        |        |            |  |           
|                                                |      |  | (thousands of dollars)
|Balance at December 31:                         |      |  |                        |        |            |  |            |      |       |  |   |      
|                                                | 2001 |  | $                      | 12,966 |            |  | $          | 0    |       |  | $ | 5,000 |  
|                                                | 2000 |  | $                      | 4,918  |            |  | $          | 0    |       |  | $ | 0     |  
|                                                | 1999 |  | $                      | 4,032  |            |  | $          | 0    |       |  | $ | 0     |  
|Weighted average interest
rate at year-end:     |      |  |                        |        |            |  |            |      |       |  |   |      
|                                                | 2001 |  |                        | 1.85   | %          |  |            | 0.00 | %     |  |   | 5.93  | %
|                                                | 2000 |  |                        | 5.88   | %          |  |            | 0.00 | %     |  |   | 0.00  | %
|                                                | 1999 |  |                        | 5.19   | %          |  |            | 0.00 | %     |  |   | 0.00  | %
|Maximum amount outstanding
at any months end:  |      |  |                        |        |            |  |            |      |       |  |   |      
|                                                | 2001 |  | $                      | 12,966 |            |  | $          | 0    |       |  | $ | 5,000 |  
|                                                | 2000 |  | $                      | 6,883  |            |  | $          | 0    |       |  | $ | 0     |  
|                                                | 1999 |  | $                      | 7,654  |            |  | $          | 0    |       |  | $ | 0     |  
|Average amount outstanding
during the year:     |      |  |                        |        |            |  |            |      |       |  |   |      
|                                                | 2001 |  | $                      | 8,342  |            |  | $          | 0    |       |  | $ | 5,000 |  
|                                                | 2000 |  | $                      | 5,093  |            |  | $          | 0    |       |  | $ | 0     |  
|                                                | 1999 |  | $                      | 4,061  |            |  | $          | 0    |       |  | $ | 0     |  
|Weighted average interest
rate during the year: |      |  |                        |        |            |  |            |      |       |  |   |      
|                                                | 2001 |  |                        | 3.45   | %          |  |            | 0.00 | %     |  |   | 5.93  | %
|                                                | 2000 |  |                        | 6.20   | %          |  |            | 0.00 | %     |  |   | 0.00  | %
|                                                | 1999 |  |                        | 5.26   | %          |  |            | 0.00 | %     |  |   | 0.00  | %



---

|* |  | Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------

14



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##### 






ITEM 7.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The purpose of this discussion is to focus on information about the
Company and its Bank subsidiarys financial condition and results of operations
which is not otherwise apparent from the financial statements included in this
annual report. Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following discussion and analysis.

Financial Condition

The Bank (the Companys only subsidiary) functions as a financial
intermediary, and as such, its financial condition should be examined in terms
of trends in its sources and uses of funds. The following comparison of average
balances indicates how the Bank has managed its sources and uses of funds.
Comments in this section relate to annual average amounts, not year-end
amounts. Average balances are the average of the monthly averages:

Sources and Uses of Funds Trends

|                                                    |                                  |                                              |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |         |        |        |        |        |       |       |       |       |      |       |        |         |        | 
|--------------------------------------------------- | -------------------------------- | -------------------------------------------- | -------------------- | ------ | ---------------------- | ------ | ------ | ------ | ------ | ----- | ------- | ---- | ------ | ---- | ------ | ------ | ------- | ------ | ------ | ------ | ------ | ----- | ----- | ----- | ----- | ---- | ----- | ------ | ------- | ------ | 
|                                                    |                                  |                                              |                      |        | 2001                   |        | 2000   |        | 1999  
|                                                    |                                  |                                              |                      |        |                        |        |        |        |       
|                                                    |                                  |                                              |                      |        | Average                |        | Amount |        | %      |       | Average |      | Amount |      | %      |        | Average
|                                                    |                                  |                                              |                      |        | Balance                |        | Change |        | Change |       | Balance |      | Change |      | Change |        | Balance
|                                                    |                                  |                                              |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |        
|                                                    |                                  |                                              |                      |        | (thousands of dollars)
|Funding uses:                                       |                                  |                                              |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |         |        |        |        |        |       |       |       |       |      |       |       
|                                                    |                                  | Loans                                        |                      | $      | 140,931                |        |        | $      | 8,273  |       |         |      | 6.2    | %    |        | $      | 132,614 |        |        | $      | 24,057 |       |       |       | 22.2  | %    |       | $      | 108,557 |       
|                                                    | Taxable investment
securities    |                                              |                      | 30,505 |                        |        |        | (1,417 | )      |       |         | (4.4 | %)     |      |        | 31,922 |         |        |        | (6,271 | )      |       |       | (16.4 | %)    |      |       | 38,193 |        
|                                                    | Tax-exempt investment
securities |                                              |                      | 8,864  |                        |        |        | 132    |        |       |         | 1.5  | %      |      |        | 8,732  |         |        |        | 1,451  |        |       |       | 19.9  | %     |      |       | 7,281  |        
|Federal funds sold & Interest
bearing bank balances |                                  |                                              | 9,899                |        |                        |        | 7,080  |        |        |       | 251.1   | %    |        |      | 2,819  |        |         |        | (1,230 | )      |        |       | (30.4 | %)    |       |      | 4,049 |       
|                                                    |                                  |                                              |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |         |        |        |        |        |       |       |       |       |      |       |       
|                                                    |                                  | Total uses                                   |                      | $      | 190,199                |        |        | $      | 14,112 |       |         |      | 8.0    | %    |        | $      | 176,087 |        |        | $      | 18,007 |       |       |       | 11.4  | %    |       | $      | 158,080 |       
|Funding sources:                                    |                                  |                                              |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |         |        |        |        |        |       |       |       |       |      |       |       
|                                                    |                                  | Demand deposits:                             |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |         |        |        |        |        |       |       |       |       |      |       |        |         |       
|                                                    |                                  |                                              | Non-interest-bearing |        | $                      | 22,258 |        |        | $      | 964   |         |      |        | 4.5  | %      |        | $       | 21,294 |        |        | $      | 2,111 |       |       |       | 11.0 | %     |        | $       | 19,183 | 
|                                                    |                                  |                                              | Interest-bearing     |        |                        | 23,300 |        |        |        | 3,536 |         |      |        | 17.9 | %      |        |         | 19,764 |        |        |        | 1,162 |       |       |       | 6.2  | %     |        |         | 18,602 | 
|                                                    |                                  | Savings Deposits                             |                      |        | 12,516                 |        |        |        | (2,138 | )     |         |      | (14.6  | %)   |        |        | 14,654  |        |        |        | (2,092 | )     |       |       | (12.5 | %)   |       |        | 16,746  |       
|                                                    |                                  | Time deposits                                |                      |        | 113,551                |        |        |        | 9,215  |       |         |      | 8.8    | %    |        |        | 104,336 |        |        |        | 14,715 |       |       |       | 16.4  | %    |       |        | 89,621  |       
|                                                    |                                  | Federal funds purchased
and other borrowings |                      |        | 5,436                  |        |        |        | (28    | )     |         |      | (.5    | %)   |        |        | 5,464   |        |        |        | (524   | )     |       |       | (8.75 | %)   |       |        | 5,988   |       
|                                                    |                                  | Repurchase agreements                        |                      |        | 8,342                  |        |        |        | 3,713  |       |         |      | 80.2   | %    |        |        | 4,629   |        |        |        | 1,556  |       |       |       | 50.6  | %    |       |        | 3,073   |       
|                                                    |                                  | Other                                        |                      |        | 4,796                  |        |        |        | (1,150 | )     |         |      | (19.3  | %)   |        |        | 5,946   |        |        |        | 1,079  |       |       |       | 22.2  | %    |       |        | 4,867   |       
|                                                    |                                  |                                              |                      |        |                        |        |        |        |        |       |         |      |        |      |        |        |         |        |        |        |        |       |       |       |       |      |       |       
|                                                    |                                  | Total sources                                |                      | $      | 190,199                |        |        | $      | 14,112 |       |         |      | 8.0    | %    |        | $      | 176,087 |        |        | $      | 18,007 |       |       |       | 11.4  | %    |       | $      | 158,080 |       

The Bank uses its funds primarily to support its lending activities.
Average loans increased by $8,273,000 or 6.2% in 2001 after increasing by
$24,057,000 or 22% in 2000. The increase was largely the result of continued
emphasis on lending by Bank management
and continued economic conditions in the local market.

15



---



##### 



Average taxable bond investments, another use of funds, decreased by
$1,417,000 or 4.4% in 2001 to provide funds for loans while tax-exempt bond
investments increased by $132,000 or 1.5% to provide better income tax
management.

The Banks increase in earning assets from 2000 to 2001 was funded mainly
by increased deposits. The Bank sought to grow its loan portfolio in 2001, and
to fund this growth, it sought deposits in the local market place. Although
deposit growth was from all types of deposits, the Bank showed the greatest
absolute growth in money market accounts.

Liquidity and Interest Rate Sensitivity Management

The primary function of asset/liability management is to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive
earning assets and interest-bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Interest rate
sensitivity management seeks to avoid fluctuating net interest margins and to
enhance consistent growth of net interest income through periods of changing
interest rates.

Marketable investment securities, particularly those of shorter
maturities, are a principal source of asset liquidity. Securities maturing or
expected to be called within one year or less amounted to $3,200,000 at
December 31, 2001 representing 9% of the investment securities portfolio, an
increase from the 2000 amount of $2,108,000. This is due to the Bank making an
effort to shorten its average bond maturity while rates are low. Shortening
the maturity of the portfolio will have the effect of not locking in investment
rates while rates are low.

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

Brokered deposits are deposit instruments, such as certificates of
deposit, bank investment contracts and certain municipal investment contracts
that are issued through brokers who then offer and/or sell these deposit
instruments to one or more investors. The Bank does not currently purchase or
sell brokered deposits.

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

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

Interest rate sensitivity varies with different types of interest earning
assets and interest-bearing liabilities. Overnight federal funds, on which
rates change daily, and loans,

16



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##### 



which are tied to the prime rate, differ considerably from long-term
investment securities and fixed-rate loans. Similarly, time deposits over
$100,000 and money market accounts are much more interest rate sensitive than
passbook savings accounts. The shorter term interest rate sensitivities are key
to measuring the interest sensitivity gap, or excess interest-sensitive earning
assets over interest-bearing liabilities.

The following table shows the interest sensitivity gaps for four different
time intervals as of December 31, 2001. For the first year, interest-sensitive
assets exceed liabilities by $21,575,000. Over the following two years,
liabilities re-price faster than assets. The excess of interest-bearing
liabilities over interest-earning assets for the one-to-three year period is
primarily related to the longer maturities of CDs and NOW and MMA accounts
that are regarded as much less rate sensitive.

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

The primary interest sensitive assets and liabilities in the one-year
maturity range are loans and time deposits. Trying to minimize this gap while
maintaining earnings is a continual challenge in a changing interest rate
environment and one of the objectives of the Banks asset/liability management
strategy. Management has adopted a philosophy of balancing assets and
liabilities over a three-year period, which it has accomplished. Management
feels that the rate rewards of being balanced over a three-year period more
than offset the risk of being modestly unbalanced over the short term.

Capital Resources

The Bank maintains a strong capital base to take advantage of business
opportunities while ensuring that it has resources to absorb the risks inherent
in the business.

In January 1989, the Federal Reserve Board released new standards for
measuring capital adequacy for U.S. banking organizations. In general, the
standards require banks and bank holding companies to maintain capital based on
risk-adjusted assets so that categories of assets with potentially higher
credit risk will require more capital backing than assets with lower risk. In
addition, banks are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance-sheet activities such as loan
commitments.

The Federal Reserve Board standards classify capital into two tiers,
referred to as Tier 1 and Tier 2. For the Bank, Tier 1 capital consists of
common shareholders equity. Tier 2 capital consists of allowance for loan and
lease losses. All banks must maintain a minimum leverage ratio of Tier 1
capital to total assets of 3%. To be considered adequately capitalized, banks
are required to meet a minimum ratio of 8% of qualifying total Tier 1 and Tier
2 capital to risk-adjusted total assets and at least 4% ratio of Tier 1 capital
to total assets. The Bank had corresponding ratios of 12.5% and 8.0% at
year-end. Capital that qualifies as Tier 2
capital is limited to 100% of Tier 1 capital.

17



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##### 



The table below illustrates the Banks regulatory capital ratios at December 31

|                                                             |  |                        |         |      |  |   |         |  
|------------------------------------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                             |  | 2001                   |         | 2000
|                                                             |  |                        |         |     
|                                                             |  | (thousands of dollars)
|Tier 1 Capital                                               |  | $                      | 16,720  |      |  | $ | 14,841  |  
|Tier 2 Capital                                               |  | $                      | 1,551   |      |  | $ | 1,373   |  
|                                                             |  |                        |         |      |  |   |         |  
|Total Qualifying Capital                                     |  | $                      | 18,271  |      |  | $ | 16,214  |  
|Risk Adjusted Total Assets
(including off-balance exposures) |  | $                      | 146,422 |      |  | $ | 141,674 |  
|Tier 1 Risk-Based Capital Ratio                              |  |                        | 11.4    | %    |  |   | 10.5    | %
|Total Risk-Based Capital Ratio                               |  |                        | 12.5    | %    |  |   | 11.4    | %
|Leverage Ratio                                               |  |                        | 7.9     | %    |  |   | 7.5     | %

At December 31, 2001, there were commitments for expenditures that would impact
the capital of the Bank or the Company.

