##### 



Filed with Securities and Exchange Commission on March 29, 2004 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, 2003 FIRST NATIONAL BANCSHARES, INC. 
  State of Florida
    
    06-1522028(Jurisdiction of Incorporation)
    
    (I.R.S. Employer Identification No.)
 5817 Manatee Avenue West, Bradenton, Florida 34209 
  Registrants telephone number, including area code (941) 794-6969 
 Securities registered under Section 12(b) of the Act: Name of each exchangeTitle of each Class
    
    on which registeredCommon
    
    None
 Securities registered under Section 12(g) of the Act: Common Stock, $.10 par value 
  The number of shares of Common Stock in the Company outstanding on March 22,
2004 was 2,055,109. 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.
YES [X] NO 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] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [  ] No [X] State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrants most recently completed second
fiscal quarter. The aggregate market value of the voting stock held by
non-affiliates of the company at June 30, 2003, was $38,394,855. DOCUMENTS INCORPORATED BY REFERENCE
    
    Part of Form 10-K intoin this Form 10-K
    
    which incorporatedPortions of the Companys definitive Proxy Statement
for its Annual Meeting of Shareholders to be held May 20, 2004
    
    Part III




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##### 



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) with and
into an interim national bank that was a wholly owned subsidiary of the
Company. As a result of that transaction, the Bank became and continues to be
a wholly owned subsidiary of the Company. 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. Financial Information See the Companys audited, consolidated financial statements, attached
hereto, for information for each of the last three fiscal years regarding
revenues from external customers, the measure of profit and loss and total
assets. C. 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 2003, the trust department had over $101,000,000 in customer
assets. The department showed a profit in 1996, its first full year of
operation, and has been profitable in each subsequent year. In October of
2003, the bank entered into an agreement to acquire The Trust Company of
Florida, a trust bank through merger. In February, 2004, the shareholders of
Trust Company approved the acquisition and the merger was consummated on March
15, 2004. At the time of merger, The Trust Company of Florida had in excess of
$84,000,000 in customer assets and 1st National had more than $108,000,000 in
customer assets. Management expects to integrate the trust accounting systems
for the two entities by the end of May 2004. 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. 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. In April of 2003, the bank opened a Loan Production Office in downtown
Sarasota in an effort to increase loan volume in the 1




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##### 



Sarasota market. (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. 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.
According to the most recent market data, there are approximately 23 deposit
taking/lending institutions operating in Manatee County. The Bank currently
ranks fifth in deposits in the market with 5.1% market share. Bank of America,
NA ranks first, with a market share of 26.6%. No other deposit taking/lending
institution in Manatee County possesses a market share over 10%. 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. 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), Gold 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 2




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##### 



located on the island. The Braden River Branch on highway
64 is -1/2 mile east of a Bank of America branch across from an AmSouth office.
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 a Gold Bank branch. (5) Loan Commitments At December 31, 2003 and 2002, the Bank had commitments to originate and
disperse on loans of approximately $34,566,000 and $19,758,000 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, 2003 will be exercised
within the current year. In addition, at December 31, 2003 and 2002, the Bank
had in place letters of credit of approximately $1,895,000 and $1,337,000,
respectively. The Bank does not expect that any of the standby letters of
credit in place at December 31, 2003 will be exercised within the current year.
The Bank had no commitments to purchase loans at December 31, 2003 and 2002. (6) Financial History The Bank first opened to the public on July 18, 1986. As of December 31,
2003, the Company had total assets of $277,232,000 compared with total assets
of $222,161,000 at December 31, 2002 and $212,470,000 of total assets at
December 31, 2001. At year-end 2003, the Company had total deposits of
$233,327,000, compared with Bank deposits of $180,511,000 at year end 2002 and
$175,848,000 of total deposits at year end 2001. In addition, the Company had
loans of $206,742,000 at the end of 2003, compared with $158,530,000 of loans
in the Bank at the end of 2002 and $145,9445,000 of loans at the end of 2001.
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. (7) Employees At December 31, 2003, the Company had no direct employees. The Bank
employed 82 people, of which three were executive officers, and 9 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 under
a lease agreement and purchased the building in January of 2002. In addition to its main office, the Bank has branch offices in the
following locations: 4770 State Road 64 East; 9000 State Road 70 East; 8425 US
301 North, Parrish; 5324 Gulf Drive, Holmes Beach. The Bank has owned all of
these branch locations since their respective openings. The Bank believes that
over time, this will reduce the banks operating expenses by eliminating the
financing costs of the landlord and the CPI increases that are incorporated
into long term leases. In addition, the bank occupies leased space in downtown
Sarasota for a loan production office. 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. 3




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##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted for approval by the Companys shareholders during
the fourth quarter of the fiscal year ended December 31, 2003. PART II ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER MATTERS As a result of the acquisition of the Bank by 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
consummation of the acquisition, all Bank Common Stock was held by the Company
and all previous shareholders of the Bank became shareholders in the Company.
Effective October 1, 2002, the Company stock began trading on the NASDAQ small
Cap Market under the symbol FBMT. The following table shows the high and low
bid prices for each quarter of 2002 and 2003 after adjusting for the 5% stock
dividends in each year. 1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    YearLow
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low
    
    High2002
    
    
    12.70
    
    
    
    14.60
    
    
    
    14.51
    
    
    
    17.23
    
    
    
    15.48
    
    
    
    18.57
    
    
    
    17.42
    
    
    
    20.00
    
    
    
    12.70
    
    
    
    20.002003
    
    
    19.02
    
    
    
    23.33
    
    
    
    20.18
    
    
    
    22.05
    
    
    
    18.67
    
    
    
    21.90
    
    
    
    20.33
    
    
    
    23.40
    
    
    
    18.67
    
    
    
    23.40
 As of March 22, 2004, there were 797 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 2003. 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. A description of certain restrictions imposed upon the Banking
Industry by the Comptroller with respect to the declaration and payment of
dividends to the Company is included in notes to the audited financial
statements attached hereto. During the 4th Quarter of 2003, the Company did not repurchase any of its
outstanding common shares. 4




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##### 



Equity Compensation Plan Information In 1995, the shareholders of the Bank approved an Incentive Stock Option Plan
for key officers and employees of the Bank to be administered by the Board of
Directors of the Bank. In 1999, the shareholders approved a renewal of that
plan. Under the plan, and at the discretion of the Board, deserving officers
and employees of the Bank are awarded stock options at the current fair market
value of the stock. When the Company, as a bank holding company acquired the
Bank, it assumed the duties and responsibilities of the plan from the Bank.
The following table summarizes the shares outstanding under the plan and the
shares remaining in the plan. Number of securitiesWeighted-average
    
    remaining available forNumber of securities to be
    
    exercise
    
    future issuance underissued upon exercise of
    
    price of outstanding
    
    equity compensation plansoutstanding options,
    
    options, warrants and
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    144,492
    
    
    $
    15.26
    
    
    
    172,975Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    144,492
    
    
    $
    15.26
    
    
    
    172,975
 5




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##### 



Item 6. SELECTED FINANCIAL DATA SELECTED INCOME DATA
Years Ended December 31,
(000s except per share & dividend data) 2003
    
    2002
    
    2001
    
    2000
    
    1999Interest income
    
    $
    12,616
    
    
    $
    13,026
    
    
    $
    14,164
    
    
    $
    13,812
    
    
    $
    11,743Interest expense
    
    
    3,144
    
    
    
    3,795
    
    
    
    6,699
    
    
    
    7,334
    
    
    
    5,687Net interest income
    
    
    9,472
    
    
    
    9,231
    
    
    
    7,465
    
    
    
    6,477
    
    
    
    6,056Provision for loan losses
    
    
    447
    
    
    
    321
    
    
    
    250
    
    
    
    152
    
    
    
    227Net interest income after
provision for loan losses
    
    
    9,025
    
    
    
    8,910
    
    
    
    7,215
    
    
    
    6,325
    
    
    
    5,829Other non-interest income
    
    
    1,867
    
    
    
    1,645
    
    
    
    1,847
    
    
    
    1,342
    
    
    
    1,293Other non-interest expenses
    
    
    7,621
    
    
    
    6,672
    
    
    
    6,209
    
    
    
    5,522
    
    
    
    5,084Income before income taxes
    
    
    3,271
    
    
    
    3,883
    
    
    
    2,852
    
    
    
    2,146
    
    
    
    2,036Provision for income taxes
    
    
    1,120
    
    
    
    1,349
    
    
    
    975
    
    
    
    666
    
    
    
    635Net income (loss)
    
    
    2,151
    
    
    
    2,534
    
    
    
    1,877
    
    
    
    1,480
    
    
    
    1,402Earnings per share *
    
    
    1.08
    
    
    
    1.31
    
    
    
    .97
    
    
    
    .77
    
    
    
    .73Diluted Earnings per share*
    
    
    1.01
    
    
    
    1.21
    
    
    
    .91
    
    
    
    .73
    
    
    
    .70Cash dividends declared
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AStock dividends declared
    
    
    5
    %
    
    
    5
    %
    
    
    5
    %
    
    
    5
    %
    
    
    5
    %
 SELECTED BALANCE SHEET DATA
YEAR ENDED DECEMBER 31
(000s except per share & outstanding share data) 2003
    
    2002
    
    2001
    
    2000
    
    1999Total assets
    
    $
    277,232
    
    
    $
    222,161
    
    
    $
    212,471
    
    
    $
    197,043
    
    
    $
    175,802Average total assets
    
    
    236,581
    
    
    