Relationship Between Significant Financial Ratios

The following table illustrates this relationship where the percent return on
equity times the percent of earnings retained equals the internal capital
growth percentage:

|                         |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                         |  | 2001 |      | 2000 |  | 1999
|                         |  |      |      |      |  |     
|Return on average equity |  |      | 11.7 | %    |  |      | 11.1 | % |  |  | 11.5 | %
|Earnings retained        |  |      | 100  | %    |  |      | 100  | % |  |  | 100  | %
|Internal capital growth  |  |      | 11.7 | %    |  |      | 11.1 | % |  |  | 11.5 | %

From a level of 8.0% in 1998, the rate of internal capital growth has
increased to 11.5% in 1999, 11.1% in 2000 and 11.7% in 2001. This increasing
growth rate is directly related to the increasing profitability of the Bank.

To maintain adequate capital, the Bank and the Company will continue their
efforts to maintain its level of earnings and will give appropriate
consideration to capital needs for expansion and growth before determining
annual dividend pay out to the Company or to shareholders.

Results of Operations

The Companys net income for 2001 was $1,877,000, an increase of 27% over
2000 earnings of $1,480,000 and also up 34% from 1999 earnings of $1,402,000.
On a per share basis, net income for the similar periods were $1.08, $.85 and
$.81 after retroactively adjusting for annual 5% stock dividends and the two
for one split in 1999.

18



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##### 



Income improved significantly from 1999 to 2001, despite the growth in
overhead due
to the opening of a branch and an investment sales subsidiary of the Bank
and expansion of the Trust Department. However, 2000 income was impacted by
falling interest rates and narrowing margins throughout the banking industry,
particularly in the fourth quarter. These narrowed margins continued into the
first quarter of 2001 but began to recover as the year progressed. Net interest
income was up by $988,000 for 2001 over 2000. These increased revenues were
offset by increased overhead of $688,000 due to growth of the Bank, and the
opening of a new branch in the fourth quarter of 2000.

Net interest income is the major component of the Banks earning capacity.
It represents the difference or spread between interest income on earning
assets (primarily loans, investment securities and Federal funds sold) and
interest expense on interest-bearing liabilities (primarily deposits). The
spread is considered positive when interest-earning assets exceed
interest-paying liabilities. Net interest income is also affected by changes in
interest rates earned and interest rates paid, and by changes in the volume of
interest-earning assets and interest-bearing liabilities.

To the extent possible, the Bank follows a strategy intended to insulate
the Banks interest rate spread from adverse changes in interest rates by
maintaining spreads through the adjustability of its earning assets and
interest-bearing liabilities. At December 31, 2001, approximately 36% of the
loan portfolio was repriceable or expected to repay within one year.

Results of operations can be measured by various ratio analyses. Two
widely recognized performance indicators are return on equity and return on
assets. The Banks return on average equity was 11.7% in 2001, up from 11.1% in
2000, and up from 11.5% in 1999. This is the result of the Banks earnings
growth. The Banks return on assets (ROA) increased from .84% in 1999 and .80%
in 2000 to .92% in 2001. In 1995, the Board of Directors adopted a strategy of
growth for the Bank knowing that the increased overhead would impact the Banks
earnings for several years. The strategy anticipated that increased revenues
would eventually offset the substantial increase in overhead resulting from
branch openings. This in fact happened in 1997 through 1999. With the slower
growth in overhead expenses, earnings improved during those years. With the
opening of the new branch in 2000, some of the overhead efficiencies were lost,
but the Board of Directors believes that continued branching is a strategy that
benefits the Bank in the long run.

19



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##### 



LOANS

Loan Portfolio

The following table shows the Banks loans distribution at the end of each of
the last two years.

|                |                            |                      |   |                       |         |      |   |        |         | 
|--------------- | -------------------------- | -------------------- | - | --------------------- | ------- | ---- | - | ------ | ------- | 
|                |                            |                      |   | December 31          
|                |                            |                      |   |                      
|                |                            |                      |   | 2001                  |         | 2000
|                |                            |                      |   |                       |         |     
|                |                            |                      |   | (Thousand of dollars)
|Domestic Loans: |                            |                      |   |                       |         |      |   |       
|                | Commercial and Other       |                      | $ | 11,748                |         |      | $ | 14,859 |        
|                | Real
estate  construction |                      |   | 5,053                 |         |      |   | 2,267  |        
|                | Real estate  Residential  |                      |   | 52,137                |         |      |   | 48,702 |        
|                | Real estate  Other        |                      |   | 71,025                |         |      |   | 63,839 |        
|                | Installment/Consumer       |                      |   | 5,981                 |         |      |   | 7,638  |        
|                |                            |                      |   |                       |         |      |   |       
|                |                            | Total domestic loans |   | $                     | 145,944 |      |   | $      | 137,305 | 

Real estate mortgage loans at year-end 2001 and 2000 comprised the
greatest percentage of total loans. Commercial non-real estate and consumer
loans were approximately 8% and 4% respectively at the year-end 2001. The
growth in loans outstanding at year-end 2001 was the result of an initiative by
management to grow the loan portfolio.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate
by management to absorb potential losses in the loan portfolio. Managements
methodology to determine the adequacy of the allowance considers specific
credit reviews, past loan loss experience, current economic conditions and
trends, and the volume, growth and composition of the loan portfolio.

Each credit on the Banks internal loan watch list is evaluated
periodically to estimate potential losses. In addition, minimum estimates for
each category of watch list credits also are provided based on managements
judgment of past loan loss experience and other factors. The total of reserves
resulting from this analysis is allocated reserves. The amounts specifically
provided for individual loans and pools of loans are supplemented by an
unallocated amount for loan losses. This unallocated amount is determined based
on judgments regarding risk of error in the specific allocation, other
potential exposure in the loan portfolio, economic conditions and trends,
amounts and timing of future cash flows, and other factors.

20



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##### 



Composition of Allowance for Loan Losses

This table shows an allocation of the allowance for loan losses as of the last
two year-ends:

|                                                       |       |   |                        |       |                   |  |               |     |             |   |       |       |               |  |    |     |  
|------------------------------------------------------ | ----- | - | ---------------------- | ----- | ----------------- |  | ------------- | --- | ----------- | - | ----- | ----- | ------------- |  | -- | --- | -
|                                                       |       |   | December 31, 2001      |       | December 31, 2000
|                                                       |       |   |                        |       |                  
|                                                       |       |   |                        |       |                   |  | Percent of    |     |             |   |       |       | Percent of   
|                                                       |       |   |                        |       |                   |  | Loans in each |     |             |   |       |       | Loans in each
|                                                       |       |   |                        |       |                   |  | category to   |     |             |   |       |       | category to  
|                                                       |       |   | Amount                 |       | Total Loans       |  | Amount        |     | Total Loans
|                                                       |       |   |                        |       |                   |  |               |     |            
|                                                       |       |   | (thousands of dollars)
|Commercial, Commercial RE,
Construction & Agricultural |       | $ | 388                    |       |                   |  | 60            | %   |             | $ | 196   |       |               |  | 59 | %  
|Real estate-residential                                |       |   | 95                     |       |                   |  | 36            | %   |             |   | 107   |       |               |  | 35 | %  
|Consumer                                               |       |   | 150                    |       |                   |  | 4             | %   |             |   | 69    |       |               |  | 6  | %  
|Special allocations                                    |       |   | 10                     |       |                   |  | 0             | %   |             |   | 0     |       |               |  | 0  | %  
|Unallocated                                            |       |   | 908                    |       |                   |  | 0             | %   |             |   | 1,001 |       |               |  | 0  | %  
|                                                       |       |   |                        |       |                   |  |               |     |             |   |       |       |               |  |    |    
|                                                       | Total |   | $                      | 1,551 |                   |  |               | 100 | %           |   | $     | 1,373 |               |  |    | 100 | %

The above allocation is based on estimates and subjective judgments and is
not necessarily indicative of the specific amounts or loan categories in which
losses may ultimately occur.

In 2001 the allowance for loan losses approximates 1.06% of loans, up
slightly from 1.0% in 2000. The allowance for loan losses is changed when
management determines that the prospects of recovery of the principal or
interest of a loan or lease are doubtful. Subsequent recoveries, if any, are
credited to the allowance. Real estate mortgage loans are written down to fair
value upon the earlier receipt of a deed in lieu of foreclosure, upon
completion of foreclosure proceedings, or upon in-substance foreclosure.
Commercial and other loan charge-offs are made based on managements on-going
evaluation of non-performing loans. At year-end, the Bank had no impaired
loans under SFAS 114, which became effective on January 1, 1995.

Non-performing Assets

Non-performing assets include non-accrual, accruing loans past due 90 days
or more, and other real estate, which includes foreclosures, deeds in lieu of
foreclosure and in-substance foreclosures. A loan is classified as an
in-substance foreclosure when the borrower has little or no equity in the
collateral and the Bank can reasonably expect proceeds for repayment only from
the operation or sale of the collateral.

A loan generally is classified as non-accrual when full collection of
principal or interest is doubtful or a loan becomes 90 days past due as to
principal or interest. Unless management determines that the estimated net
realizable value of the collateral is greater than the unpaid principal and
interest, interest accrual is discontinued. Unpaid interest previously
credited to income in the current year is reserved; and unpaid interest accrued
in prior years is charged to the allowance for loan losses. A non-performing
loan is returned to performing status when
the loan is brought current and has performed in accordance with contract
terms for a period of time.

21



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##### 



|                                                                    |                             |   |                                       |     |      |   |       |       | 
|------------------------------------------------------------------- | --------------------------- | - | ------------------------------------- | --- | ---- | - | ----- | ----- | 
|                                                                    |                             |   | Distribution of Non-performing Assets
|                                                                    |                             |   | December 31                          
|                                                                    |                             |   |                                      
|                                                                    |                             |   | 2001                                  |     | 2000
|                                                                    |                             |   |                                       |     |     
|                                                                    |                             |   | (thousands of Dollars)               
|Commercial, Commercial RE,
& Construction                           |                             | $ | 0                                     |     |      | $ | 0     |      
|Residential RE                                                      |                             |   | 0                                     |     |      |   | 0     |      
|Installment/Consumer                                                |                             |   | 0                                     |     |      |   | 0     |      
|                                                                    |                             |   |                                       |     |      |   |       |      
|                                                                    | Total non-performing loans  |   | $                                     | 0   |      |   | $     | 0     | 
|Other real estate owned                                             |                             | $ | 593                                   |     |      |   | 1,065 |      
|Other Assets                                                        |                             | $ | 61                                    |     |      | $ | 137   |      
|Debt Security                                                       |                             |   | 0                                     |     |      |   | 0     |      
|                                                                    |                             |   |                                       |     |      |   |       |      
|                                                                    | Total non-performing assets |   | $                                     | 654 |      |   | $     | 1,202 | 
|Non-performing loans to
year-end loans                              |                             |   | 0                                     | %   |      |   | 0     | %    
|Non-performing assets to year-end
loans and other real estate owned |                             |   | .45                                   | %   |      |   | .86   | %    

Management continually reviews any non-performing assets and any
uncollectible portions of the asset have been charged off. When the Bank has
non-performing assets, management strives to assure that the amounts reflected
on the books fairly represent the net realizable value of that asset. However,
the time required to liquidate the asset is undeterminable due to the time
required to proceed through the court systems and the time required to market
the collateral.

At year-ends 2001 and 2000, there were no non-accrual loans and
consequently there was no additional interest income that would have been
recorded.

At December 31, 2001, the Bank had $1,465,000 of real estate secured
criticized watch loans, which were not included in the 90 day past due or
non-accrual categories, where the borrowers are currently experiencing or have
recently experienced financial difficulties but are current on their payments.
This is up from $336,000 at December 31, 2000.

At December 31, 2001, the Bank had no commitments to lend additional funds
with respect to non-performing loans.

In evaluating loan portfolio risk, management believes that any
significant future increases in non-performing loans are dependent to a large
extent on the economic environment. In a deteriorating or uncertain economy,
management applies more conservative assumptions when assessing the future
prospects of borrowers and when estimating collateral values. This may result
in a higher number of loans being classified as non-performing.

22



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##### 



Income Taxes

The Companys effective tax rate was 34% in 2001 which is up from 31% in
2000. The effective rate is lower than the statutory rate primarily due to
certain tax-exempt interest income.

Impact of Inflation and Changing Prices

The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate
equity-to-assets ratio. Another significant effect of inflation is on other
expenses, which tend to rise during periods of general inflation.

Management believes the most significant impact on financial results is
the Banks ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain an essentially balanced
position between interest sensitive assets and liabilities in order to protect
against wide interest rate fluctuations.

23



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##### 






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

The information required by this Item is incorporated herein by reference to
the information set forth under the following captions contained in this Form
10-K:



| | (i)   |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations"Liquidity and Interest Rate Sensitivity
Management.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | PART II  Item 6.
 Selected Financial Data  Investment
Portfolio                                                                       
|
| | (iii) |  | PART II  Item 6.
 Selected Financial Data  Loan Portfolio                                                                             
|
| | (iv)  |  | PART II  Item 14.  Financial Statements of First National
Bancshares, Inc.                                                             




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company and the related notes thereto
required by Subpart I have been included immediately following Item 14 in Part
IV of this Annual Report.

Selected quarterly results of operations for the four quarters ended
December 31 are as follows:

|                                  |      |  |                                   |       |         |   |         |       |         |   |         |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       |       |  |   |       |       | 
|--------------------------------- | ---- |  | --------------------------------- | ----- | ------- | - | ------- | ----- | ------- | - | ------- | ----- | ------- | - | ------- | ----- | ------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                  |      |  | 2001                              |       | 2000   
|                                  |      |  |                                   |       |        
|                                  |      |  | Fourth                            |       | Third   |   | Second  |       | First   |   | Fourth  |       | Third   |   | Second  |       | First  
|                                  |      |  | Quarter                           |       | Quarter |   | Quarter |       | Quarter |   | Quarter |       | Quarter |   | Quarter |       | Quarter
|                                  |      |  |                                   |       |         |   |         |       |         |   |         |       |         |   |         |       |        
|                                  |      |  | (thousands, except share amounts)
|Interest Income                   |      |  | $3,399                            |       |         | $ | 3,523   |       |         | $ | 3,590   |       |         | $ | 3,652   |       |         | $ | 3,575 |       |  | $ | 3,489 |       |  | $ | 3,420 |       |  | $ | 3,328 |      
|Interest Expense                  |      |  | 1,299                             |       |         |   | 1,628   |       |         |   | 1,781   |       |         |   | 1,991   |       |         |   | 2,009 |       |  |   | 1,906 |       |  |   | 1,748 |       |  |   | 1,671 |      
|Net Interest Income               |      |  | 2,100                             |       |         |   | 1,895   |       |         |   | 1,809   |       |         |   | 1,661   |       |         |   | 1,566 |       |  |   | 1,583 |       |  |   | 1,672 |       |  |   | 1,657 |      
|Provision for Loan Losses         |      |  | 142                               |       |         |   | 39      |       |         |   | 65      |       |         |   | 4       |       |         |   | 33    |       |  |   | 14    |       |  |   | 55    |       |  |   | 50    |      
|Earnings before Income Taxes      |      |  | 1,104                             |       |         |   | 637     |       |         |   | 603     |       |         |   | 508     |       |         |   | 470   |       |  |   | 514   |       |  |   | 574   |       |  |   | 588   |      
|Net Earnings                      |      |  | 702                               |       |         |   | 423     |       |         |   | 402     |       |         |   | 350     |       |         |   | 322   |       |  |   | 357   |       |  |   | 392   |       |  |   | 409   |      
|Basic Earnings per Common Share   |      |  | .41                               |       |         |   | .24     |       |         |   | .23     |       |         |   | .20     |       |         |   | .18   |       |  |   | .21   |       |  |   | .23   |       |  |   | .23   |      
|Diluted Earnings per Common Share |      |  | .38                               |       |         |   | .22     |       |         |   | .21     |       |         |   | .19     |       |         |   | .17   |       |  |   | .20   |       |  |   | .22   |       |  |   | .22   |      
|Cash Dividends per Common Share   |      |  | 0                                 |       |         |   | 0       |       |         |   | 0       |       |         |   | 0       |       |         |   | 0     |       |  |   | 0     |       |  |   | 0     |       |  |   | 0     |      
|Market
Price Range(1)             |      |  |                                   |       |         |   |         |       |         |   |         |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | High |  |                                   | 15.00 |         |   |         | 17.00 |         |   |         | 14.29 |         |   |         | 14.29 |         |   |       | 15.24 |  |   |       | 14.74 |  |   |       | 14.96 |  |   |       | 14.96 | 
|                                  | Low  |  |                                   | 12.15 |         |   |         | 13.00 |         |   |         | 13.15 |         |   |         | 12.70 |         |   |       | 13.33 |  |   |       | 13.76 |  |   |       | 13.61 |  |   |       | 14.06 | 



---

|1. |  | All per share information is presented to reflect all stock dividends and
stock splits including the 5% stock dividends declared for shareholders of
record September 21, 2000 and August 31, 2001.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24



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##### 






ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Since July 18, 1986 (the date of inception of the Bank, the Companys
subsidiary), neither the Bank nor the Company have had any disagreements with
its independent certified public accountants regarding accounting and financial
disclosure and there has been no change in accounting firms since 1994. The
accounting firm of Christopher, Smith, Leonard, Bristow, Stanell, and Wells,
P.A. is currently employed by the Company to perform its annual audit and its
financial report is included in this annual report.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

A. Directors

The information required by Item 10 pertaining to directors of the Company
is incorporated herein by reference to the sections entitled Election of
Directors and Committees of the Board of Directors and Certain Meetings in
the definitive proxy statement of the Company of the Bank for its 2002 Annual
Meeting of Shareholders, pages three through five. The Proxy Statement will be
filed with the Securities and Exchange Commission within 120 days of the end of
the Banks fiscal year ended December 31, 2001 at the time it is mailed to the
shareholders.

B. Executive Officers

With respect to Francis I. duPont, III, the Chairman of the Board and
Chief Executive Officer of the Company, and Glen W. Fausset, President of the
Company, who are also directors of the Company, the information required by
Item 10 pertaining to the Companys executive officers is incorporated herein
by reference to the section entitled Election of Directors in the definitive
proxy statement of the Company of the Bank for its 2002 Annual Meeting of
Shareholders, pages three and four, which will be filed with the Securities and
Exchange Commission within 120 days of the end of the Banks fiscal year ended
December 31, 2002 at the time it is mailed to the shareholders.

There are no other executive officers of the Company. The executive
officers of the Company are elected by the Board of Directors and serve at the
pleasure of the Board.




ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 pertaining to executive compensation
is incorporated herein by reference to the sections entitled Executive
Compensation, and Compensation Pursuant to Plans in the definitive proxy
statement of the Company of the Bank for its 2002 Annual Meeting of
Shareholders, pages seven through nine, which will be filed with the Securities
and Exchange

25



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##### 



Commission 120 days of the end of the Companys fiscal year ended December
31, 2001 at the time it is mailed to the shareholders.

Change of Control Agreements

In 1997, the Board of Directors of the Bank entered into Agreements with
Messrs. duPont and Fausset providing for compensation to them in the event of a
change of the controlling interest of the Bank or dismissal without cause.
This Company joined in these agreements in 2000. The agreements provide for
the payment of three times base compensation upon a change of control of the
Bank or the Company or a dismissal without cause.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The information required by Item 12 pertaining to the security ownership
of certain beneficial owners and management is incorporated herein by reference
to the sections entitled Election of Directors and Stock Ownership of
Certain Beneficial Owners and Management in the definitive proxy statement of
the Company of the Bank for its 2002 Annual Meeting of Shareholders, pages two
through four, which will be filed with the Securities and Exchange Commission
within 120 days of the end of the Companys fiscal year ended December 31, 2001
at the time it is mailed to the shareholders.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 pertaining to certain relationships
and related transactions is incorporated herein by reference to the section
entitled Certain Relationships and Related Transactions in the definitive
proxy statement of the Company of the Bank for its 2002 Annual Meeting of
Shareholders, pages six and seven, which will be filed with the Securities and
Exchange Commission within 120 days of the end of the Companys fiscal year
ended December 31, 2001 at the time it is mailed to the shareholders.

26



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##### 






PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



| | (a) |  | Documents filed as part of this Annual Report on Form 10-K:
| | --- |  | -----------------------------------------------------------



| |                                       
| | --------------------------------------
| | (1) Financial Statements and Schedules

|      |  |                                        |  |    
|----- |  | -------------------------------------- |  | ---
|(i)   |  | Report of Independent Auditors Report |  | F-1
|(ii)  |  | Balance Sheets                         |  | F-2
|(iii) |  | Statements of Income                   |  | F-3
|(iv)  |  | Statements of Stockholders Equity     |  | F-4
|(v)   |  | Statements of Cash Flows               |  | F-5
|(vi)  |  | Notes to Financial Statements          |  | F-6



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) All Schedules have been included as an exhibit to this Annual
Report on Form 10-K or the information is included elsewhere in the
financial statements or notes thereto.
|
| | (3) The exhibits required to be filed herewith are listed on the
Exhibits Index on the following page                                                                     



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

| | There were no reports on Form 8-K filed by the Company during the last
quarter of the fiscal year ended December 31, 2001.
| | --------------------------------------------------------------------------------------------------------------------------





---



##### 






EXHIBIT INDEX

|               |      |                         |                                                                                                                                                                                                   
|-------------- | ---- | ----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |      | Description of Document
|               |      |                        
|               | 21   |                         | Consolidation Agreement dated as of September 17, 1998, by and
between First National Bank of Manatee and Manatee Interim Bank,
National Association, joined in by First National Bancshares,
Inc.
|               |      |                        
|               | 3.12 |                         | Amended and Restated Articles of Incorporation of First National
Bancshares, Inc.                                                                                                                 
|               |      |                        
|               | 3.22 |                         | Bylaws of First National Bancshares, Inc.                                                                                                                                                         
|               |      |                        
|               | 103  |                         | Companys Incentive Stock Option Plan                                                                                                                                                             
|               |      |                        
|               | 114  |                         | Statement regarding computation of per share earnings.                                                                                                                                            
|               |      |                        
|               | 23   |                         | Consent of Christopher, Smith, Leonard, Bristow, Stanell, and
Wells, P. A.                                                                                                                        



|1. |  | Incorporated by reference as Appendix I included in the
Companys S-4 Registration Statement, as filed with the Securities
and Exchange Commission on July 31, 1998 (Registration No.
333-60283).                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Incorporated by reference to the exhibits included in the
Companys S-4 Registration Statement, as filed with the Securities
and Exchange Commission on July 31, 1998 (Registration No.
333-60283).                
|  
|3. |  | Incorporated by reference to the summary of principal terms
included in the Companys Proxy Statement for the 2000 Meeting of
Shareholders, as filed with the Securities and Exchange Commission
on March 10, 2000.
|  
|4. |  | Incorporated by reference to the Income Statement on page F-3
of the Consolidated Financial Statements of First National
Bancshares, Inc., as contained in this Annual Report on Form 10-K.                        





---



##### 






SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|               |  |                                | 
|-------------- |  | ------------------------------ | 
|               |  | FIRST NATIONAL BANCSHARE, INC. | 
|               |  |                               
|March 22, 2002 |  | By: /s/ Glen W. Fausset       
|(Date)         |  | Glen W. Fausset, President    

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.

|          |                                                |                             |                                                   |                        |                |               
|--------- | ---------------------------------------------- | --------------------------- | ------------------------------------------------- | ---------------------- | -------------- | --------------
|Signature |                                                | Title                       |                                                   | Date                  
|          |                                                |                             |                                                   |                       
|         
|/s/       | Francis I. duPont, III

Francis I. duPont, III |                             | Chairman of the Board and
Chief Executive Officer |                        | March 22, 2002
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Glen W. Fausset             |                                                   | President and Director |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Glen W. Fausset             |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Robert C. Matejcek          |                                                   | Treasurer              |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Robert C. Matejcek          |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Beverly Beall               |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Beverly Beall               |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Robert G. Blalock           |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Robert G. Blalock           |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Allen J. Butler             |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Allen J. Butler             |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Rosemary R. Carlson         |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Rosemary R. Carlson         |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Stephen J. Korcheck, Ph. D  |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Stephen J. Korcheck, Ph. D. |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Wm. J. Thompson             |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Wm. J. Thompson, D.D.S      |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Raymond A. Weigel, III      |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Raymond A. Weigel, III      |                                                   |                        |                |               
|          |                                                |                             |                                                   |                        |                |               
|/s/       |                                                | Dan C. Zoller               |                                                   | Director               |                | March 22, 2002
|          |                                                |                             |                                                   |                        |               
|          |                                                | Dan C. Zoller               |                                                   |                        |                |               





---



##### 



FIRST NATIONAL BANCSHARES, INC.




CONSOLIDATED FINANCIAL STATEMENTS

(INCLUDING WHOLLY OWNED SUBSIDIARY

1ST NATIONAL BANK AND TRUST)





---



##### 






INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders
First National Bancshares, Inc.
Bradenton, Florida

We have audited the accompanying consolidated balance sheets of First National
Bancshares, Inc. and subsidiary as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders equity, and cash flows
for the years ended December 31, 2001, 2000 and 1999. These consolidated
financial statements are the responsibility of the Corporations management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First National
Bancshares, Inc. and subsidiary as of December 31, 2001 and 2000, and the
results of their operations and cash flows for the years ended December 31,
2001, 2000 and 1999, in conformity with accounting principles generally
accepted in the United States of America.



| | CHRISTOPHER, SMITH, LEONARD,
     BRISTOW, STANELL & WELLS, P.A.
| | ----------------------------------------------------------------

January 18, 2002

- 1 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.