    214,652
    
    
    
    203,218
    
    
    
    185,789
    
    
    
    167,575Net investment securities
    
    
    47,113
    
    
    
    41,781
    
    
    
    37,903
    
    
    
    41,061
    
    
    
    40,849Net loans
    
    
    204,314
    
    
    
    156,590
    
    
    
    144,302
    
    
    
    135,932
    
    
    
    120,708Total deposits
    
    
    233,327
    
    
    
    180,512
    
    
    
    175,849
    
    
    
    170,271
    
    
    
    152,184Repurchase agreements &
other borrowed money
    
    
    20,801
    
    
    
    20,311
    
    
    
    17,966
    
    
    
    9,918
    
    
    
    9,032Capital lease obligation
    
    
    -0-
    
    
    
    -0-
    
    
    
    414
    
    
    
    462
    
    
    
    505Total stockholders equity
    
    
    22,015
    
    
    
    19,996
    
    
    
    17,047
    
    
    
    14,635
    
    
    
    12,575Book value per share *
    
    
    11.04
    
    
    
    10.31
    
    
    
    8.85
    
    
    
    7.63
    
    
    
    6.56Average total equity
    
    
    21,185
    
    
    
    18,571
    
    
    
    16,022
    
    
    
    14,293
    
    
    
    12,180Average common shares
Outstanding *
    
    
    1,988,807
    
    
    
    1,931,895
    
    
    
    1,923,270
    
    
    
    1,918,089
    
    
    
    1,918,195
  *
    
    Retroactively adjusted for 5% stock dividends paid in 1999 thru 2003 and a two
for one stock split in 1999. 6




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##### 



Distribution of Assets, Liabilities and Stockholders Equity; Interest Rates
and Interest Differential: DECEMBER 31 2003
    
    2002
    
    2001AVERAGE
    
    
    
    
    
    YIELD/
    
    AVERAGE
    
    
    
    
    
    YIELD/
    
    AVERAGE
    
    
    
    
    
    YIELD/BALANCE
    
    INTEREST
    
    RATE
    
    BALANCE
    
    INTEREST
    
    RATE
    
    BALANCE
    
    INTEREST
    
    RATEASSETSInterest-earning assets:Loans*
    
    $
    169,677
    
    
    $
    10,933
    
    
    
    6.44
    %
    
    $
    154,238
    
    
    $
    10,987
    
    
    
    7.12
    %
    
    $
    140,931
    
    
    $
    11,681
    
    
    
    8.23
    %Taxable investment
securities
    
    $
    32,650
    
    
    $
    1,210
    
    
    
    3.71
    %
    
    $
    31,102
    
    
    $
    1,550
    
    
    
    4.98
    %
    
    $
    30,505
    
    
    $
    1,731
    
    
    
    5.69
    %Tax-exempt investment
securities
    
    $
    10,122
    
    
    $
    377
    
    
    
    3.72
    %
    
    $
    8,627
    
    
    $
    387
    
    
    
    4.49
    %
    
    $
    8,864
    
    
    $
    376
    
    
    
    4.24
    %Federal funds sold &
interest bearing bank
balances
    
    $
    8,866
    
    
    $
    96
    
    
    
    1.08
    %
    
    $
    6,612
    
    
    $
    102
    
    
    
    1.54
    %
    
    $
    9,899
    
    
    $
    376
    
    
    
    3.80
    %Total interest-earning assets
    
    $
    221,315
    
    
    $
    12,616
    
    
    
    5.70
    %
    
    $
    200,579
    
    
    $
    13,026
    
    
    
    6.49
    %
    
    $
    190,199
    
    
    $
    14,164
    
    
    
    7.41
    %Non-interest-earning assets:Cash and due from banks
    
    $
    6,985
    
    
    
    
    
    
    
    
    
    
    $
    5,813
    
    
    
    
    
    
    
    
    
    
    $
    4,973Premises and equipment (net)
    
    $
    7,884
    
    
    
    
    
    
    
    
    
    
    $
    8,101
    
    
    
    
    
    
    
    
    
    
    $
    6,214Other assets
    
    $
    2,450
    
    
    
    
    
    
    
    
    
    
    $
    1,989
    
    
    
    
    
    
    
    
    
    
    $
    3,007Less allowance for loan
losses, deferred fees &
securities market valuation
    

    $
    (2,053
    )
    
    
    
    
    
    
    
    
    
    $
    (1,830
    )
    
    
    
    
    
    
    
    
    
    ($
    1,175
    )TOTAL
    
    $
    236,581
    
    
    
    
    
    
    
    
    
    
    $
    214,652
    
    
    
    
    
    
    
    
    
    
    $
    203,218
 7




---



##### 



DECEMBER 31 2003
    
    2002
    
    2001AVERAGE
    
    
    
    
    
    YIELD/
    
    AVERAGE
    
    
    
    
    
    YIELD/
    
    AVERAGE
    
    
    
    
    
    YIELD/BALANCE
    
    INTEREST
    
    RATE
    
    BALANCE
    
    INTEREST
    
    RATE
    
    BALANCE
    
    INTEREST
    
    RATELIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    36,960
    
    
    $
    194
    
    
    
    .52
    %
    
    $
    29,505
    
    
    $
    164
    
    
    
    0.56
    %
    
    $
    23,300
    
    
    $
    261
    
    
    
    1.12
    %Savings deposits
    
    $
    63,031
    
    
    $
    579
    
    
    
    .92
    %
    
    $
    55,207
    
    
    $
    753
    
    
    
    1.36
    %
    
    $
    53,271
    
    
    $
    1,613
    
    
    
    3.03
    %Time deposits
    
    $
    67,207
    
    
    $
    1,988
    
    
    
    2.96
    %
    
    $
    63,272
    
    
    $
    2,315
    
    
    
    3.66
    %
    
    $
    72,796
    
    
    $
    4,182
    
    
    
    5.74
    %Federal funds purchased &
other borrowed money
    
    $
    5,984
    
    
    $
    226
    
    
    
    3.78
    %
    
    $
    6,340
    
    
    $
    310
    
    
    
    4.89
    %
    
    $
    5,000
    
    
    $
    302
    
    
    
    6.04
    %Repurchase agreements
    
    $
    15,985
    
    
    $
    157
    
    
    
    .98
    %
    
    $
    17,131
    
    
    $
    252
    
    
    
    1.47
    %
    
    $
    8,342
    
    
    $
    288
    
    
    
    3.45
    %Other
    
    $
    0
    
    
    $
    0
    
    
    
    N/A
    
    
    $
    6
    
    
    $
    1
    
    
    
    16.67
    %
    
    $
    436
    
    
    $
    53
    
    
    
    12.13
    %Total interest-bearing
Liabilities
    
    $
    189,167
    
    
    $
    3,144
    
    
    
    1.66
    %
    
    $
    171,461
    
    
    $
    3,795
    
    
    
    2.21
    %
    
    $
    163,145
    
    
    $
    6,699
    
    
    
    4.11
    %Non-interest-bearing liabilities:Demand deposits
    
    $
    24,760
    
    
    
    
    
    
    
    
    
    
    $
    22,994
    
    
    
    
    
    
    
    
    
    
    $
    22,258Other
    
    $
    1,469
    
    
    
    
    
    
    
    
    
    
    $
    1,446
    
    
    
    
    
    
    
    
    
    
    $
    1,928Total Liabilities
    
    $
    215,396
    
    
    
    
    
    
    
    
    
    
    $
    195,901
    
    
    
    
    
    
    
    
    
    
    $
    187,331Shareholders equity
    
    $
    21,185
    
    
    
    
    
    
    
    
    
    
    $
    18,751
    
    
    
    
    
    
    
    
    
    
    $
    15,887Total
    
    $
    236,581
    
    
    
    
    
    
    
    
    
    
    $
    214,652
    
    
    
    
    
    
    
    
    
    
    $
    203,218Net interest on earnings
    
    
    
    
    
    $
    9,472
    
    
    
    
    
    
    
    
    
    
    $
    9,231
    
    
    
    
    
    
    
    
    
    
    $
    7,465Net yield on interest earning assets
    
    
    
    
    
    
    
    
    
    
    4.28
    %
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    
    
    
    
    
    
    
    
    3.92
    %
  *
    
    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. 2003 Compared to 2002
    
    2002 Compared to 2001Increase (Decrease) Due to *
    
    Increase (Decrease) Due to *Volume
    
    Rate
    
    Net
    
    Volume
    
    Rate
    
    Net(THOUSANDS OF DOLLARS)Interest earned on:Loans (domestic)
    
    $
    1,100
    
    
    ($
    1,154
    )
    
    ($
    54
    )
    
    $
    1,095
    
    
    ($
    1,789
    )
    
    ($
    694
    )Taxable investment securities
    
    
    77
    
    
    
    (417
    )
    
    
    (340
    )
    
    
    34
    
    
    
    (215
    )
    
    
    (181
    )Tax-exempt investment securities
    
    
    67
    
    
    
    (77
    )
    
    
    (10
    )
    
    
    (10
    )
    
    
    21
    
    
    
    11Federal funds sold &
interest bearing balances
    
    
    35
    
    
    
    (41
    )
    
    
    (6
    )
    
    
    (125
    )
    
    
    (149
    )
    
    
    (274
    )Total interest earning assets
    
    $
    1,279
    
    
    ($
    1,689
    )
    
    ($
    410
    )
    
    $
    994
    
    
    $
    (2132
    )
    
    $
    (1,138
    )Interest paid on:Demand deposits
    
    $
    41
    
    
    ($
    11
    )
    
    $
    30
    
    
    $
    69
    
    
    ($
    166
    )
    
    ($
    97
    )Savings deposits
    
    
    107
    
    
    
    (281
    )
    
    
    (174
    )
    
    
    59
    
    
    
    (919
    )
    
    
    (860
    )Time deposits
    
    
    144
    
    
    
    (471
    )
    
    
    (327
    )
    
    
    (546
    )
    
    
    (1,321
    )
    
    
    (1,867
    )Federal funds purchased
    
    
    (17
    )
    
    
    (67
    )
    
    
    (84
    )
    
    
    81
    
    
    
    (73
    )
    
    
    8Repurchase Agreements
    
    
    (17
    )
    
    
    (78
    )
    
    
    (95
    )
    
    
    303
    
    
    
    (339
    )
    
    
    (36
    )Other
    
    
    (1
    )
    
    
    0
    
    
    
    (1
    )
    
    
    (52
    )
    
    
    -0-
    
    
    
    (52
    )Total interest bearing liabilities
    
    $
    257
    
    
    ($
    908
    )
    
    ($
    651
    )
    
    ($
    86
    )
    
    ($
    2,818
    )
    
    ($
    2,904
    )
  *
    
    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 312003
    
    2002
    
    2001(thousands of dollars)U.S. Treasury and other U.S.
Government agencies
    
    $
    37,360
    
    
    $
    31,437
    
    
    $
    27,843States and political subdivisions
    
    $
    8,568
    
    
    $
    9,285
    
    
    $
    9,136Other
    
    $
    941
    
    
    $
    1,059
    
    
    $
    923TOTAL
    
    $
    46,869
    
    
    $
    41,781
    
    
    $
    37,902
 9




---



##### 



The following table sets forth the maturities of investment securities at par
value on December 31, 2003 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
    
    AfterOne Year
    
    Within Five Years
    
    Within Ten Years
    
    Ten Years
    
    TotalAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldU.S. Treasury & Government AgenciesFixed rate
    
    $
    00
    
    
    
    N/A
    
    
    $
    3,000
    
    
    
    2.83
    %
    
    $
    1,000
    
    
    
    3.25
    %
    
    $
    00
    
    
    
    N/A
    
    
    $
    4,000
    
    
    
    2.94
    %Floating Rate
    
    $
    00
    
    
    
    N/A
    
    
    $
    00
    
    
    
    N/A
    
    
    $
    00
    
    
    
    N/A
    
    
    $
    00
    
    
    
    N/A
    
    
    $
    00
    
    
    
    N/AU.S. government agencies,
MBSs and CMOsFixed rate
    
    $
    911
    
    
    
    5.35
    %
    
    $
    26,061
    
    
    
    3.74
    %
    
    $
    4,078
    
    
    
    3.68
    %
    
    $
    00
    
    
    
    N/A
    
    
    $
    31,050
    
    
    
    3.78
    %Floating rate
    
    $
    00
    
    
    
    N/A
    
    
    $
    310
    
    
    
    2.64
    %
    
    $
    00
    
    
    
    N/A
    
    
    $
    00
    
    
    
    N/A
    
    
    $
    310
    
    
    
    2.64
    %States and political
subdivisions
    
    $
    102
    
    
    
    4.15
    %
    
    $
    6,538
    
    
    
    4.12
    %
    
    $
    1,928
    
    
    
    3.45
    %
    
    $
    00
    
    
    
    N/A
    
    
    $
    8,568
    
    
    
    3.97
    %Other
    
    $
    00
    
    
    
    N/A
    
    
    $
    2,000
    
    
    
    8.25
    %
    
    $
    00
    
    
    
    N/A
    
    
    $
    00
    
    
    
    N/A
    
    
    $
    2,000
    
    
    
    8.25
    %TOTAL
    
    $
    1,013
    
    
    
    4.46
    %
    
    $
    37,909
    
    
    
    3.96
    %
    
    $
    7,006
    
    
    
    4.30
    %
    
    $
    00
    
    
    
    M/A
    
    
    $
    45,928
    
    
    
    3.93
    %




---



##### 



Loan Portfolio The following table shows the maturity of fixed rate loans outstanding as of
December 31, 2003. 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
    
    AfterOne Year
    
    Within Five Years
    
    Five Years
    
    TotalLoans with:1-4 Family 1st Mortgages
    
    $
    27,371
    
    
    $
    41,788
    
    
    $
    1,212
    
    
    $
    70,371All Other Loans
    
    $
    51,950
    
    
    $
    65,925
    
    
    $
    17,179
    
    
    $
    135,054Total
    
    $
    79,321
    
    
    $
    107,713
    
    
    $
    18,391
    
    
    $
    205,425
 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)2003
    
    2002Non-accrual loans:
    
    $
    1,317
    
    
    $
    1,611Accruing loans past
due 90 days or more:
    
    $
    0
    
    
    $
    0Restructured loans:
    
    $
    0
    
    
    $
    0Total
    
    $
    1,317
    
    
    $
    1,611Interest Income not collected that would
have been collected under original terms:
    
    $
    9
    
    
    $
    14Commitments to lend additional funds:
    
    $
    0
    
    
    $
    0
 Potential Problem Loans At December 31, 2003 the Bank had identified no loans for which payments
presently are current but the borrowers are experiencing or have recently
experienced financial difficulties other than the non-accrual loans. 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. The Bank currently has no
concentrations of credit.




---



##### 



Summary of Loan Loss Experience This table summarizes the Banks loan loss experience for the years ended December 31, 2003 and 2002. Year Ended December 312003
    
    2002(thousands of dollars)Loan Loss Reserve
Balance at January 1
    
    $
    1,704
    
    
    $
    1,551Charge-offs:Commercial and other loans
    
    
    0
    
    
    
    0Real estate
    
    
    0
    
    
    
    0Installment/consumer
    
    
    101
    
    
    
    182Total Charge-offs
    
    $
    101
    
    
    $
    182Recoveries:Commercial and other loans
    
    $
    0
    
    
    $
    0Real estate
    
    
    0
    
    
    
    0Installment/consumer
    
    
    16
    
    
    
    14Total Recoveries
    
    $
    16
    
    
    $
    14Net charge-offs (recoveries)
    
    
    85
    
    
    
    168Additions charged to operations *
    
    
    448
    
    
    
    321Loan Loss Reserve
Balance at December 31
    
    $
    2,067
    
    
    $
    1,704Ratio of net charge-offs
to average loans outstanding:
    
    
    0.05
    %
    
    
    0.11
    %
 *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.




---



##### 



Deposits The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table: AveragesYear Ended December 312003
    
    2002Amount
    
    Rate
    
    Amount
    
    Rate(thousands of dollars)Domestic bank offices:Non-interest-bearing
demand deposits
    
    $
    24,760
    
    
    
    0
    %
    
    $
    22,994
    
    
    
    0
    %Interest-bearing demand
Deposits
    
    $
    36,960
    
    
    
    0.52
    %
    
    $
    29,505
    
    
    
    .56
    %Savings deposits
    
    
    63,031
    
    
    
    .92
    %
    
    
    55,207
    
    
    
    1.36
    %Time deposits
    
    
    67,207
    
    
    
    2.96
    %
    
    
    63,272
    
    
    
    3.66
    %Total
    
    $
    191,958
    
    
    
    1.44
    %
    
    $
    170,978
    
    
    
    1.89
    %
 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 312003
    
    2002
    
    2001Return on average assets
    
    
    .91
    %
    
    
    1.58
    %
    
    
    .92
    %Return on average equity
    
    
    10.2
    %
    
    
    13.6
    %
    
    
    11.7
    %Dividend pay out ratio
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Average equity to average assets ratio
    
    
    8.95
    %
    
    
    8.74
    %
    
    
    7.88
    %




---



##### 



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 FundsPurchased &Securities Sold Under
    
    
    
    
    
    OtherAgreements to
    
    Commercial
    
    Short-TermRepurchase*
    
    Paper
    
    Borrowings(thousands of dollars)Balance at December 31:2003
    
    $
    11,301
    
    
    $
    0
    
    
    $
    9,5002002
    
    $
    15,811
    
    
    $
    0
    
    
    $
    4,5002001
    
    $
    12,966
    
    
    $
    0
    
    
    $
    5,000Weighted average interest
rate at year-end:2003
    
    
    .94
    %
    
    
    0.00
    %
    
    
    3.49
    %2002
    
    
    1.07
    %
    
    
    0.00
    %
    
    
    4.19
    %2001
    
    
    1.85
    %
    
    
    0.00
    %
    
    
    5.93
    %Maximum amount outstanding
at any months end:2003
    
    $
    19,730
    
    
    $
    0
    
    
    $
    10,0002002
    
    $
    21,295
    
    
    $
    0
    
    
    $
    13,7502001
    
    $
    12,966
    
    
    $
    0
    
    
    $
    5,000Average amount outstanding
during the year:2003
    
    $
    16,235
    
    
    $
    0
    
    
    $
    5,7342002
    
    $
    17,117
    
    
    $
    0
    
    
    $
    6,3342001
    
    $
    8,342
    
    
    $
    0
    
    
    $
    5,000Weighted average interest
rate during the year:2003
    
    
    .97
    %
    
    
    0.00
    %
    
    
    3.87
    %2002
    
    
    1.47
    %
    
    
    0.00
    %
    
    
    4.89
    %2001
    
    
    3.45
    %
    
    
    0.00
    %
    
    
    5.93
    %
 *Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date.