CONSOLIDATED BALANCE SHEETSDECEMBER 31,


ASSETS



| |                                  |                                |                                                             |             |             |            |             |             |             |            | 
| | -------------------------------- | ------------------------------ | ----------------------------------------------------------- | ----------- | ----------- | ---------- | ----------- | ----------- | ----------- | ---------- | 
| |                                  |                                |                                                             |             | 2001        |            | 2000       
| |                                  |                                |                                                             |             |             |            |            
| | Cash and due from banks          |                                | $                                                           | 8,094,062   |             |            | $           | 4,496,102   |            
| | Interest bearing deposits        |                                |                                                             | 12,873,175  |             |            |             | 5,896,769   |            
| |                                  |                                |                                                             |             |             |            |             |            
| |                                  | Cash and cash equivalents      |                                                             |             | 20,967,237  |            |             |             | 10,392,871  |           
| |                                  |                                |                                                             |             |             |            |             |            
| | Investment securities:           |                                |                                                             |             |             |            |             |             |            
| |                                  | Available-for-sale             |                                                             |             | 37,902,596  |            |             |             | 38,060,622  |           
| |                                  | Held-to-maturity               |                                                             |             | -0-         |            |             |             | 3,000,000   |           
| |                                  |                                |                                                             |             |             |            |             |            
| |                                  |                                | (Market value of $37,902,596
and $40,579,701, respectively) |             |             | 37,902,596 |             |             |             | 41,060,622 | 
| |                                  |                                |                                                             |             |             |            |             |            
| | Loans                            |                                |                                                             | 145,944,330 |             |            |             | 137,364,755 |            
| |                                  | Less allowance for loan losses |                                                             |             | (1,550,827  | )          |             |             | (1,372,916  | )         
| |                                  | Less deferred loan fees        |                                                             |             | (91,054     | )          |             |             | (59,526     | )         
| |                                  |                                |                                                             |             |             |            |             |            
| |                                  |                                | 144,302,449                                                 |             |             |            | 135,932,313 |            
| |                                  |                                |                                                             |             |             |            |             |            
| | Bank premises and equipment, net |                                |                                                             | 5,872,472   |             |            |             | 6,160,422   |            
| | Accrued interest receivable      |                                |                                                             | 1,010,101   |             |            |             | 1,153,330   |            
| | Deferred income taxes            |                                |                                                             | 90,950      |             |            |             | 473,252     |            
| | Other real estate owned          |                                |                                                             | 593,154     |             |            |             | 1,064,927   |            
| | Other assets                     |                                |                                                             | 1,731,590   |             |            |             | 805,421     |            
| |                                  |                                |                                                             |             |             |            |             |            
| |                                  |                                | 9,298,267                                                   |             |             |            | 9,657,352   |            
| |                                  |                                |                                                             |             |             |            |             |            
| |                                  |                                |                                                             |             |             |            |             |            
| |                                  | TOTAL ASSETS                   |                                                             | $           | 212,470,549 |            |             | $           | 197,043,158 |           
| |                                  |                                |                                                             |             |             |            |             |            





---



##### 



LIABILITIES AND STOCKHOLDERS EQUITY

|                      |                                                                                                                 |                                          |                            |             |            |             |             |             |            |             | 
|--------------------- | --------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | -------------------------- | ----------- | ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | 
|                      |                                                                                                                 |                                          |                            |             | 2001       |             | 2000       
|                      |                                                                                                                 |                                          |                            |             |            |             |            
|Liabilities:          |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      | Deposits:                                                                                                       |                                          |                            |             |            |             |             |             |           
|                      |                                                                                                                 | Non-interest bearing deposits            |                            | $           | 25,385,544 |             |             | $           | 23,190,682 |            
|                      |                                                                                                                 | Interest bearing demand
and NOW deposits |                            |             | 27,656,637 |             |             |             | 21,169,284 |            
|                      |                                                                                                                 | Money market deposits                    |                            |             | 46,447,696 |             |             |             | 35,456,560 |            
|                      |                                                                                                                 | Savings deposits                         |                            |             | 13,688,909 |             |             |             | 13,362,634 |            
|                      |                                                                                                                 | Time deposits                            |                            |             | 62,670,052 |             |             |             | 77,091,837 |            
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      |                                                                                                                 |                                          | 175,848,838                |             |            |             | 170,270,997 |            
|                      | Accrued interest payable                                                                                        |                                          |                            | 867,296     |            |             |             | 1,530,506   |           
|                      | Accrued expenses and other liabilities                                                                          |                                          |                            | 327,349     |            |             |             | 225,956     |           
|                      | Capital lease obligation                                                                                        |                                          |                            | 414,178     |            |             |             | 462,374     |           
|                      | Securities sold under agreements
to repurchase and overnight funds                                              |                                          |                            | 12,965,512  |            |             |             | 4,918,336   |           
|                      | Other borrowed funds                                                                                            |                                          |                            | 5,000,000   |            |             |             | 5,000,000   |           
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      |                                                                                                                 |                                          | 19,574,335                 |             |            |             | 12,137,172  |            
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      |                                                                                                                 |                                          | Total liabilities          |             |            | 195,423,173 |             |             |            | 182,408,169 | 
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            
|Stockholders equity: |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      | Common stock, .10 par value,
2,500,000 shares authorized: 1,748,779 and 1,656,940 shares
issued and outstanding |                                          |                            | 174,878     |            |             |             | 165,694     |           
|                      | Capital in excess of par value                                                                                  |                                          |                            | 12,218,906  |            |             |             | 10,924,550  |           
|                      | Retained earnings                                                                                               |                                          |                            | 4,387,976   |            |             |             | 3,757,257   |           
|                      | Accumulated other comprehensive income                                                                          |                                          |                            | 265,616     |            |             |             | (212,512    | )         
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      |                                                                                                                 |                                          | Total stockholders equity |             |            | 17,047,376  |             |             |            | 14,634,989  | 
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            
|                      |                                                                                                                 |                                          |                            |             |            |             |             |             |           
|                      | TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY                                                                      |                                          | $                          | 212,470,549 |            |             | $           | 197,043,158 |           
|                      |                                                                                                                 |                                          |                            |             |            |             |             |            

The accompanying notes are an integral part of these financial statements.

- 2 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.




CONSOLIDATED STATEMENTS OF INCOME


FOR THE YEARS ENDED DECEMBER 31,


|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |           |            |           |         | 
|--------------------------------------------------- | ----------------------------------------- | ---------------------- | --------------------------------------------- | ---------- | ---------- | --------- | --------- | ---------- | ---------- | --------- | --------- | --------- | ---------- | --------- | ------- | 
|                                                    |                                           |                        |                                               |            |            | 2001      |           | 2000       |            | 1999     
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |          
|Interest income:                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    | Interest and fees on loans                |                        | $                                             | 11,680,719 |            |           | $         | 11,420,651 |            |           | $         | 9,020,590 |           
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    | Interest on investment
securities:        |                        |                                               |            |            |           |           |            |            |           |           |           |           
|                                                    |                                           |                        | U.S. Treasury and Government agencies         |            |            | 1,653,617 |           |            |            | 1,770,783 |           |           |            | 2,133,434 |        
|                                                    |                                           |                        | State and political subdivisions  tax-exempt |            |            | 395,360   |           |            |            | 387,948   |           |           |            | 315,390   |        
|                                                    |                                           |                        |                                               | Other      |            |           | 434,348   |            |            |           | 232,250   |           |            |           | 252,542 | 
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    |                                           |                        | 2,483,325                                     |            |            |           | 2,390,981 |            |            |           | 2,701,366 |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    | Interest on federal funds sold            |                        |                                               | -0-        |            |           |           | -0-        |            |           |           | 21,006    |           
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    |                                           | Total interest income  |                                               |            | 14,164,044 |           |           |            | 13,811,632 |           |           |           | 11,742,962 |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|Interest expense:                                   |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    | Deposits                                  |                        |                                               | 4,893,726  |            |           |           | 5,349,422  |            |           |           | 4,033,943 |           
|                                                    | Time deposits of $100,000
or more         |                        |                                               | 1,162,551  |            |           |           | 1,314,866  |            |           |           | 1,074,401 |           
|                                                    | Short-term borrowings                     |                        |                                               | 589,682    |            |           |           | 611,816    |            |           |           | 515,601   |           
|                                                    | Capital lease obligation                  |                        |                                               | 52,891     |            |           |           | 58,316     |            |           |           | 63,130    |           
|                                                    | Federal funds purchased                   |                        |                                               | -0-        |            |           |           | -0-        |            |           |           | 139       |           
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    |                                           | Total interest expense |                                               |            | 6,698,850  |           |           |            | 7,334,420  |           |           |           | 5,687,214  |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    |                                           | Net interest income    |                                               |            | 7,465,194  |           |           |            | 6,477,212  |           |           |           | 6,055,748  |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|Provision for loan and debit
card losses            |                                           |                        | 250,226                                       |            |            |           | 151,890   |            |            |           | 227,050   |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|Net interest income after
provision for loan losses |                                           |                        | 7,214,968                                     |            |            |           | 6,325,322 |            |            |           | 5,828,698 |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|Other income:                                       |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    | Service charges on deposit
accounts       |                        |                                               | 484,997    |            |           |           | 406,022    |            |           |           | 429,647   |           
|                                                    | Investment securities gains
(losses), net |                        |                                               | (51,519    | )          |           |           | -0-        |            |           |           | 35,496    |           
|                                                    | Trust fee income                          |                        |                                               | 575,267    |            |           |           | 525,640    |            |           |           | 426,801   |           
|                                                    | Bradenton Securities income               |                        |                                               | 220,757    |            |           |           | 177,837    |            |           |           | 174,464   |           
|                                                    | Other                                     |                        |                                               | 286,922    |            |           |           | 233,023    |            |           |           | 226,123   |           
|                                                    | Gain on sale of property                  |                        |                                               | 330,300    |            |           |           | -0-        |            |           |           | -0-       |           
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          
|                                                    |                                           | Total other income     |                                               |            | 1,846,724  |           |           |            | 1,342,522  |           |           |           | 1,292,531  |          
|                                                    |                                           |                        |                                               |            |            |           |           |            |            |           |           |          





---



##### 



|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |           |           | 
|-------------------------------------------- | -------------------------------------- | -------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                             |                                        |                      |           | 2001      |           | 2000 |           | 1999     
|                                             |                                        |                      |           |           |           |      |           |          
|Other expenses:                              |                                        |                      |           |           |           |      |           |           |           |   |           |          
|                                             | Salaries and employee benefits         |                      | $         | 3,509,103 |           |      | $         | 3,091,402 |           |   | $         | 2,696,762 |          
|                                             | Occupancy                              |                      |           | 682,259   |           |      |           | 581,570   |           |   |           | 498,275   |          
|                                             | Legal, accounting and
examination fees |                      |           | 231,304   |           |      |           | 200,615   |           |   |           | 186,803   |          
|                                             | FDIC assessment                        |                      |           | 30,928    |           |      |           | 31,160    |           |   |           | 16,036    |          
|                                             | Equipment                              |                      |           | 580,112   |           |      |           | 512,148   |           |   |           | 456,226   |          
|                                             | Stationery, printing and
postage       |                      |           | 164,422   |           |      |           | 187,049   |           |   |           | 209,156   |          
|                                             | Data processing                        |                      |           | 220,910   |           |      |           | 233,422   |           |   |           | 278,818   |          
|                                             | Directors fees                        |                      |           | 125,973   |           |      |           | 120,822   |           |   |           | 124,325   |          
|                                             | Advertising                            |                      |           | 29,828    |           |      |           | 34,240    |           |   |           | 59,116    |          
|                                             | Other                                  |                      |           | 634,414   |           |      |           | 529,118   |           |   |           | 554,792   |          
|                                             | Mortgage company expense               |                      |           | -0-       |           |      |           | -0-       |           |   |           | 4,228     |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|                                             |                                        | Total other expenses |           |           | 6,209,253 |      |           |           | 5,521,546 |   |           |           | 5,084,537 | 
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|Income before income taxes                   |                                        |                      | 2,852,439 |           |           |      | 2,146,298 |           |           |   | 2,036,692 |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|Provision for income taxes                   |                                        |                      | 975,100   |           |           |      | 666,400   |           |           |   | 634,900   |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|Net Income                                   |                                        | $                    | 1,877,339 |           |           | $    | 1,479,898 |           |           | $ | 1,401,792 |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|Per share data:                              |                                        |                      |           |           |           |      |           |           |           |   |           |          
|                                             | Basic EPS                              |                      | $         | 1.08      |           |      | $         | 0.85      |           |   | $         | 0.81      |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|Weighted average shares
outstanding          |                                        |                      | 1,744,463 |           |           |      | 1,739,763 |           |           |   | 1,739,859 |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|                                             | Diluted EPS                            |                      | $         | 1.00      |           |      | $         | 0.81      |           |   | $         | 0.77      |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          
|Adjusted weighted average
shares outstanding |                                        |                      | 1,877,157 |           |           |      | 1,835,624 |           |           |   | 1,814,662 |          
|                                             |                                        |                      |           |           |           |      |           |           |           |   |           |          

The accompanying notes are an integral part of these financial statements.