---



##### 



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. FORWARD LOOKING STATEMENTS Statements contained in this portion of the Companys annual report may be
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
the use of such words as intend, believe, expect, anticipate, should,
planned, estimated, and potential. Such forward-looking statements are
based on current expectations, but may differ materially from those currently
anticipated due to a number of factors, which include, but are not limited to,
factors discussed in documents filed by the Company with the Securities and
Exchange Commission from time to time. Other factors which could have a
material adverse effect on the operations of the Company and its subsidiaries
which include, but are not limited to, changes in interest rates, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality and composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Banks market area, changes in relevant
accounting principles and guidelines and other factors over which management
has no control. The forward-looking statements are made as of the date of this
report, and the Company assumes no obligation to update the forward-looking
statements or to update the reasons why actual results could differ from those
projected in the forward-looking statements. 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 2003
    
    2002
    
    2001Average
    
    Amount
    
    %
    
    Average
    
    Amount
    
    %
    
    AverageBalance
    
    Change
    
    Change
    
    Balance
    
    Change
    
    Change
    
    Balance(thousands of dollars)Funding uses:Loans
    
    $
    169,677
    
    
    $
    15,439
    
    
    
    10.0
    %
    
    $
    154,238
    
    
    $
    13,307
    
    
    
    9.4
    %
    
    $
    140,931Taxable investment
securities
    
    
    32,650
    
    
    
    1,548
    
    
    
    5.0
    %
    
    
    31,102
    
    
    
    597
    
    
    
    2.0
    %
    
    
    30,505Tax-exempt investment
securities
    
    
    10,122
    
    
    
    1,495
    
    
    
    17.3
    %
    
    
    8,627
    
    
    
    (237
    )
    
    
    (2.8
    %)
    
    
    8,864Federal funds sold & Interest
bearing bank balances
    
    
    8,866
    
    
    
    2,254
    
    
    
    34.1
    %
    
    
    6,612
    
    
    
    (3,287
    )
    
    
    (33.2
    %)
    
    
    9,899Total uses
    
    $
    221,315
    
    
    $
    20,736
    
    
    
    10.3
    %
    
    $
    200,579
    
    
    $
    10,380
    
    
    
    5.5
    %
    
    $
    190,199Funding sources:Demand deposits:Non-interest-bearing
    
    $
    24,760
    
    
    $
    1,766
    
    
    
    7.7
    %
    
    $
    22,994
    
    
    $
    736
    
    
    
    3.3
    %
    
    $
    22,258Interest-bearing
    
    
    36,960
    
    
    
    7,455
    
    
    
    25.3
    %
    
    
    29,505
    
    
    
    6,205
    
    
    
    26.6
    %
    
    
    23,300Savings Deposits
    
    
    63,031
    
    
    
    7,824
    
    
    
    14.2
    %
    
    
    55,207
    
    
    
    1,936
    
    
    
    3.6
    %
    
    
    53,271Time deposits
    
    
    67,207
    
    
    
    3,935
    
    
    
    6.2
    %
    
    
    63,272
    
    
    
    (9,524
    )
    
    
    (13.1
    %)
    
    
    72,796Federal funds purchased
and other borrowings
    
    
    5,984
    
    
    
    (362
    )
    
    
    (5.7
    %)
    
    
    6,346
    
    
    
    910
    
    
    
    16.7
    %
    
    
    5,436Repurchase agreements
    
    
    15,985
    
    
    
    (1,146
    )
    
    
    (6.7
    %)
    
    
    17,131
    
    
    
    8,789
    
    
    
    105.4
    %
    
    
    8,342Other
    
    
    7,388
    
    
    
    1,264
    
    
    
    20.6
    %
    
    
    6,124
    
    
    
    1,328
    
    
    
    27.7
    %
    
    
    4,796Total sources
    
    $
    221,315
    
    
    $
    20,736
    
    
    
    10.3
    %
    
    $
    200,579
    
    
    $
    10,380
    
    
    
    5.5
    %
    
    $
    190,199
 The Bank uses its funds primarily to support its lending activities.
Average loans increased by $15,039,000 or 9.8%
in 2003 after increasing by $13,307,000 or 9.4% in 2002. The increase was
largely the result of continued emphasis on lending by Bank management and
continued economic conditions in the local market.




---



##### 



Average taxable bond investments, another use of funds, increased by
$1,548,000 or 5.0% in 2003 and are used to provide liquidity for the Bank,
while tax-exempt bond investments decreased by $1,495,000 or 17.3% and provide
enhanced yield due to their special income tax treatment.. The Banks increase in earning assets from 2002 to 2003 was funded by
increased deposits. The Bank sought to grow its loan portfolio in 2003, 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 NOW and 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 $4,945,000 at
December 31, 2003 representing 11% of the investment securities portfolio, a
decrease from the 2002 amount of $13,227,000. 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 $105,000,000. 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, 2003, are summarized as follows: Time Deposits(thousands of dollars)3 months or less
    
    $
    7,601Over 3 through 12 months
    
    
    9,635Over 12 through 36 months
    
    
    13,570Over 36 months
    
    
    770Total
    
    $
    31,576




---



##### 



Interest rate sensitivity varies with different types of interest earning
assets and interest-bearing liabilities. Overnight federal funds, on which
rates change daily, and loans, which are tied to the prime rate, differ
considerably from long-term investment securities and fixed-rate loans.
Similarly, time deposits over $100,000 and money market accounts are much more
interest rate sensitive than 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, 2003. For the first year, interest-sensitive
assets exceed liabilities by $30,986,000. 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 3Days
    
    Days
    
    Years
    
    YearsInterest-sensitive assets
    
    $
    83,201
    
    
    $
    62,357
    
    
    $
    64,702
    
    
    $
    50,704Interest-sensitive liabilities
    
    
    52,215
    
    
    
    38,315
    
    
    
    125,624
    
    
    
    4,983Interest sensitivity gap
    
    
    30,986
    
    
    
    24,042
    
    
    
    (60,921
    )
    
    
    45,721Cumulative gap
    
    $
    30,986
    
    
    $
    55,028
    
    
    ($
    5,893
    )
    
    $
    39,828
 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 11.5% and 8.3% at
year-end. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1
capital. The table below illustrates the Banks regulatory capital ratios at December 31 2003
    
    2002(thousands of dollars)Tier 1 Capital
    
    $
    21,481
    
    
    $
    19,395Tier 2 Capital
    
    $
    2,067
    
    
    $
    1,704Total Qualifying Capital
    
    $
    23,548
    
    
    $
    21,099Risk Adjusted Total Assets
(including off-balance exposures)
    
    $
    204,529
    
    
    $
    156,636Tier 1 Risk-Based Capital Ratio
    
    
    10.5
    %
    
    
    12.4
    %Total Risk-Based Capital Ratio
    
    
    11.5
    %
    
    
    13.5
    %Leverage Ratio
    
    
    8.3
    %
    
    
    8.8
    %
 At December 31, 2003, there were no 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: 2003
    
    2002
    
    2001Return on average equity
    
    
    10.2
    %
    
    
    13.6
    %
    
    
    11.7
    %Earnings retained
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Internal capital growth
    
    
    11.1
    %
    
    
    15.1
    %
    
    
    12.8
    %
 From a level of 8.0% in 1998, the rate of internal capital growth has
increased to 12.8% in 2001, 15.1% in 2002 and 11.1% in 2003. 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 2003 was $2,151,000, a decrease of 15% from
2002 earnings of $2,534,000 but up 15% from 2001 earnings of $1,877,000. On a
per share basis, net income for the similar periods were $1.08, $1.31 and $.98
after retroactively adjusting for annual 5% stock dividends. Income improved significantly from 2001 to 2003, 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, 2003 income was
impacted by low interest rates and the proliferation of refinancing in the real
estate markets. The overhead associated with the replacement of refinanced
loans and with the growth of the bank impacted the banks net profits.
However, many of these expenses are non-recurring and the overhead associated
with the loan portfolio is expected to return to more normal levels in 2004.
Net interest income was up by $242,000 for 2003 over 2002. These increased
revenues were offset by increased loan loss reserve expenses of $126,000 due
to loan portfolio growth. Most of this growth and corresponding expense
occurred in the fourth quarter and accordingly was too late in the year to
significantly contribute to increased net interest income. 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, 2003, approximately 60% 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 10.2% in 2003, down from 13.6%
in 2002, and 11.7% in 2001. The Banks returns on average assets
(ROAA) were .92% in 2001 and 1.58% in 2002 to .91% in 2003. 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 were regained in 2001 and 2002.
Early in 2003, the bank increased staffing in both the financial product sales
staff and in the loan production area. By the fourth quarter of 2003, both
areas began showing significant increases in business which will result in
future income to the bank.




---



##### 



LOANS Loan Portfolio The following table shows the Banks loans distribution at the end of each of
the last two years. December 31,2003
    
    2002(Thousand of dollars)Domestic Loans:Commercial and Other
    
    $
    9,684
    
    
    $
    10,500Real estate-construction
    
    
    10,815
    
    
    
    2,509Real estate
- Residential
    
    
    82,202
    
    
    
    59,303Real estate
- Other
    
    
    99,489
    
    
    
    80,454Installment/Consumer
    
    
    3,236
    
    
    
    4,153Non-accrual
    
    
    1,317
    
    
    
    1,611Total domestic loans
    
    $
    206,743
    
    
    $
    158,530
 Real estate mortgage loans at year-end 2003 and 2002 comprised the
greatest percentage of total loans. Commercial non-real estate and consumer
loans were approximately 5% and 2% respectively at the year-end 2003. The
growth in loans outstanding at year-end 2003 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.