- 3 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999


|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |           | 
|-------------------------------------------------------------- | -------------------------- |  | ------------ | --- | ---------- | - | --------- | --- | ------------- | - | ---------- | --- | ----- | - | ---------- | --------- |  | - | ----------- | ------- |  | - | ---------- | --------- | 
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   | ACCUMULATED |         |  |   |           
|                                                               |                            |  | COMMON STOCK |     | CAPITAL IN |   |           |     |               |   | OTHER      |     |       |   |           
|                                                               |                            |  |              |     | EXCESS OF  |   | RETAINED  |     | COMPREHENSIVE |   |            |     |      
|                                                               |                            |  | SHARES       |     | AMOUNT     |   | PAR VALUE |     | EARNINGS      |   | INCOME     |     | TOTAL
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |      
|Balance at December 31, 1998                                   |                            |  | 751,478      |     |            | $ | 75,148    |     |               | $ | 8,591,848  |     |       | $ | 3,303,005  |           |  | $ | 40,680      |         |  | $ | 12,010,681 |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Net income                                                     |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | 1,401,792  |           |  |   | -0-         |         |  |   | 1,401,792  |          
|Change in valuation
allowance, net of income
taxes of $502,583 |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | -0-        |           |  |   | (834,075    | )       |  |   | (834,075   | )        
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Total comprehensive income                                     |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | 1,401,792  |           |  |   | (834,075    | )       |  |   | 567,717    |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|2 for 1 exchange                                               |                            |  | 751,478      |     |            |   | 75,148    |     |               |   | (75,148    | )   |       |   | -0-        |           |  |   | -0-         |         |  |   | -0-        |          
|5% stock dividend                                              |                            |  | 74,913       |     |            |   | 7,491     |     |               |   | 1,153,661  |     |       |   | (1,164,791 | )         |  |   | -0-         |         |  |   | (3,639     | )        
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Balance at December 31, 1999                                   |                            |  | 1,577,869    |     |            |   | 157,787   |     |               |   | 9,670,361  |     |       |   | 3,540,006  |           |  |   | (793,395    | )       |  |   | 12,574,759 |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Net income                                                     |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | 1,479,898  |           |  |   | -0-         |         |  |   | 1,479,898  |          
|Change in valuation
allowance, net of income
taxes of $350,019 |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | -0-        |           |  |   | 580,883     |         |  |   | 580,883    |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|                                                               | Total comprehensive income |  |              | -0- |            |   |           | -0- |               |   |            | -0- |       |   |            | 1,479,898 |  |   |             | 580,883 |  |   |            | 2,060,781 | 
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|5% stock dividend                                              |                            |  | 78,631       |     |            |   | 7,863     |     |               |   | 1,250,233  |     |       |   | (1,262,647 | )         |  |   | -0-         |         |  |   | (4,551     | )        
|Exercise of stock options                                      |                            |  | 440          |     |            |   | 44        |     |               |   | 3,956      |     |       |   | -0-        |           |  |   | -0-         |         |  |   | 4,000      |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Balance at December 31, 2000                                   |                            |  | 1,656,940    |     |            | $ | 165,694   |     |               | $ | 10,924,550 |     |       | $ | 3,757,257  |           |  | $ | (212,512    | )       |  | $ | 14,634,989 |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Net income                                                     |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | 1,877,339  |           |  |   | -0-         |         |  |   | 1,877,339  |          
|Change in valuation
allowance, net of income
taxes of $288,102 |                            |  | -0-          |     |            |   | -0-       |     |               |   | -0-        |     |       |   | -0-        |           |  |   | 478,128     |         |  |   | 478,128    |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|                                                               | Total comprehensive income |  |              | -0- |            |   |           | -0- |               |   |            | -0- |       |   |            | 1,877,339 |  |   |             | 478,128 |  |   |            | 2,355,467 | 
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|5% stock dividend                                              |                            |  | 9,048        |     |            |   | 905       |     |               |   | 60,770     |     |       |   | (1,246,620 | )         |  |   | -0-         |         |  |   | (1,184,945 | )        
|Exercise of stock options                                      |                            |  | 82,791       |     |            |   | 8,279     |     |               |   | 1,233,586  |     |       |   | -0-        |           |  |   | -0-         |         |  |   | 1,241,865  |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          
|Balance at December 31, 2001                                   |                            |  | 1,748,779    |     |            | $ | 174,878   |     |               | $ | 12,218,906 |     |       | $ | 4,387,976  |           |  | $ | 265,616     |         |  | $ | 17,047,376 |          
|                                                               |                            |  |              |     |            |   |           |     |               |   |            |     |       |   |            |           |  |   |             |         |  |   |            |          

The accompanying notes are an integral part of these financial statements.

- 4 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER 31,


|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |           |             |          |  
|------------------------------------- | ---------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | --------- | ---------- | -------- | ---- | --------- | ----------- | -------- | - | --------- | ----------- | -------- | -
|                                      |            |                                                                            |                                                                                  |           | 2001       |          | 2000 |           | 1999       
|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |            
|CASH FLOWS FROM OPERATING ACTIVITIES: |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|                                      |            | Net income                                                                 |                                                                                  | $         | 1,877,339  |          |      | $         | 1,479,898   |          |   | $         | 1,401,792   |         
|                                      |            | Adjustments to reconcile net income
to net cash from operating
activities: |                                                                                  |           |            |          |      |           |             |          |   |           |             |         
|                                      |            |                                                                            | Depreciation and leasehold
amortization                                          |           |            | 539,226  |      |           |             | 454,928  |   |           |             | 430,589  |  
|                                      |            |                                                                            | Net amortization of premiums and
accretion of discounts on
investment securities |           |            | 74,105   |      |           |             | 49,114   |   |           |             | 71,232   |  
|                                      |            |                                                                            | Amortization of deferred loan fees                                               |           |            | 31,528   |      |           |             | 13,529   |   |           |             | 34,820   |  
|                                      |            |                                                                            | Allowance for loan losses                                                        |           |            | 177,911  |      |           |             | 118,314  |   |           |             | 159,902  |  
|                                      |            |                                                                            | Deferred income taxes                                                            |           |            | (109,800 | )    |           |             | (15,100  | ) |           |             | 140,800  |  
|                                      |            |                                                                            | Investment securities (gains) losses
realized                                    |           |            | 51,519   |      |           |             | -0-      |   |           |             | (35,496  | )
|                                      |            |                                                                            | Loss (gain) on disposition of equipment                                          |           |            | -0-      |      |           |             | -0-      |   |           |             | 175      |  
|                                      |            |                                                                            | (Increase) decrease in accrued
interest receivable                               |           |            | 143,229  |      |           |             | (189,714 | ) |           |             | (92,217  | )
|                                      |            |                                                                            | (Increase) decrease in other assets                                              |           |            | (926,169 | )    |           |             | (191,246 | ) |           |             | (189,247 | )
|                                      |            |                                                                            | Increase (decrease) in accrued interest
payable                                  |           |            | (663,210 | )    |           |             | 479,814  |   |           |             | (16,036  | )
|                                      |            |                                                                            | Increase (decrease) in accrued
expenses and other liabilities                    |           |            | 101,393  |      |           |             | (217,033 | ) |           |             | 2,702    |  
|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|Net cash provided by operating        |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|                                      | activities |                                                                            |                                                                                  | 1,297,071 |            |          |      | 1,982,504 |             |          |   | 1,909,016 |            
|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|CASH FLOWS FROM INVESTING ACTIVITIES: |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|                                      |            | Proceeds from sales and maturities of
investment securities                |                                                                                  |           | 13,301,270 |          |      |           | 1,500,000   |          |   |           | 15,747,404  |         
|                                      |            | Purchase of investment securities, net                                     |                                                                                  |           | (8,669,128 | )        |      |           | (807,160    | )        |   |           | (16,849,235 | )       
|                                      |            | Loans originated, net of principal
collections                             |                                                                                  |           | (8,579,575 | )        |      |           | (15,357,311 | )        |   |           | (21,647,175 | )       
|                                      |            | Decrease (increase) other real estate
owned                                |                                                                                  |           | 471,773    |          |      |           | (1,064,927  | )        |   |           | -0-         |         
|                                      |            | Purchase of bank premises and
equipment                                    |                                                                                  |           | (830,063   | )        |      |           | (1,759,193  | )        |   |           | (587,644    | )       
|                                      |            | Proceeds from sale of fixed assets                                         |                                                                                  |           | 525        |          |      |           | -0-         |          |   |           | -0-         |         
|                                      |            | Recoveries on loans charged off                                            |                                                                                  |           | 10,427     |          |      |           | 657         |          |   |           | 23,879      |         
|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          
|                                      |            | Net cash provided by (used in)
investing activities                        |                                                                                  |           | (4,294,771 | )        |      |           | (17,487,934 | )        |   |           | (23,312,771 | )       
|                                      |            |                                                                            |                                                                                  |           |            |          |      |           |             |          |   |          





---



##### 



|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |            |  
|------------------------------------------------- | ----------------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                  |                                                                         |  | 2001 |             | 2000 |  | 1999
|                                                  |                                                                         |  |      |             |      |  |     
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Net increase (decrease) in demand
deposits and savings deposits         |  |      | 19,999,626  |      |  |      | 15,982,385 |   |  |   | 10,534,265 |  
|                                                  | Net increase (decrease) in time deposits                                |  |      | (14,421,785 | )    |  |      | 2,104,545  |   |  |   | 4,763,121  |  
|                                                  | Increase (decrease) in securities sold
under agreements to repurchase   |  |      | 8,047,176   |      |  |      | 885,943    |   |  |   | 1,448,911  |  
|                                                  | Increase (decrease) in federal funds
purchased and other borrowed funds |  |      | -0-         |      |  |      | -0-        |   |  |   | 317,500    |  
|                                                  | Cash in lieu of fractional shares for
stock dividend                    |  |      | (4,755      | )    |  |      | (4,551     | ) |  |   | (3,640     | )
|                                                  | Principal payments under capital lease
obligations                      |  |      | (48,196     | )    |  |      | (42,771    | ) |  |   | (37,957    | )
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Net cash provided by
financing activities                               |  |      | 13,572,066  |      |  |      | 18,925,551 |   |  |   | 17,022,200 |  
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Net increase (decrease) in cash and
cash equivalents                    |  |      | 10,574,366  |      |  |      | 3,420,121  |   |  |   | (4,381,555 | )
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Cash and cash equivalents at
beginning of year                          |  |      | 10,392,871  |      |  |      | 6,972,750  |   |  |   | 11,354,305 |  
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Cash and cash equivalents at
end of year                                |  | $    | 20,967,237  |      |  | $    | 10,392,871 |   |  | $ | 6,972,750  |  
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION: |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Cash payments for interest                                              |  | $    | 7,362,060   |      |  | $    | 6,854,606  |   |  | $ | 5,703,250  |  
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           
|                                                  | Cash payments for income taxes                                          |  | $    | 733,216     |      |  | $    | 833,249    |   |  | $ | 799,570    |  
|                                                  |                                                                         |  |      |             |      |  |      |            |   |  |   |           

The accompanying notes are an integral part of these financial statements.

- 5 -



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##### 



FIRST NATIONAL BANCSHARES, INC.




NOTES TO FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |  |  | The accounting and reporting policies of First National Bancshares,
Inc. and its subsidiaries conform to generally accepted accounting
principles and to general practice within the banking industry. Assets
held in a fiduciary capacity by the trust and securities departments
are not included in the financial statements. The following summarizes
the more significant of these policies.                                                                                                                                                                                                                                                                                                                                                          
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Nature of Operations  First National Bancshares, Inc. (Bancshares) is
a bank holding company whose principal activity is the ownership and
management of its wholly-owned subsidiary 1st National Bank and Trust
(the Bank). The Bank operates under a national bank charter and
provides full banking services, including trust services. As a
national bank, the Bank is subject to regulation of the office of the
Comptroller of the Currency, and the Federal Deposit Insurance
Corporation. The principal area served by 1st National Bank and Trust
is Manatee County, Florida and services are provided at five offices.                                                                                                                          
|
| |  |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | The consolidated financial statements include the accounts of First
National Bancshares, Inc. and its wholly-owned subsidiary, 1st National
Bank and Trust, and the Banks wholly-owned subsidiary Bradenton
Securities, Inc. All material intercompany transactions have been
eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | Estimates  The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.                                                                                                                                                                                                                                                                                              
|
| |  |  | Securities Held-To-Maturity and Available-For-Sale  The Bank follows
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities, which requires
the Bank to segregate its investment portfolio into trading,
available-for-sale and held-to-maturity classifications. The Bank does
not hold any equity securities. Management determines the appropriate
classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
|
| |  |  | Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at quoted
market value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders equity. The Bank
does not have a trading portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                          

- 6 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  CONTINUED



| |  |  | The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security. Such amortization
is included in interest income from investments. Realized gains and
losses and declines in value judged to be other than temporary are
included in net investment securities gains. The cost of securities
sold is based on the specific identification method.                                                                                                                                                                                                                                      
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Loans and Allowance for Loan Losses  Loans are stated at the amount of
unpaid principal, reduced by deferred loan fees and an allowance for
loan losses. Interest income is recognized using the simple interest
method on daily balances of principal amounts outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | Accrual of interest is discontinued on a loan (including a loan
impaired under Statement of Financial Accounting Standards (SFAS) No.
114) when management believes, after considering economic and business
conditions and collection efforts that the borrowers financial
condition is such that collection of interest is doubtful.
Classification of a loan as nonaccrual is not necessarily indicative of
a potential loss of principal.                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that collectibility
is unlikely. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans, the
amounts and timing of future cash flows from impaired loans, and
current economic conditions that may affect the borrowers ability to
pay.
|
| |  |  | The Bank follows Statement of Financial Accounting Standards (SFAS) No.
114, Accounting by Creditors for Impairment of a Loan. Under the
standard, allowance for loan losses related to loans that are
identified for evaluation under SFAS No. 114 is based on discounted
cash flows using the loans initial effective interest rate on the fair
value of the collateral for certain collateral dependent loans. At
December 31, 2001 and 2000, there were no impaired loans under SFAS No.
114.                                                                                                                                                                                                                                                                                      
|
| |  |  | Loan Origination Fee Income  Non-refundable fees and costs associated
with originating or acquiring loans are recognized over the lives of
the related loans as adjustments to interest income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

- 7 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED



| |  |  | Bank Premises and Equipment  Bank premises and equipment owned,
leasehold improvements, and assets held under capital lease are stated
at cost less accumulated depreciation and amortization. Depreciation
and amortization are determined primarily on the straight-line method
over the estimated useful lives of the assets, which range from three
to twelve years for office furniture and equipment and twenty to thirty
years for the Banks building and leasehold improvements. Maintenance
and repairs are charged to expense as incurred. Renewals and
betterments which materially increase the value of the property are
capitalized. When bank premises and equipment are sold, or otherwise
disposed of, the cost and related depreciation or amortization are
removed from the respective accounts and the respective gains and
losses are included in earnings.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Other Real Estate Held for Resale  Other real estate includes
foreclosed assets held for resale. After foreclosure, foreclosed
assets are carried at the lower of fair value minus estimated costs to
sell or cost. Cost at the time of foreclosure is the fair value of the
asset foreclosed. If the fair value of the asset minus the estimated
costs to sell the asset is less than the cost of the asset, the
deficiency is recognized as a valuation allowance. Other real estate
owned income (expense) consists of net carrying cost, legal fees, loss
provisions and gains (losses) on sales of real estate. The Bank owned
two items of other real estate at December 31, 2001 and one item at
December 31, 2000 valued at $593,154 and $1,064,927, respectively.                                                                                                       
|
| |  |  | Income Taxes  The liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that are expected to be in effect when the differences
are expected to reverse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Fair Value of Financial Instruments  The following methods and
assumptions were used by the Bank in estimating the fair value
disclosure for financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Cash and Federal Funds: Carrying amounts in the financial statements
approximate fair values.