---



##### 



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, 2003
    
    December 31, 2002Percent of
    
    
    
    
    
    Percent ofLoans in each
    
    
    
    
    
    Loans in eachcategory to
    
    
    
    
    
    category toAmount
    
    Total Loans
    
    Amount
    
    Total Loans(thousands of dollars)Commercial, Commercial RE,
Construction & Agricultural
    
    $
    753
    
    
    
    63
    %
    
    $
    241
    
    
    
    63
    %Real estate-residential
    
    $
    548
    
    
    
    32
    %
    
    $
    106
    
    
    
    32
    %Consumer
    
    $
    54
    
    
    
    4
    %
    
    $
    12
    
    
    
    4
    %Special allocations
    
    $
    7
    
    
    
    1
    %
    
    $
    136
    
    
    
    1
    %Unallocated
    
    $
    705
    
    
    
    0
    %
    
    $
    1,209
    
    
    
    0
    %Total
    
    $
    2,067
    
    
    
    100
    %
    
    $
    1,704
    
    
    
    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 2003 the allowance for loan losses approximates 1.00% of loans, down
slightly from 1.07% in 2002. 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.




---



##### 



Distribution of Non-performing AssetsDecember 312003
    
    2002(thousands of Dollars)Commercial, Commercial RE,
& Construction
    
    $
    1,317
    
    
    $
    1,611Residential RE
    
    
    0
    
    
    
    0Installment/Consumer
    
    
    0
    
    
    
    0Total non-performing loans
    
    $
    1,317
    
    
    $
    1,611Other real estate owned
    
    $
    0
    
    
    $
    0Other Assets
    
    $
    0
    
    
    $
    16Debt Security
    
    $
    0
    
    
    $
    0Total non-performing assets
    
    $
    1,317
    
    
    $
    1,627Non-performing loans to
year-end loans
    
    
    .64
    %
    
    
    1.02
    %Non-performing assets to year-end
loans and other real estate owned
    
    
    .64
    %
    
    
    1.03
    %
 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 2003 and 2002, there was $1,317,000 and $1,611,000
non-accrual loans respectively, and consequently there was $8,600 additional
interest income that would have been recorded had the loans been accruing
interest. At December 31, 2003, the Bank had no 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 down from $894,000 at December 31,
2002. At December 31, 2003, 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.




---



##### 



Income Taxes The Companys effective tax rate was 34% in 2003 which is down from 35% in
2002. 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. Off Balance Sheet Arrangements At December 31, 2003 and 2002, the Bank had commitments to originate and
disperse on loans of approximately $34,566,000 and $19,758,000 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, 2003 will be exercised
within the current year. In addition, at December 31, 2003 and 2002, the Bank
had in place letters of credit of approximately $1,895,000 and $1,337,000,
respectively. The Bank does not expect that any of the standby letters of
credit in place at December 31, 2003 will be exercised within the current year.
The Bank had no commitments to purchase loans at December 31, 2003 and 2002. Governance The Companys audit committee is comprised of members of the Board of
Directors excluding officers and certain other board members, who by
definition, could have conflicts of interest. The members of the audit
committee all have varying levels of financial expertise, but none meet the
regulatory definition of financial expert. The Company currently has no board
member who qualifies as a financial expert that is eligible to serve on the
audit committee. As the holding company for a community bank, the Company has
chosen not to seek out board members solely for the purpose of filling this
role but rather sought board members who are leaders in the community and/or
hold significant investment in the Company. When the board considers the
nomination of new members, consideration will be given to filling the role of
financial expert. During the 4th Quarter of the year, the Board of Directors of the Company
and the Bank adopted a Code of Ethics and Business Conduct applicable to the
members of the Board of Directors and the officers of the Company and the
Bank. The Chief Executive Officer, Chief Financial Officer and other senior
financial officers of the Company and the Bank, specifically are subject to the
Code. A copy of the Code may be obtained, at no cost, by contacting Angela
OReilly, Corporate Secretary. Also, during the year, the Board of Directors amended the bylaws of the
Company eliminating the classified board system, thus changing the term of
service for the directors from three years to only one year. The previous
bylaw read as follows: Section 4.Term of Office. The Board of Directors shall be divided into three
classes as nearly equal in number as possible with the term of office of one
class expiring each year; and at the annual meeting of shareholders in 1999,
directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting; directors of the second class
shall be elected to hold office for a term expiring at the second succeeding
annual meeting; and directors of the third class shall be elected to hold
office for a term expiring at the third succeeding annual meeting. Thereafter,
at each annual meeting of shareholders, the successors to the class of
directors whose terms shall then expire, shall be elected to hold office until
the third succeeding annual meeting after such election and until their
successors are elected and qualified. When the number of directors is changed,
the newly established directorships shall be apportioned among the classes so
as to make all classes as nearly equal in number as possible. The amended bylaw reads as follows: Section 4.Term of Office. Directors shall be elected at the annual meeting of
shareholders and shall hold office until the annual meeting next succeeding
their election and until their successors are elected and qualified.




---



##### 



A complete copy of the bylaws of the company is attached as Exhibit 3.2 to this
document. 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 8.  Financial Statements and Supplementary Data.




---



##### 



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: (thousands, except share amounts)2003
    
    2002Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterInterest Income
    
    $
    3,354
    
    
    $
    3,059
    
    
    $
    3,103
    
    
    $
    3,101
    
    
    $
    3,218
    
    
    $
    3,278
    
    
    $
    3,304
    
    
    $
    3,226Interest Expense
    
    
    856
    
    
    
    732
    
    
    
    768
    
    
    
    790
    
    
    
    890
    
    
    
    967
    
    
    
    951
    
    
    
    986Net Interest Income
    
    
    2,498
    
    
    
    2,327
    
    
    
    2,335
    
    
    
    2,311
    
    
    
    2,328
    
    
    
    2,311
    
    
    
    2,353
    
    
    
    2,240Provision for Loan Losses
    
    
    276
    
    
    
    108
    
    
    
    18
    
    
    
    46
    
    
    
    86
    
    
    
    46
    
    
    
    89
    
    
    
    100Earnings before Income Taxes
    
    
    646
    
    
    
    759
    
    
    
    906
    
    
    
    960
    
    
    
    1,084
    
    
    
    1,049
    
    
    
    1,105
    
    
    
    1,020Net Earnings
    
    
    429
    
    
    
    501
    
    
    
    598
    
    
    
    623
    
    
    
    653
    
    
    
    655
    
    
    
    661
    
    
    
    602Basic Earnings per Common Share
    
    
    0.22
    
    
    
    0.25
    
    
    
    0.30
    
    
    
    0.31
    
    
    
    0.35
    
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.33Diluted Earnings per Common Share
    
    
    0.20
    
    
    
    0.23
    
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.33
    
    
    
    0.33
    
    
    
    0.33
    
    
    
    0.30Cash Dividends per Common Share
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Market Price Range1High
    
    
    23.40
    
    
    
    21.90
    
    
    
    22.05
    
    
    
    23.33
    
    
    
    20.00
    
    
    
    18.57
    
    
    
    17.23
    
    
    
    14.60Low
    
    
    20.33
    
    
    
    18.67
    
    
    
    20.18
    
    
    
    19.02
    
    
    
    17.42
    
    
    
    15.48
    
    
    
    14.51
    
    
    
    12.70
 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 August 31, 2002 and 2003. 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
opinion on the financial statement is included in this annual report.




---



##### 



ITEM 9A. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Companys periodic SEC filings. There were no significant changes made in the Companys internal controls or in
other factors that could significantly affect these internal controls
subsequent to the date of the evaluation performed by the Companys Chief
Executive Officer and Chief Financial Officer. 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, Committees of the Board of Directors and Certain Meetings and
Section 16(a) Beneficial Ownership Reporting Compliance in the definitive
proxy statement of the Company of the Bank for its 2004 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
Companys fiscal year ended December 31, 2003 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, and Thomas Moseley, Executive
Vice President of the Bank, 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 2004 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, 2003 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 2004 Annual Meeting of
Shareholders, pages seven through nine, which will be filed with the Securities
and Exchange Commission 120 days of the end of the Companys fiscal year ended
December 31, 2003 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 for its 2004 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, 2003 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 2004 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, 2003 at the time it is mailed to the shareholders. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by
Item 14 pertaining to Principal Accountant Fees and Services is incorporated
herein by reference to the section entitled Information Concerning Independent
Accountants in the definitive proxy statement of the Company of the Bank for
its 2004 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission 120 days of the end of the Companys fiscal
year ended December 31, 2003 at the time it is mailed to the shareholders. ITEM 15. 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 During the last quarter of the fiscal year ended December 31, 2003, the
Company filed two Form 8-Ks as follows:  1.
    
    October 2, 2003  Releasing the financial results for the
Company for the Quarter ended September 30, 2003.2.
    
    October 17, 2003  Announcing the fact that the Company had
executed a definitive agreement to acquire The Trust Company of
Florida.




---



##### 



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 18, 2004
    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 18, 2004/s/ Glen W. Fausset
     Glen
W. Fausset
    
    President, Chief
Financial Officer and
Director
    
    March 18, 2004/s/ Robert C. Matejcek
     Robert
C. Matejcek
    
    Treasurer
    
    March 18, 2004/s/
     Beverly
Beall
    
    Director
    
    March 18, 2004/s/ Robert G. Blalock
     Robert
G. Blalock
    
    Director
    
    March 18, 2004/s/ Allen J. Butler
     Allen
J. Butler
    
    Director
    
    March 18, 2004/s/ Rosemary R. Carlson
     Rosemary
R. Carlson
    
    Director
    
    March 18, 2004/s/

Sara Pappas, Ph. D.
    
    Director
    
    March 18, 2004/s/ Raymond A. Weigel, III
     Raymond
A. Weigel, III
    
    Director
    
    March 18, 2004/s/ Irv Zamikoff, D.D.S.
    
    Director
    
    March 18, 2004Irv Zamikoff, D.D.S./s/ Dan C. Zoller
     Dan
C. Zoller
    
    Director
    
    March 18, 2004




---



##### 



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




---



##### 



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




---



##### 



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, 2003 and 2002, and the
related consolidated statements of income, stockholders equity, and cash flows
for the years ended December 31, 2003, 2002, and 2001. 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, 2003 and 2002, and the
results of their operations and cash flows for the years ended December 31,
2003, 2002, and 2001, in conformity with accounting principles generally
accepted in the United States of America. CHRISTOPHER, SMITH, LEONARD,BRISTOW, STANELL & WELLS, P.A.
 January 23, 2004




---



##### 



FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ASSETS 2003
    
    2002Cash and due from banks
    
    $
    6,876,100
    
    
    $
    7,995,306Interest bearing deposits
    
    
    8,411,798
    
    
    
    5,453,621Cash and cash equivalents
    
    
    15,287,898
    
    
    
    13,448,927Investment securities:Available-for-sale
    
    
    47,113,292
    
    
    
    41,780,691(Market value of $47,113,292
and $41,780,691, respectively)Loans
    
    
    206,742,492
    
    
    
    158,529,706Less allowance for loan losses
    
    
    (2,067,218
    )
    
    
    (1,704,433
    )Less deferred loan fees
    
    
    (360,912
    )
    
    
    (235,029
    )204,314,362
    
    
    
    156,590,244Bank premises and equipment, net
    
    
    7,736,920
    
    
    
    8,038,788Accrued interest receivable
    
    
    986,488
    
    
    
    974,941Deferred income taxes
    
    
    73,700
    
    
    
    -0-Other assets
    
    
    1,719,148
    
    
    
    1,327,35910,516,256
    
    
    
    10,341,088TOTAL ASSETS
    
    $
    277,231,808
    
    
    $
    222,160,950




---



##### 



LIABILITIES AND STOCKHOLDERS EQUITY 2003
    
    2002Liabilities:Deposits:Non-interest bearing deposits
    
    $
    32,991,151
    
    
    $
    23,958,304Interest bearing demand and NOW deposits
    
    
    39,603,135
    
    
    
    31,735,282Money market deposits
    
    
    52,013,084
    
    
    
    40,688,494Savings deposits
    
    
    16,635,146
    
    
    
    16,511,613Time deposits
    
    
    92,084,354
    
    
    
    67,617,878233,326,870
    
    
    
    180,511,571Accrued interest payable
    
    
    651,655
    
    
    
    722,137Accrued expenses and other liabilities
    
    
    437,736
    
    
    
    385,839Deferred tax liability
    
    
    -0-
    
    
    
    234,100Securities sold under agreements to repurchase
    
    
    11,300,744
    
    
    
    15,811,025Federal funds purchased and other borrowed funds
    
    
    9,500,000
    
    
    
    4,500,00021,890,135
    
    
    
    21,653,101Total liabilities
    
    
    255,217,005
    
    
    
    202,164,672Stockholders equity:Common stock, .10 par value, 2,500,000 shares
authorized: 1,994,740 and 1,846,721 shares
issued and outstanding
    
    
    199,474
    
    
    
    184,672Capital in excess of par value
    
    
    16,208,888
    
    
    
    13,888,297Retained earnings
    
    
    5,453,757
    
    
    
    5,322,245Accumulated other comprehensive income
    
    
    152,684
    
    
    
    601,064Total stockholders equity
    
    
    22,014,803
    
    
    
    19,996,278TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    277,231,808
    
    
    $
    222,160,950
 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, 2003
    
    2002
    
    2001Interest income:Interest and fees on loans
    
    $
    10,932,938
    
    
    $
    10,986,577
    
    
    $
    11,680,719Interest on investment securities:U.S. Treasury and Government
agencies
    
    
    1,167,666
    
    
    
    1,494,945
    
    
    
    1,653,617State and political subdivisions
- tax-exempt
    
    
    376,869
    
    
    
    387,064
    
    
    
    395,360Other
    
    
    138,775
    
    
    
    156,955
    
    
    
    434,3481,683,310
    
    
    
    2,038,964
    
    
    
    2,483,325Total interest income
    
    
    12,616,248
    
    
    
    13,025,541
    
    
    
    14,164,044Interest expense:Deposits
    
    
    2,174,289
    
    
    
    2,517,740
    
    
    
    4,893,726Time deposits of $100,000 or more
    
    
    585,977
    
    
    
    714,818
    
    
    
    1,162,551Short-term borrowings
    
    
    383,906
    
    
    
    562,404
    
    
    
    589,682Capital lease obligation
    
    
    -0-
    
    
    
    755
    
    
    
    52,891Total interest expense
    
    
    3,144,172
    
    
    
    3,795,717
    
    
    
    6,698,850Net interest income
    
    
    9,472,076
    
    
    
    9,229,824
    
    
    
    7,465,194Provision for loan and debit
card losses
    
    
    447,500
    
    
    
    321,000
    
    
    
    250,226Net interest income after
provision for loan losses
    
    
    9,024,576
    
    
    
    8,908,824
    
    
    
    7,214,968Other income:Service charges on deposit accounts
    
    
    456,297
    
    
    
    502,344
    
    
    
    484,997Investment securities gains (losses), net
    
    
    87,055
    
    
    
    -0-
    
    
    
    (51,519
    )Other real estate owned income (loss)
    
    
    -0-
    
    
    
    (2,230
    )
    
    
    -0-Trust fee income
    
    
    621,169
    
    
    
    556,319
    
    
    
    575,267Securities investment income
    
    
    251,536
    
    
    
    212,845
    
    
    
    220,757Other
    
    
    451,825
    
    
    
    377,842
    
    
    
    286,922Gain (loss) on sale of assets
    
    
    (543
    )
    
    
    (1,725
    )
    
    
    330,300Total other income
    
    
    1,867,339
    
    
    
    1,645,395
    
    
    
    1,846,724




---



##### 



2003
    
    2002
    
    2001Other expenses:Salaries and employee benefits
    
    $
    4,685,772
    
    
    $
    3,964,447
    
    
    $
    3,509,103Occupancy
    
    
    661,355
    
    
    
    598,419
    
    
    
    682,259Legal, accounting and examination fees
    
    
    267,426
    
    
    
    209,685
    
    
    
    222,926FDIC assessment
    
    
    27,997
    
    
    
    28,897
    
    
    
    30,928Equipment
    
    
    571,881
    
    
    
    577,278
    
    
    
    580,112Stationery, printing and postage
    
    
    156,469
    
    
    
    160,069
    
    
    
    167,873Data processing
    
    
    304,535
    
    
    
    297,823
    
    
    
    281,378Directors fees and Expenses
    
    
    142,556
    
    
    
    133,987
    
    
    
    130,878Advertising, Public Relations, and Donations
    
    
    139,318
    
    
    
    127,730
    
    
    
    99,343Other
    
    
    664,105
    
    
    
    573,559
    
    
    
    504,453Total other expenses
    
    
    7,621,414
    
    
    
    6,671,894
    
    
    
    6,209,253Income before income taxes
    
    
    3,270,501
    
    
    
    3,882,325
    
    
    
    2,852,439Provision for income taxes
    
    
    1,119,600
    
    
    
    1,348,500
    
    
    
    975,100Net Income
    
    $
    2,150,901
    
    
    $
    2,533,825
    
    
    $
    1,877,339Per share data:Basic EPS
    
    $
    1.08
    
    
    $
    1.31
    
    
    $
    0.98Weighted average shares outstanding
    
    
    1,988,807
    
    
    
    1,931,895
    
    
    
    1,923,271Diluted EPS
    
    $
    1.01
    
    
    $
    1.21
    
    
    $
    0.91Adjusted weighted average
    
    
    2,121,577
    
    
    
    2,090,441
    
    
    
    2,069,566
 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, 2003, 2002, AND 2001 ACCUMULATEDCOMMON STOCK
    
    CAPITAL IN
    
    
    
    
    
    OTHEREXCESS OF
    
    RETAINED
    
    COMPREHENSIVESHARES
    
    AMOUNT
    
    PAR VALUE
    
    EARNINGS
    
    INCOME
    
    TOTALBalance at December 31, 2000
    
    
    1,656,940
    
    
    $
    165,694
    
    
    $
    10,924,550
    
    
    $
    3,757,257
    
    
    $
    (212,512
    )
    
    $
    14,634,989Net income
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    1,877,339
    
    
    
    -0-
    
    
    
    1,877,339Change in valuation
allowance, net of income
taxes of $286,877
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    478,128
    
    
    
    478,128Total comprehensive income
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    1,877,339
    
    
    
    478,128
    
    
    
    2,355,4675% stock dividend
    
    
    82,791
    
    
    
    8,279
    
    
    
    1,233,586
    
    
    
    (1,246,620
    )
    