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Investment securities: Fair values are based on quoted market prices,
except in certain limited instances where pricing models are used.



| |                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loans: For variable rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed rate and all other loans are estimated
using discounted cash flow analyses using interest rates currently
being offered for loans. The carrying value of accrued interest
approximates its fair value.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Commitments: Fair values of commitments are based on quoted market               prices.

- 8 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED



| |  |  | Fair Value of Financial Instruments  Continued
| |  |  | -----------------------------------------------



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Deposits: Fair value for non-interest bearing demand, NOW, money
market and savings deposits are based on carrying value. Fair value
for time certificate deposits are based on a discounted cash flow
calculation using current interest rates for similar deposits.



| |  |  | Statements of Cash Flows  For the purpose of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks,
and federal funds sold. Generally, federal funds are purchased and sold
for one-day periods. The Bank maintains its due from banks and federal
funds purchased or sold with correspondent banking relationships as
determined by the Banks board of directors. At December 31, 2001, the
primary correspondent banks were Federal Home Loan Bank of Atlanta,
Independent Bankers Bank of Florida, Bank of America, and SunTrust Bank
of Georgia.                                                     
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Earnings Per Share  Earnings per share amounts are based upon the
weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares are excluded
from the computation in periods in which they have an anti-dilutive
effect. Basic EPS excludes all dilution. It is based upon the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that would occur if
securities or options to issue common stock were exercised or converted
into common stock. All differences between basic and diluted EPS were
due to stock options.
|
| |  |  | Stock Options  Bancshares adopted SFAS 123 and under the provisions of
the standard has elected to continue using the intrinsic-value method
of accounting for stock-based awards granted to employees in accordance
with APB 25. Accordingly, Bancshares has not recognized compensation
expense for its stock-based awards to employees. The amount of
compensation expense that would have been recorded if Bancshares had
elected to adopt the fair value approach of SFAS 123 is not material.                                                                                                                                              

- 9 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 2  INVESTMENT SECURITIES

Investment securities at December 31, 2001 are summarized as follows:

|                                                      |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 
|----------------------------------------------------- |  | --------- | ---------- | ---------- |  | ------------------ | ------- | ------ |  | ----------- | ------- | - |  | - | ---------- | 
|                                                      |  |           |            |            |  | AVAILABLE-FOR-SALE
|                                                      |  |           |            |            |  |                   
|                                                      |  |           |            |            |  | GROSS              |         | GROSS  |  | APPROXIMATE
|                                                      |  | AMORTIZED |            | UNREALIZED |  | UNREALIZED         |         | MARKET
|                                                      |  | COST      |            | GAINS      |  | LOSSES             |         | VALUE 
|                                                      |  |           |            |            |  |                    |         |       
|December 31, 2001                                     |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 
|U.S. Government
agencies                              |  | $         | 5,513,731  |            |  | $                  | 214,578 |        |  | $           | -0-     |   |  | $ | 5,728,309  | 
|U.S. Government
agencies -
mortgage-backed
securities |  |           | 21,855,588 |            |  |                    | 292,585 |        |  |             | (33,539 | ) |  |   | 22,114,634 | 
|State and political
subdivisions                      |  |           | 9,184,232  |            |  |                    | 9,594   |        |  |             | (57,553 | ) |  |   | 9,136,273  | 
|                                                      |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 
|                                                      |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 
|Total Debt Securities                                 |  |           | 36,553,551 |            |  |                    | 516,757 |        |  |             | (91,092 | ) |  |   | 36,979,216 | 
|                                                      |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 
|Other                                                 |  |           | 923,380    |            |  |                    | -0-     |        |  |             | -0-     |   |  |   | 923,380    | 
|                                                      |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 
|                                                      |  | $         | 37,476,931 |            |  | $                  | 516,757 |        |  | $           | (91,092 | ) |  | $ | 37,902,596 | 
|                                                      |  |           |            |            |  |                    |         |        |  |             |         |   |  |   |            | 



| |  |  | In 2001, debt securities with an amortized cost of $1,000,000 were sold
from the held-to-maturity classification due to changes in market
conditions. The securities had a realized loss of $60,000. As a
result, the remaining securities classified as held-to-maturity with an
amortized cost of $2,000,000, were transferred to the
available-for-sale classification. The securities had an unrealized
gain of approximately $157,366.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Investment securities at December 31, 2000 are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                      

|                                                      |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 
|----------------------------------------------------- |  | ---- | ---------- | ----- |  | ------------------ | ------ | ---------- |  | ----------- | -------- | - |  | - | ---------- | 
|                                                      |  |      |            |       |  | AVAILABLE-FOR-SALE
|                                                      |  |      |            |       |  |                   
|                                                      |  |      |            |       |  | GROSS              |        | GROSS      |  | APPROXIMATE
|                                                      |  |      |            |       |  | UNREALIZED         |        | UNREALIZED |  | MARKET     
|                                                      |  | COST |            | GAINS |  | LOSSES             |        | VALUE     
|                                                      |  |      |            |       |  |                    |        |           
|December 31, 2000                                     |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 
|U.S. Government
agencies                              |  | $    | 7,095,121  |       |  | $                  | -0-    |            |  | $           | (61,488  | ) |  | $ | 7,033,633  | 
|U.S. Government
agencies -
mortgage-backed
securities |  |      | 21,232,754 |       |  |                    | 3,675  |            |  |             | (162,757 | ) |  |   | 21,073,672 | 
|State and political
subdivisions                      |  |      | 9,194,031  |       |  |                    | 43,085 |            |  |             | (163,079 | ) |  |   | 9,074,037  | 
|                                                      |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 
|                                                      |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 
|Total Debt Securities                                 |  |      | 37,521,906 |       |  |                    | 46,760 |            |  |             | (387,324 | ) |  |   | 37,181,342 | 
|                                                      |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 
|Other                                                 |  |      | 879,280    |       |  |                    | -0-    |            |  |             | -0-      |   |  |   | 879,280    | 
|                                                      |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 
|                                                      |  | $    | 38,401,186 |       |  | $                  | 46,760 |            |  | $           | (387,324 | ) |  | $ | 38,060,622 | 
|                                                      |  |      |            |       |  |                    |        |            |  |             |          |   |  |   |            | 

- 10 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 2  INVESTMENT SECURITIES  CONTINUED

|                                                      |  |           |           |            |  |                  |     |        |  |             |          |   |  |   |           | 
|----------------------------------------------------- |  | --------- | --------- | ---------- |  | ---------------- | --- | ------ |  | ----------- | -------- | - |  | - | --------- | 
|                                                      |  |           |           |            |  | HELD-TO-MATURITY
|                                                      |  |           |           |            |  |                 
|                                                      |  |           |           |            |  | GROSS            |     | GROSS  |  | APPROXIMATE
|                                                      |  | AMORTIZED |           | UNREALIZED |  | UNREALIZED       |     | MARKET
|                                                      |  | COST      |           | GAINS      |  | LOSSES           |     | VALUE 
|                                                      |  |           |           |            |  |                  |     |       
|December 31, 2000                                     |  |           |           |            |  |                  |     |        |  |             |          |   |  |   |           | 
|U.S. Government
agencies                              |  | $         | 2,000,000 |            |  | $                | -0- |        |  | $           | (321,500 | ) |  | $ | 1,678,500 | 
|U.S. Government
agencies -
mortgage-backed
securities |  |           | 1,000,000 |            |  |                  | -0- |        |  |             | (159,421 | ) |  |   | 840,579   | 
|                                                      |  |           |           |            |  |                  |     |        |  |             |          |   |  |   |           | 
|                                                      |  | $         | 3,000,000 |            |  | $                | -0- |        |  | $           | (480,921 | ) |  | $ | 2,519,079 | 
|                                                      |  |           |           |            |  |                  |     |        |  |             |          |   |  |   |           | 



| |  |  | The components of gains and losses on sales, calls and maturities of
securities for the years ended December 2001, 2000 and 1999 were as
follows:
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|                    |                     |                     |                   |   |           |           |           |   |             |         |         |   |       |         |  
|------------------- | ------------------- | ------------------- | ----------------- | - | --------- | --------- | --------- | - | ----------- | ------- | ------- | - | ----- | ------- | -
|                    |                     |                     |                   |   | Cost      |           | Proceeds  |   | Gain (Loss)
|                    |                     |                     |                   |   |           |           |           |   |            
|                    | 2001                |                     |                   |   |           |           |           |   |             |         |         |   |      
|                    | Available-for-sale: |                     |                   |   |           |           |           |   |             |         |         |   |      
|                    |                     | Gross gains on sale |                   | $ | 2,344,747 |           |           | $ | 2,353,228   |         |         | $ | 8,481 |        
|                    |                     | No gain or loss     |                   |   | 2,750,000 |           |           |   | 2,750,000   |         |         |   | -0-   |        
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     |                     | 5,094,747         |   |           |           | 5,103,228 |   |             |         | 8,481   |  
|                    |                     | Held to maturity:   |                   |   |           |           |           |   |             |         |         |   |       |        
|                    |                     | Gross loss          |                   |   |           |           |           |   |             |         |         |   |       |        
|                    |                     |                     | (securities sold) |   |           | 1,000,000 |           |   |             | 940,000 |         |   |       | (60,000 | )
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     |                     | 1,000,000         |   |           |           | 940,000   |   |             |         | (60,000 | )
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     | $                   | 6,094,747         |   |           | $         | 6,043,228 |   |             | $       | (51,519 | )
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    | 2000                |                     |                   |   |           |           |           |   |             |         |         |   |      
|Available-for-sale: |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     | No gain or loss     |                   |   | 1,000,000 |           |           |   | 1,000,000   |         |         |   | -0-   |        
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     |                     | 1,000,000         |   |           |           | 1,000,000 |   |             |         | -0-     |  
|                    | Held-to-maturity:   |                     |                   |   |           |           |           |   |             |         |         |   |      
|                    |                     | No gain or loss     |                   |   |           |           |           |   |             |         |         |   |       |        
|                    |                     | (securities called) |                   |   | 500,000   |           |           |   | 500,000     |         |         |   | -0-   |        
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     |                     | 500,000           |   |           |           | 500,000   |   |             |         | -0-     |  
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  
|                    |                     | $                   | 1,500,000         |   |           | $         | 1,500,000 |   |             | $       | -0-     |  
|                    |                     |                     |                   |   |           |           |           |   |             |         |         |  

- 11 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 2  INVESTMENT SECURITIES  CONTINUED

|                    |                      |                     |            |           |           |   |            |           |           |   |        |        |       | 
|------------------- | -------------------- | ------------------- | ---------- | --------- | --------- | - | ---------- | --------- | --------- | - | ------ | ------ | ----- | 
|1999                |                      |                     |            |           |           |   |            |           |           |   |        |       
|Available-for-sale: |                      |                     |            |           |           |   |            |           |           |   |        |       
|                    | Gross gains on sales |                     | $          | 3,317,339 |           |   | $          | 3,347,404 |           |   | $      | 30,065 |      
|                    | No gain or loss      |                     |            | 9,200,000 |           |   |            | 9,200,000 |           |   |        | -0-    |      
|                    |                      |                     |            |           |           |   |            |           |           |   |        |       
|                    |                      |                     | 12,517,339 |           |           |   | 12,547,404 |           |           |   | 30,065 |       
|Held-to-maturity:   |                      |                     |            |           |           |   |            |           |           |   |        |       
|                    | Gross gains          |                     |            |           |           |   |            |           |           |   |        |        |      
|                    |                      | (securities called) |            |           | 2,994,569 |   |            |           | 3,000,000 |   |        |        | 5,431 | 
|                    | No gain or loss      |                     |            | 200,000   |           |   |            | 200,000   |           |   |        | -0-    |      
|                    |                      |                     |            |           |           |   |            |           |           |   |        |       
|                    |                      |                     | 3,194,569  |           |           |   | 3,200,000  |           |           |   | 5,431  |       
|                    |                      |                     |            |           |           |   |            |           |           |   |        |       
|                    |                      | $                   | 15,711,908 |           |           | $ | 15,747,404 |           |           | $ | 35,496 |       
|                    |                      |                     |            |           |           |   |            |           |           |   |        |       



| |  |  | The amortized cost and approximate market value of debt securities at
December 31, 2001, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities due to borrowers
having the right to call or prepay obligations with or without call or
prepayment penalties.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |  |           |            |        |  |             |            | 
|-------------------------------------- |  | --------- | ---------- | ------ |  | ----------- | ---------- | 
|                                       |  |           |            |        |  | APPROXIMATE
|                                       |  | AMORTIZED |            | MARKET
|                                       |  | COST      |            | VALUE 
|                                       |  |           |            |       
|December 31, 2001 Available-for-Sale   |  |           |            |        |  |             |            | 
|Due in one year or less                |  | $         | 260,156    |        |  | $           | 260,866    | 
|Due after one year through five years  |  |           | 6,184,849  |        |  |             | 6,412,033  | 
|Due after five years through ten years |  |           | 7,561,029  |        |  |             | 7,503,109  | 
|Due after ten years                    |  |           | 691,929    |        |  |             | 688,574    | 
|Mortgaged-backed securities            |  |           | 21,855,588 |        |  |             | 22,114,634 | 
|Other                                  |  |           | 923,380    |        |  |             | 923,380    | 
|                                       |  |           |            |        |  |             |            | 
|                                       |  | $         | 37,476,931 |        |  | $           | 37,902,596 | 
|                                       |  |           |            |        |  |             |            | 



| |  |  | Investment securities with aggregate book values of $26,784,342 and
market values of approximately $27,219,202 at December 31, 2001, were
pledged to secure public deposits and repurchase agreements and for
other purposes as required by law or borrowing terms.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 3  LOANS



| |  |  | A summary of loans at December 31, is as follows:
| |  |  | -------------------------------------------------

|                           |             |   |                |            |                |   |             |            | 
|-------------------------- | ----------- | - | -------------- | ---------- | -------------- | - | ----------- | ---------- | 
|                           |             |   | 2001           |            | 2000          
|                           |             |   |                |            |               
|                           |             |   | Carrying Value |            | Carrying Value
|                           |             |   |                |            |               
|Commercial                 |             | $ | 11,748,446     |            |                | $ | 13,111,225  |           
|Real estate  construction |             |   | 5,053,179      |            |                |   | 2,267,625   |           
|Real estate  mortgage:    |             |   |                |            |                |   |             |           
|                           | Residential |   |                | 52,137,075 |                |   |             | 48,702,135 | 
|                           | Commercial  |   |                | 71,025,086 |                |   |             | 63,845,683 | 
|Consumer/installment       |             |   | 5,934,889      |            |                |   | 7,689,864   |           
|Other                      |             |   | 45,655         |            |                |   | 1,748,223   |           
|                           |             |   |                |            |                |   |             |           
|                           |             |   | 145,944,330    |            |                |   | 137,364,755 |           
|Allowance for loan losses  |             |   | (1,550,827     | )          |                |   | (1,372,916  | )         
|Deferred loan fees         |             |   | (91,054        | )          |                |   | (59,526     | )         
|                           |             |   |                |            |                |   |             |           
|Net loans                  |             | $ | 144,302,449    |            |                | $ | 135,932,313 |           
|                           |             |   |                |            |                |   |             |           

- 12 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 3  LOANS  CONTINUED



| |  |  | The fair value of loans at December 31, 2001 and 2000 approximates
carrying value.                                         
| |  |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A summary of activity in loans owed to the Bank by its executive
officers and directors during 2001 and 2000 is as follows:

|                           |  |      |         |      |  |   |          |  
|-------------------------- |  | ---- | ------- | ---- |  | - | -------- | -
|                           |  | 2001 |         | 2000
|                           |  |      |         |     
|Balance, beginning of year |  | $    | 751,323 |      |  | $ | 936,622  |  
|New loans                  |  |      | 279,494 |      |  |   | -0-      |  
|Payments                   |  |      | (94,054 | )    |  |   | (185,299 | )
|                           |  |      |         |      |  |   |          |  
|Balance, end of year       |  | $    | 936,763 |      |  | $ | 751,323  |  
|                           |  |      |         |      |  |   |          |  



| |  |  | A summary of activity in the allowance for loan losses account is as follows:
| |  |  | -----------------------------------------------------------------------------

|                                           |  |      |           |      |  |      |           |   |  |   |           |  
|------------------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                           |  | 2001 |           | 2000 |  | 1999
|                                           |  |      |           |      |  |     
|Balance, beginning
of year                 |  | $    | 1,372,916 |      |  | $    | 1,253,945 |   |  | $ | 1,070,164 |  
|                                           |  |      |           |      |  |      |           |   |  |   |           |  
|Provision charged
to income                |  |      | 250,226   |      |  |      | 151,890   |   |  |   | 227,050   |  
|Recoveries on
loans previously
charged-off |  |      | 10,427    |      |  |      | 657       |   |  |   | 23,879    |  
|                                           |  |      |           |      |  |      |           |   |  |   |           |  
|Total additions                            |  |      | 260,653   |      |  |      | 152,547   |   |  |   | 250,929   |  
|Charge-offs                                |  |      | (82,742   | )    |  |      | (33,576   | ) |  |   | (67,148   | )
|                                           |  |      |           |      |  |      |           |   |  |   |           |  
|Balance, end of year                       |  | $    | 1,550,827 |      |  | $    | 1,372,916 |   |  | $ | 1,253,945 |  
|                                           |  |      |           |      |  |      |           |   |  |   |           |  



| |  |  | In managements opinion, the allowance is adequate to reflect the risk
in the loan portfolio.                                                                                                                                                          
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Banks lending is concentrated in the west central Florida market.
Although the Bank has a diversified loan portfolio, its debtors
ability to honor their contracts is substantially dependent upon the
general economic conditions of the region.
|
| |  |  | There were no non-accrual loans at December 31, 2001, 2000, and 1999,
respectively.                                                                                                                                                                    

- 13 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 4  BANK PREMISES AND EQUIPMENT



| |  |  | A summary of Bank premises and equipment at December 31, follows:
| |  |  | -----------------------------------------------------------------

|                                               |  |      |            |      |  |   |            |  
|---------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                               |  | 2001 |            | 2000
|                                               |  |      |            |     
|Land                                           |  | $    | 1,672,560  |      |  | $ | 1,747,475  |  
|Buildings                                      |  |      | 3,761,575  |      |  |   | 3,715,118  |  
|Leasehold improvements                         |  |      | 165,895    |      |  |   | 122,481    |  
|Furniture, fixtures and equipment              |  |      | 3,241,000  |      |  |   | 3,061,473  |  
|                                               |  |      |            |      |  |   |            |  
|                                               |  |      | 8,841,030  |      |  |   | 8,646,547  |  
|                                               |  |      |            |      |  |   |            |  
|Less accumulated depreciation and
amortization |  |      | (2,968,558 | )    |  |   | (2,486,125 | )
|                                               |  |      |            |      |  |   |            |  
|                                               |  | $    | 5,872,472  |      |  | $ | 6,160,422  |  
|                                               |  |      |            |      |  |   |            |  



| |  |  | The capitalized value of a building held under capital lease is
included in Bank building and equipment. The capitalized value is
$772,706 and the accumulated amortization was $553,773 and $515,138, at
December 2001 and 2000, respectively.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 5  DEPOSITS



| |  |  | A summary of time certificate deposits and their remaining maturities at December 31, are as follows:
| |  |  | -----------------------------------------------------------------------------------------------------

|                               |  |      |            |      |  |   |            | 
|------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                               |  | 2001 |            | 2000
|                               |  |      |            |     
|Three months or less           |  | $    | 9,184,213  |      |  | $ | 13,327,074 | 
|Over three through six months  |  |      | 17,501,329 |      |  |   | 22,961,540 | 
|Over six through twelve months |  |      | 22,011,395 |      |  |   | 32,701,160 | 
|Over twelve months             |  |      | 13,973,115 |      |  |   | 8,102,063  | 
|                               |  |      |            |      |  |   |            | 
|                               |  | $    | 62,670,052 |      |  | $ | 77,091,837 | 
|                               |  |      |            |      |  |   |            | 



| |  |  | The aggregate amount of time certificate deposits of $100,000 or more
at December 31, 2001 and 2000 was approximately $19,516,737 and
$24,039,607, respectively.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The fair value of time certificate deposits at December 31, 2001 and
2000 approximated their carrying value.                                                    
|
| |  |  | The total amount of demand deposit overdrafts classified as loan
balances at December 31, 2001, and 2000 was approximately $45,655 and
$85,423, respectively.   
|
| |  |  | At December 31, 2001 total executive officer and director deposits
were approximately $459,129.                                                                 

- 14 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 6  LEASES



| |  |  | The Banks main branch building is leased with monthly payments of
approximately $19,000. The lease has an initial term of twenty (20)
years with four five-year renewal options. The lease payments
applicable to the building element (approximately $8,400) have been
accounted for as a capital lease, while the lease payments applicable
to the land element (approximately $10,600) have been accounted for as
an operating lease. Subsequent to year end, the Bank closed on a
purchase of the leased property. The Bank leases a second building
under an operating lease with an initial term of five (5) years with
three five-year renewal options. Lease payments are $3,657 per month.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Rental expense related to operating leases was approximately $173,300,
$167,900, and $120,000, for the years ended December 31, 2001, 2000, and
1999, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

NOTE 7  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS



| |  |  | The Bank enters into sales of securities under agreements to
repurchase. Repurchase agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability
in the balance sheets. The dollar amount of securities underlying the
agreements remains in the asset accounts. The securities sold under
repurchase agreements remain in the custody of a third-party trustee.
The Bank may have sold, loaned, or otherwise disposed of such
securities in the normal course of its operations and has agreed to
maintain substantially identical securities during the agreements.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Information related to the Banks securities sold under agreements to
repurchase (including accrued interest) at December 31, 2001 and 2000
is presented below, segregated by the type of securities sold (all
agreements are due in less than 30 days):                                                                                                                                                                                                                                                                                                                                                                     

|                     |                                           |                           |   |              |       |      |   |           |       |  
|-------------------- | ----------------------------------------- | ------------------------- | - | ------------ | ----- | ---- | - | --------- | ----- | -
|                     |                                           |                           |   | DECEMBER 31,
|                     |                                           |                           |   |             
|                     |                                           |                           |   | 2001         |       | 2000
|                     |                                           |                           |   |              |       |     
|Government Agencies: |                                           |                           |   |              |       |      |   |          
|                     | Carrying Value of Securities              |                           | $ | 13,448,121   |       |      | $ | 7,585,770 |      
|                     | Market Value of Securities                |                           |   | 13,721,985   |       |      |   | 7,064,911 |      
|                     | Repurchase Agreements with bank
customers |                           |   | 12,965,512   |       |      |   | 4,918,336 |      
|                     |                                           | Interest Rate to customer |   |              | 1.125 | %    |   |           | 5.875 | %



| |  |  | At December 31, 2001 and 2000, the Bank had borrowings of $5,000,000 at
5.93% from the Federal Home Loan Bank Board. Borrowings at December
31, 2001 are secured by a percentage of the one to four family loan
portfolio. The borrowings may not exceed 75% of the one to four family
loan portfolio. The Bank has been approved to borrow up to 15% of the
Banks assets. Interest only payments are due quarterly with payment
due on August 19, 2002. There were no daily borrowings from the
Federal Home Loan Bank at December 31, 2001.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 15 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 7  SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE AND OTHER BORROWED                          FUNDS  CONTINUED



| |  |  | The Holding Company entered into an agreement with SunTrust Bank on
April 14, 2000 for a $1,000,000 revolving credit loan. The interest
rate is 30 day LIBOR plus 1.5% adjusted monthly. Interest is to be
repaid quarterly beginning June 30, 2000. As of December 31, 2001,
there were no draws against this loan.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 8  INCOME TAXES



| |  |  | Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Banks deferred tax assets and
liabilities as of December 31, are as follows:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |                                                       |  |         |         |      |  |         |         | 
|-------------------- | ----------------------------------------------------- |  | ------- | ------- | ---- |  | ------- | ------- | 
|                     |                                                       |  | 2001    |         | 2000
|                     |                                                       |  |         |         |     
|Deferred tax assets: |                                                       |  |         |         |      |  |         |        
|                     | Book over tax depreciation                            |  | $       | -0-     |      |  | $       | 4,000   | 
|                     | Book over tax bad debts                               |  |         | 521,700 |      |  |         | 454,700 | 
|                     | Book over tax amortization                            |  |         | 8,300   |      |  |         | 12,400  | 
|                     | Deferred loan fees                                    |  |         | 34,300  |      |  |         | 22,400  | 
|                     | Book over tax pension expense -
nonqualified plan     |  |         | 3,000   |      |  |         | 5,800   | 
|                     | Valuation allowance for securities
available for sale |  |         | -0-     |      |  |         | 128,052 | 
|                     |                                                       |  |         |         |      |  |         |        
|                     |                                                       |  | 567,300 |         |      |  | 627,352 |        
|                     |                                                       |  |         |         |      |  |         |        

|                                 |                           |                                                       |          |        |          |      |          |         |          |  
|-------------------------------- | ------------------------- | ----------------------------------------------------- | -------- | ------ | -------- | ---- | -------- | ------- | -------- | -
|                                 |                           |                                                       |          | 2001   |          | 2000
|                                 |                           |                                                       |          |        |          |     
|                                 | Deferred tax liabilities: |                                                       |          |        |          |      |          |         |         
|Book under tax depreciation      |                           |                                                       | (11,100  | )      |          |      | -0-      |        
|                                 |                           | Securities accretion                                  |          |        | (2,000   | )    |          |         | (3,500   | )
|Tax over book amortized expenses |                           |                                                       | (2,700   | )      |          |      | -0-      |        
|                                 |                           | Tax over book pension expense -
qualified plan        |          |        | (176,100 | )    |          |         | (150,600 | )
|Deferred gain on land sale       |                           |                                                       | (124,400 | )      |          |      | -0-      |        
|                                 |                           | Valuation allowance for securities
available for sale |          |        | (160,050 | )    |          |         | -0-      |  
|                                 |                           |                                                       |          |        |          |      |          |        
|                                 |                           |                                                       | (476,350 | )      |          |      | (154,100 | )      
|                                 |                           |                                                       |          |        |          |      |          |        
|                                 | Net deferred tax assets   |                                                       | $        | 90,950 |          |      | $        | 473,252 |         
|                                 |                           |                                                       |          |        |          |      |          |        



| |  |  | Significant components of the provision for income taxes are as follows:
| |  |  | ------------------------------------------------------------------------

|          |         |                |         |         |         |      |         |         |         |   |         |          |          |  
|--------- | ------- | -------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | -------- | -------- | -
|          |         |                |         | 2001    |         | 2000 |         | 1999   
|          |         |                |         |         |         |      |         |        
|Current:  |         |                |         |         |         |      |         |         |         |   |         |         
|          | Federal |                | $       | 710,000 |         |      | $       | 534,000 |         |   | $       | 687,700  |         
|          | State   |                |         | 141,600 |         |      |         | 117,300 |         |   |         | 88,000   |         
|          |         |                |         |         |         |      |         |         |         |   |         |         
|          |         | Total current  |         |         | 851,600 |      |         |         | 651,300 |   |         |          | 775,700  |  
|          |         |                |         |         |         |      |         |         |         |   |         |         
|Deferred: |         |                |         |         |         |      |         |         |         |   |         |         
|          | Federal |                |         | 107,500 |         |      |         | 14,310  |         |   |         | (123,200 | )       
|          | State   |                |         | 16,000  |         |      |         | 790     |         |   |         | (17,600  | )       
|          |         |                |         |         |         |      |         |         |         |   |         |         
|          |         | Total deferred |         |         | 123,500 |      |         |         | 15,100  |   |         |          | (140,800 | )
|          |         |                |         |         |         |      |         |         |         |   |         |         
|          |         | $              | 975,100 |         |         | $    | 666,400 |         |         | $ | 634,900 |         
|          |         |                |         |         |         |      |         |         |         |   |         |         