    
    -0-
    
    
    
    (4,755
    )Exercise of stock options
    
    
    9,048
    
    
    
    905
    
    
    
    60,770
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    61,675Balance at December 31, 2001
    
    
    1,748,779
    
    
    $
    174,878
    
    
    $
    12,218,906
    
    
    $
    4,387,976
    
    
    $
    265,616
    
    
    $
    17,047,376Net income
    
    
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    2,533,825
    
    
    $
    -0-
    
    
    $
    2,533,825Change in valuation
allowance, net of income
taxes of $201,679
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    335,448
    
    
    
    335,448Total comprehensive income
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    2,533,825
    
    
    
    335,448
    
    
    
    2,869,2735% stock dividend
    
    
    87,336
    
    
    
    8,733
    
    
    
    1,586,022
    
    
    
    (1,599,556
    )
    
    
    -0-
    
    
    
    (4,801
    )Exercise of stock options
    
    
    10,606
    
    
    
    1,061
    
    
    
    83,369
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    84,430Balance at December 31, 2002
    
    
    1,846,721
    
    
    $
    184,672
    
    
    $
    13,888,297
    
    
    $
    5,322,245
    
    
    $
    601,064
    
    
    $
    19,996,278Net income
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    2,150,901
    
    
    
    -0-
    
    
    
    2,150,901Change in valuation
allowance, net of income
taxes of ($270,179)
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    (448,380
    )
    
    
    (448,380
    )Total comprehensive income
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    2,150,901
    
    
    
    (448,380
    )
    
    
    1,702,5215% stock dividend
    
    
    94,554
    
    
    
    9,455
    
    
    
    2,004,545
    
    
    
    (2,019,389
    )
    
    
    -0-
    
    
    
    (5,389
    )Exercise of stock options
    
    
    53,465
    
    
    
    5,347
    
    
    
    316,046
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    321,393Balance at December 31, 2003
    
    
    1,994,740
    
    
    $
    199,474
    
    
    $
    16,208,888
    
    
    $
    5,453,757
    
    
    $
    152,684
    
    
    $
    22,014,803
 The accompanying notes are an integral part of these financial statements. - 4 -




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##### 



FIRST NATIONAL BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,150,901
    
    
    $
    2,533,825
    
    
    $
    1,877,339Adjustments to reconcile net income to net
cash from operating activities:Depreciation and leasehold amortization
    
    
    524,098
    
    
    
    547,053
    
    
    
    539,226Net amortization of premiums and
accretion of discounts on investment
securities
    
    
    368,296
    
    
    
    171,132
    
    
    
    74,105Amortization of deferred loan fees
    
    
    125,883
    
    
    
    143,975
    
    
    
    31,528Allowance for loan losses
    
    
    362,785
    
    
    
    153,606
    
    
    
    177,911Deferred income taxes
    
    
    (37,600
    )
    
    
    122,900
    
    
    
    (109,800
    )Investment securities (gains) losses realized
    
    
    (87,055
    )
    
    
    -0-
    
    
    
    51,519Loss (gain) on disposition of equipment
    
    
    543
    
    
    
    (1,725
    )
    
    
    -0-(Increase) decrease in accrued interest
receivable
    
    
    (11,547
    )
    
    
    35,160
    
    
    
    143,229(Increase) decrease in other assets
    
    
    (391,789
    )
    
    
    404,230
    
    
    
    (926,169
    )(Decrease) in accrued interest
payable
    
    
    (70,482
    )
    
    
    (145,159
    )
    
    
    (663,210
    )Increase (decrease) in accrued expenses
and other liabilities
    
    
    51,897
    
    
    
    58,491
    
    
    
    101,393Net cash provided by operating activities
    
    
    2,985,930
    
    
    
    4,023,488
    
    
    
    1,297,071CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales and maturities of investment
securities
    
    
    8,046,094
    
    
    
    8,824,381
    
    
    
    13,301,270Purchase of investment securities, net
    
    
    (14,073,009
    )
    
    
    (12,291,341
    )
    
    
    (8,669,128
    )Loans originated, net of principal collections
    
    
    (48,212,786
    )
    
    
    (12,585,376
    )
    
    
    (8,579,575
    )Decrease other real estate owned
    
    
    -0-
    
    
    
    593,154
    
    
    
    471,773Purchase of bank premises and equipment
    
    
    (222,777
    )
    
    
    (3,111,540
    )
    
    
    (830,063
    )Proceeds from sale of fixed assets
    
    
    -0-
    
    
    
    11,870
    
    
    
    525Recoveries on loans charged off
    
    
    15,890
    
    
    
    14,485
    
    
    
    10,427Net cash (used in) investing activities
    
    
    (54,446,588
    )
    
    
    (18,544,367
    )
    
    
    (4,294,771
    )




---



##### 



2003
    
    2002
    
    2001CASH FLOWS FROM FINANCING ACTIVITIES:Net increase (decrease) in demand deposits and
savings deposits
    
    
    28,348,822
    
    
    
    (285,093
    )
    
    
    19,999,626Net increase (decrease) in time deposits
    
    
    24,466,476
    
    
    
    4,947,826
    
    
    
    (14,421,785
    )Increase (decrease) in securities sold under
agreements to repurchase
    
    
    (4,510,281
    )
    
    
    2,845,513
    
    
    
    8,047,176Increase (decrease) in federal funds purchased
and other borrowed funds
    
    
    5,000,000
    
    
    
    (500,000
    )
    
    
    -0-Cash in lieu of fractional shares for stock dividend
    
    
    (5,388
    )
    
    
    (4,801
    )
    
    
    (4,755
    )Principal payments under capital lease obligations
    
    
    -0-
    
    
    
    (876
    )
    
    
    (48,196
    )Net cash provided by financing activities
    
    
    53,299,629
    
    
    
    7,002,569
    
    
    
    13,572,066Net increase (decrease) in cash and cash
equivalents
    
    
    1,838,971
    
    
    
    (7,518,310
    )
    
    
    10,574,366Cash and cash equivalents at beginning of year
    
    
    13,448,927
    
    
    
    20,967,237
    
    
    
    10,392,871Cash and cash equivalents at end of year
    
    $
    15,287,898
    
    
    $
    13,448,927
    
    
    $
    20,967,237SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:Cash payments for interest
    
    $
    3,214,654
    
    
    $
    3,940,876
    
    
    $
    7,362,060Cash payments for income taxes
    
    $
    1,044,060
    
    
    $
    1,370,657
    
    
    $
    733,216
 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 & 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 & 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 & Trust. 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 accumulated other comprehensive income within stockholders
equity. The Bank does not have a trading portfolio. - 6 -




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##### 



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 is
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, 2003 and 2002, 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. There was no
other real estate held for resale at either December 31, 2003 or
December 31, 2002. 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. Reclassifications - Certain amounts in the prior years financial
statements have been reclassified to conform to the 2003 presentation.
These reclassifications are immaterial and have no effect on net
income. - 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 is 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, 2003, the
primary correspondent banks were Federal Home Loan Bank of Atlanta,
Independent Bankers Bank of Florida, Bank of America, and SunTrust Bank
of Atlanta. 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 - At December 31, the Bank had incentive stock option
plans, which are described more fully in Note 11. The Bank applies the
recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations
in accounting for those plans. Stock-based employee compensation
expense is not reflected in net income as all options granted under
those plans had an exercise price equal to market value of the
underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the
company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock Based Compensation, to
stock-based employee compensation. Year Ended December 31,2003
    
    2002
    
    2001Net income as reported
    
    $
    2,150,901
    
    
    $
    2,533,825
    
    
    $
    1,877,339Deduct: Total stock-based employee
compensation expense determined
under fair value methods
    
    $
    (121,600
    )
    
    $
    (123,300
    )
    
    $
    (118,600
    )Pro forma net income
    
    $
    2,029,301
    
    
    $
    2,410,525
    
    
    $
    1,758,739Earnings per share:Basic  as reported
    
    $
    1.08
    
    
    $
    1.31
    
    
    $
    0.98Basic  proforma
    
    $
    1.02
    
    
    $
    1.25
    
    
    $
    0.91Diluted
 as reported
    
    $
    1.01
    
    
    $
    1.21
    
    
    $
    0.91Diluted  pro forma
    
    $
    0.96
    
    
    $
    1.15
    
    
    $
    0.85
 - 9 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 2 - INVESTMENT SECURITIES Investment securities at December 31, 2003 are summarized as follows: AVAILABLE-FOR-SALEGROSS
    
    GROSS
    
    APPROXIMATEAMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    MARKETCOST
    
    GAINS
    
    LOSSES
    
    VALUEDecember 31, 2003U.S. Government
agencies
    
    $
    6,000,000
    
    
    $
    100,000
    
    
    $
    (76,775
    )
    
    $
    6,023,225U.S. Government
agencies - mortgage
backed securities
    
    
    31,359,530
    
    
    
    165,423
    
    
    
    (380,927
    )
    
    
    31,144,026State and political
subdivisions
    
    
    8,567,999
    
    
    
    451,200
    
    
    
    (14,238
    )
    
    
    9,004,961Total Debt Securities
    
    
    45,927,529
    
    
    
    716,623
    
    
    
    (471,940
    )
    
    
    46,172,212Other
    
    
    941,080
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    941,080$
    46,868,609
    
    
    $
    716,623
    
    
    $
    (471,940
    )
    
    $
    47,113,292
 Investment securities at December 31, 2002 are summarized as follows: AVAILABLE-FOR-SALEGROSS
    