- 16 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 8  INCOME TAXES  CONTINUED



| |  |  | The effective tax rate for 2001, 2000, and 1999 differs from the
statutory tax rate as follows:
| |  |  | -----------------------------------------------------------------------------------------------

|                                                      |  |        |          |        |  |        |      |        |  |        |          |        |  |  |      |   |  |        |         |   |  |  |      |  
|----------------------------------------------------- |  | ------ | -------- | ------ |  | ------ | ---- | ------ |  | ------ | -------- | ------ |  |  | ---- | - |  | ------ | ------- | - |  |  | ---- | -
|                                                      |  | 2001   |          | 2000   |  | 1999  
|                                                      |  |        |          |        |  |       
|                                                      |  |        |          |        |  | % of   |      |        |  |        |          | % of   |  |  |      |   |  | % of  
|                                                      |  |        |          |        |  | Pretax |      |        |  |        |          | Pretax |  |  |      |   |  | Pretax
|                                                      |  | Amount |          | Income |  | Amount |      | Income |  | Amount |          | Income
|                                                      |  |        |          |        |  |        |      |        |  |        |          |       
|Statutory federal
tax rate                            |  | $      | 969,800  |        |  |        | 34.0 | %      |  | $      | 729,700  |        |  |  | 34.0 | % |  | $      | 692,500 |   |  |  | 34.0 | %
|                                                      |  |        |          |        |  |        |      |        |  |        |          |        |  |  |      |   |  |        |         |   |  |  |      |  
|State income taxes,
net of federal
income tax benefit |  |        | 104,000  |        |  |        | 3.6  |        |  |        | 77,400   |        |  |  | 3.6  |   |  |        | 46,500  |   |  |  | 2.3  |  
|                                                      |  |        |          |        |  |        |      |        |  |        |          |        |  |  |      |   |  |        |         |   |  |  |      |  
|Tax-exempt interest                                   |  |        | (131,600 | )      |  |        | (4.6 | )      |  |        | (117,300 | )      |  |  | (5.5 | ) |  |        | (95,500 | ) |  |  | (4.7 | )
|                                                      |  |        |          |        |  |        |      |        |  |        |          |        |  |  |      |   |  |        |         |   |  |  |      |  
|Other                                                 |  |        | 32,900   |        |  |        | 1.2  |        |  |        | (23,400  | )      |  |  | (1.1 | ) |  |        | (8,600  | ) |  |  | (.4  | )
|                                                      |  |        |          |        |  |        |      |        |  |        |          |        |  |  |      |   |  |        |         |   |  |  |      |  
|                                                      |  | $      | 975,100  |        |  |        | 34.2 | %      |  | $      | 666,400  |        |  |  | 31.0 | % |  | $      | 634,900 |   |  |  | 31.2 | %
|                                                      |  |        |          |        |  |        |      |        |  |        |          |        |  |  |      |   |  |        |         |   |  |  |      |  



| |  |  | Income taxes related to securities gains amounted to approximately
$-0-, $14,000, and $4,300 in 2001, 2000, and 1999, respectively.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------

NOTE 9   PENSION PLANS



| |  |  | Employees, age twenty-one and over, are eligible to participate in a
qualified defined benefit pension plan (the Plan) on January 1 of the
year after they have completed six months of service and 1,000 hours of
service. Contributions are made by the Bank annually in amounts
determined by the Plans actuary as necessary to fund retirement
benefits under the Plan. Vesting of Bank contributions is 100% after
seven years of participation. Activity for the years ended December 31
is as follows:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |  |      |           |      |  |      |           |   |  |   |         |  
|---------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | ------- | -
|                                               |  | 2001 |           | 2000 |  | 1999
|                                               |  |      |           |      |  |     
|Benefit obligation at beginning
of year        |  | $    | 1,133,650 |      |  | $    | 792,287   |   |  | $ | 612,102 |  
|Service cost                                   |  |      | 181,241   |      |  |      | 132,110   |   |  |   | 106,161 |  
|Interest cost                                  |  |      | 98,515    |      |  |      | 59,320    |   |  |   | 45,806  |  
|Actuarial gain                                 |  |      | 64,301    |      |  |      | 152,649   |   |  |   | 30,934  |  
|Benefits paid                                  |  |      | (2,716    | )    |  |      | (2,716    | ) |  |   | (2,716  | )
|                                               |  |      |           |      |  |      |           |   |  |   |         |  
|Benefit obligation at end of year              |  | $    | 1,474,991 |      |  | $    | 1,133,650 |   |  | $ | 792,287 |  
|                                               |  |      |           |      |  |      |           |   |  |   |         |  
|Change in plan assets:                         |  |      |           |      |  |      |           |   |  |   |         |  
|Fair value of plan assets at
beginning of year |  | $    | 998,122   |      |  | $    | 906,619   |   |  | $ | 696,326 |  
|Actual return on plan assets                   |  |      | 91,172    |      |  |      | (96,393   | ) |  |   | 56,312  |  
|Employer contribution                          |  |      | 285,748   |      |  |      | 190,612   |   |  |   | 156,697 |  
|Benefits paid                                  |  |      | (2,716    | )    |  |      | (2,716    | ) |  |   | (2,716  | )
|                                               |  |      |           |      |  |      |           |   |  |   |         |  
|Fair value of plan assets at
end of year       |  | $    | 1,372,326 |      |  | $    | 998,112   |   |  | $ | 906,619 |  
|                                               |  |      |           |      |  |      |           |   |  |   |         |  

- 17 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 9   PENSION PLANS  CONTINUED

| |                                                                   |                       |         |          |         |   |         |         |         |   |        |         |         | 
| | ----------------------------------------------------------------- | --------------------- | ------- | -------- | ------- | - | ------- | ------- | ------- | - | ------ | ------- | ------- | 
| | Unrecognized prior service cost                                   |                       | $       | 5,164    |         |   | $       | 4,900   |         |   | $      | 4,636   |        
| | Funded status                                                     |                       |         | (102,665 | )       |   |         | 193,559 |         |   |        | 114,332 |        
| | Unrecognized actuarial loss                                       |                       |         | 565,387  |         |   |         | 201,824 |         |   |        | 207,018 |        
| |                                                                   |                       |         |          |         |   |         |         |         |   |        |        
| |                                                                   | Net amount recognized |         | $        | 467,886 |   |         | $       | 400,283 |   |        | $       | 325,986 | 
| |                                                                   |                       |         |          |         |   |         |         |         |   |        |        
| | Amounts recognized in statement
of financial position consist of: |                       |         |          |         |   |         |         |         |   |        |         |        
| | Prepaid benefit cost                                              |                       | $       | 467,886  |         |   | $       | 400,283 |         |   | $      | 325,986 |        
| |                                                                   |                       |         |          |         |   |         |         |         |   |        |        
| | Weighted average assumptions as
of December 31,                   |                       |         |          |         |   |         |         |         |   |        |         |        
| | Discount rate                                                     |                       |         | 7.5      | %       |   |         | 7.5     | %       |   |        | 7.5     | %      
| | Expected return on plan assets                                    |                       |         | 8.0      | %       |   |         | 8.0     | %       |   |        | 8.0     | %      
| | Rate of compensation increase                                     |                       |         | 4.0      | %       |   |         | 6.0     | %       |   |        | 6.0     | %      
| |                                                                   |                       |         |          |         |   |         |         |         |   |        |        
| | Component of net periodic benefit
cost:                           |                       |         |          |         |   |         |         |         |   |        |         |        
| | Service cost                                                      |                       | $       | 181,241  |         |   | $       | 132,110 |         |   | $      | 106,161 |        
| | Interest cost                                                     |                       |         | 98,515   |         |   |         | 59,320  |         |   |        | 45,806  |        
| | Expected return on plan assets                                    |                       |         | (91,171  | )       |   |         | (80,045 | )       |   |        | (61,865 | )      
| | Amortization of prior service cost                                |                       |         | 368      |         |   |         | 368     |         |   |        | 368     |        
| | Recognized net actuarial gain or
loss                             |                       |         | 29,193   |         |   |         | 4,562   |         |   |        | 3,805   |        
| |                                                                   |                       |         |          |         |   |         |         |         |   |        |        
| |                                                                   | $                     | 218,146 |          |         | $ | 116,315 |         |         | $ | 94,275 |        
| |                                                                   |                       |         |          |         |   |         |         |         |   |        |        



| |  |  | The Bank provides a 401(k) profit sharing plan for employees who have
reached the age of 21 and have at least 1,000 hours of service in the
year. The Banks contribution, which is determined annually, was
approximately $53,500, $55,000, and $52,400 in 2001, 2000, and 1999,
respectively.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 10  INTEREST EXPENSE



| |  |  | Interest on deposits is summarized as follows:
| |  |  | ----------------------------------------------

| |                                                     |   |           |           |      |   |           |           |  |   |           |           | 
| | --------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
| |                                                     |   | 2001      |           | 2000 |   | 1999     
| |                                                     |   |           |           |      |   |          
| | Interest bearing demand
Deposits  interest
expense |   | $         | 1,589,310 |      |   | $         | 1,711,612 |  |   | $         | 1,030,559 | 
| |                                                     |   |           |           |      |   |           |           |  |   |           |          
| | Savings deposits 
Interest expense                 |   |           | 284,939   |      |   |           | 498,963   |  |   |           | 553,317   | 
| |                                                     |   |           |           |      |   |           |           |  |   |           |          
| | Time deposits less than
$100,000  interest
expense |   |           | 3,019,477 |      |   |           | 3,138,847 |  |   |           | 2,450,067 | 
| |                                                     |   |           |           |      |   |           |           |  |   |           |          
| |                                                     | $ | 4,893,726 |           |      | $ | 5,349,422 |           |  | $ | 4,033,943 |          
| |                                                     |   |           |           |      |   |           |           |  |   |           |          

- 18 -



---



##### 



FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS  CONTINUED

NOTE 11  STOCK OPTION PLAN



| |  |  | The Bank had three incentive option plans (the Option Plans). Two
previous plans, one of which authorized 27,563 additional shares in
1995, and a new plan adopted April 2000, which authorized 225,000
shares. The Option Plans authorize the Board of Directors to grant
to full-time officers and other key employees options to purchase
shares of common stock for a period of 5 to 10 years. The Option
Plans provides that the exercise price of the stock options will be
determined by the Board of Directors at the date of grant, but in no
event will the purchase price be less than 100% of the fair market
value of the Banks common stock on such date.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Transactions during 2001 and 2000 under the Option Plans were as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                  |  |      |         |      |  |               |         |   |  |  |                  | 
|------------------------------------------------- |  | ---- | ------- | ---- |  | ------------- | ------- | - |  |  | ---------------- | 
|                                                  |  | 2001 |         | 2000 |  | OPTION PRICES
|                                                  |  |      |         |      |  |              
|Shares under option at
beginning of year          |  |      | 127,115 |      |  |               | 83,762  |   |  |  | 5.330  15.238   | 
|Options granted                                   |  |      | 28,365  |      |  |               | 21,203  |   |  |  | 14.090  14.500  | 
|Forfeitures                                       |  |      | (1,325  | )    |  |               | -0-     |   |  |  | 14.059
   15.00 | 
|Options exercised                                 |  |      | (9,308  | )    |  |               | (440    | ) |  |  | 6.268    8.638  | 
|                                                  |  |      |         |      |  |               |         |   |  |  |                  | 
|Shares under option at
end of year                |  |      | 144,847 |      |  |               | 104,525 |   |  |  | 5.330  15.238   | 
|                                                  |  |      |         |      |  |               |         |   |  |  |                  | 
|Shares available for future
grants at end of year |  |      | 204,129 |      |  |               | 220,823 |   |  |  |                  | 
|                                                  |  |      |         |      |  |               |         |   |  |  |                  | 

NOTE 12  COMMITMENTS



| |  |  | The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. At December 31, 2001, the
Bank had commitments to fund loans of $17,417,000 and $301,272
under standby letters of credit. The Banks exposure to credit
loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and,
standby letters of credit, is represented by the contractual
notional amount of those instruments. The Bank uses the same
credit policies and documentation in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. The Bank generally requires collateral or other
security to support financial instruments with credit risk. The
Bank does not enter into other financial instruments with
off-balance-sheet risk.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 13  REGULATORY CAPITAL



| |  |  | The Federal Reserve Board has issued standards for measuring capital
adequacy for U.S. banking organizations. In general, the standards
require banks to maintain capital based on risk-adjusted assets so
that categories of assets with potentially higher credit risk will
require more capital backing than assets with lower risk. In
addition, banks are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance-sheet activities such as
loan commitments. As of December 31, 2001, the Banks Risk-Based Capital Ratio is 11.5%
compared to a requirement of 8%. The Bank also meets all other
regulatory capital requirements. No dividends may be paid if the
result would cause the Bank to be under capitalized.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 19 -