    GROSS
    
    APPROXIMATEAMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    MARKETCOST
    
    GAINS
    
    LOSSES
    
    VALUEDecember 31, 2002U.S. Government
agencies
    
    $
    7,506,749
    
    
    $
    243,076
    
    
    $
    -0-
    
    
    $
    7,749,825U.S. Government
agencies - mortgage
backed securities
    
    
    23,335,868
    
    
    
    350,800
    
    
    
    -0-
    
    
    
    23,686,668State and political
subdivisions
    
    
    8,915,750
    
    
    
    369,367
    
    
    
    -0-
    
    
    
    9,285,117Total Debt Securities
    
    
    39,758,367
    
    
    
    963,243
    
    
    
    -0-
    
    
    
    40,721,610Other
    
    
    1,059,081
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    1,059,081$
    40,817,448
    
    
    $
    963,243
    
    
    $
    -0-
    
    
    $
    41,780,691
 - 10 -




---



##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 2 - INVESTMENT SECURITIES - CONTINUED (MATURITIES, CALLS, SALES)Cost
    
    Proceeds
    
    Gain (Loss)2003Available-for-sale:Gross gains on sale/call
    
    $
    5,152,724
    
    
    $
    5,245,851
    
    
    $
    93,127Gross loss on sale
    
    
    601,315
    
    
    
    595,243
    
    
    
    (6,072
    )No gain or loss
    
    
    2,205,000
    
    
    
    2,205,000
    
    
    
    -0-$
    7,959,039
    
    
    $
    8,046,094
    
    
    $
    87,0552002Available-for-sale:No gain or loss
    
    $
    1,260,000
    
    
    $
    1,260,000
    
    
    $
    -0-2001Available-for-sale:Gross gains on sale
    
    $
    2,344,747
    
    
    $
    2,353,228
    
    
    $
    8,481No gain or loss
    
    
    2,750,000
    
    
    
    2,750,000
    
    
    
    -0-5,094,747
    
    
    
    5,103,228
    
    
    
    8,481Held 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
    )
 The amortized cost and approximate market value of debt securities at
December 31, 2003, 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. - 11 -




---



##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 2 - INVESTMENT SECURITIES - CONTINUED APPROXIMATEAMORTIZED
    
    MARKETCOST
    
    VALUEDecember 31, 2003 Available-for-SaleDue in one year or less
    
    $
    -0-
    
    
    $
    -0-Due after one year through five years
    
    
    8,523,790
    
    
    
    8,835,382Due after five years through ten years
    
    
    5,044,209
    
    
    
    5,247,093Due after ten years
    
    
    -0-
    
    
    
    -0-Mortgaged-backed securities
    
    
    32,359,530
    
    
    
    32,089,737Other
    
    
    941,080
    
    
    
    941,080$
    46,868,609
    
    
    $
    47,113,292
 Investment securities with aggregate book values of $35,724,747 and
market values of approximately $36,077,480
at December 31, 2003, 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: 2003
    
    2002Carrying Value
    
    Carrying ValueCommercial
    
    $
    9,684,163
    
    
    $
    10,500,325Real estate - construction
    
    
    10,814,679
    
    
    
    2,508,489Real estate - mortgage:Residential
    
    
    82,201,593
    
    
    
    59,303,140Commercial
    
    
    99,488,680
    
    
    
    80,453,776Consumer/installment
    
    
    3,216,222
    
    
    
    4,095,620Non-accrual
    
    
    1,317,000
    
    
    
    1,611,180Other
    
    
    20,155
    
    
    
    57,176206,742,492
    
    
    
    158,529,706Allowance for loan losses
    
    
    (2,067,218
    )
    
    
    (1,704,433
    )Deferred loan fees
    
    
    (360,912
    )
    
    
    (235,029
    )Net loans
    
    $
    204,314,362
    
    
    $
    156,590,244
 The fair value of loans at December 31, 2003 and 2002 approximates
carrying value. A summary of activity in loans owed to the Bank by its executive
officers and directors during 2003 and 2002 is as follows: 2003
    
    2002Balance, beginning of year
    
    $
    1,655,747
    
    
    $
    936,763New loans
    
    
    1,576,625
    
    
    
    1,741,427Payments
    
    
    (836,627
    )
    
    
    (1,022,443
    )Balance, end of year
    
    $
    2,395,745
    
    
    $
    1,655,747
 - 12 -




---



##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 3 - LOANS - CONTINUED A summary of activity in the allowance for loan losses account is as
follows: 2003
    
    2002
    
    2001Balance, beginning
of year
    
    $
    1,704,433
    
    
    $
    1,550,827
    
    
    $
    1,372,916Provision charged
to income
    
    
    447,500
    
    
    
    321,000
    
    
    
    250,226Recoveries on loans
previously charged-off
    
    
    15,890
    
    
    
    14,485
    
    
    
    10,427Total additions
    
    
    463,390
    
    
    
    335,485
    
    
    
    260,653Charge-offs
    
    
    (100,605
    )
    
    
    (181,879
    )
    
    
    (82,742
    )Balance, end of year
    
    $
    2,067,218
    
    
    $
    1,704,433
    
    
    $
    1,550,827
 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 $1,317,000, $1,611,180, and $-0- non-accrual loans at
December 31, 2003, 2002, and 2001, respectively. NOTE 4 -  BANK PREMISES AND EQUIPMENT A summary of Bank premises and equipment at December 31, follows: 2003
    
    2002Land
    
    $
    2,622,561
    
    
    $
    2,622,561Buildings
    
    
    4,872,050
    
    
    
    4,794,617Leasehold improvements
    
    
    54,528
    
    
    
    54,528Furniture, fixtures and equipment
    
    
    3,264,706
    
    
    
    3,334,28410,813,845
    
    
    
    10,805,990Less accumulated depreciation and
Amortization
    
    
    (3,076,925
    )
    
    
    (2,767,202
    )$
    7,736,920
    
    
    $
    8,038,788
 - 13 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 5 - DEPOSITS A summary of time certificate deposits and their remaining maturities at December 31, are as follows: 2003
    
    2002Three months or less
    
    $
    21,745,871
    
    
    $
    13,668,002Over three through six months
    
    
    11,330,964
    
    
    
    11,153,714Over six through twelve months
    
    
    13,107,202
    
    
    
    17,941,128Over twelve months
    
    
    45,900,317
    
    
    
    24,855,034$
    92,084,354
    
    
    $
    67,617,878
 The aggregate amount of time certificate deposits of $100,000 or more
at December 31, 2003 and 2002 was approximately $31,576,007 and
$22,256,404, respectively. The fair value of time certificate deposits at December 31, 2003 and
2002 approximated their carrying value. The total amount of demand deposit overdrafts classified as loan
balances at December 31, 2003, and 2002 was approximately $20,155 and
$57,176, respectively. At December 31, 2003 total executive officer and director deposits were
approximately $1,406,000. NOTE 6 - LEASES Prior to 2002, the Banks Main Branch building was leased.
The lease payments applicable to the building element (approximately
$8,400) were accounted for as a capital lease, while the lease payments
applicable to the land element (approximately $10,600) were accounted
for as an operating lease. The Bank also leases parking spaces
adjacent to its Main Branch with total monthly payments of $2,010. At
the beginning of 2002, the Bank closed on the purchase of the leased
property. In January, 2000, the Bank leased 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. In April, 2003, a Loan Production Office was leased in Sarasota,
Florida for $2,565 per month for two years with a one year renewal
option. Rental expense related to operating leases was approximately $95,493,
$50,900, and $173,300, for the years ended December 31, 2003, 2002, and
2001, 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 equal value securities during the agreements. - 14 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED
FUNDS - CONTINUED Information related to the Banks securities sold under agreements to
repurchase (including accrued interest) at December 31, 2003 and 2002
is presented below, segregated by the type of securities sold (all
agreements are due in less than 30 days): DECEMBER 31,2003
    
    2002Government Agencies:Carrying Value of Securities
    
    $
    16,099,589
    
    
    $
    17,030,079Market Value of Securities
    
    
    16,493,303
    
    
    
    17,581,583Repurchase Agreements with bank customers
    
    
    11,300,744
    
    
    
    15,811,025Interest Rate to customer
    
    
    .50
    %
    
    
    .75
    %
 At December 31, 2003, the Bank had borrowings of $3,500,000 and
$6,000,000 at 4.19% and 2.93%, respectively, from the Federal Home Loan
Bank Board. Borrowings at December 31, 2003 are secured by a
percentage of the one to four family loan portfolios. The borrowings
may not exceed 75% of the one to four family loan portfolios. The Bank
has been approved to borrow up to 40% of the Banks assets. Interest
only payments are due monthly, and principal payments are due
semi-annually. There were no daily borrowings from the Federal Home
Loan Bank at December 31, 2003. 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, 2003,
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: 2003
    
    2002Deferred tax assets:Book over tax bad debts
    
    $
    716,000
    
    
    $
    579,500Book over tax amortization
    
    
    -0-
    
    
    
    4,100Deferred loan fees
    
    
    135,800
    
    
    
    88,500$
    851,800
    
    
    $
    672,100
 - 15 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 8  INCOME TAXES - CONTINUED 2003
    
    2002Deferred tax liabilities:Book under tax depreciation
    
    $
    (49,900
    )
    
    $
    (58,321
    )Securities accretion
    
    
    (1,500
    )
    
    
    (2,000
    )Tax over book pension expense - qualified plan
    
    
    (510,300
    )
    
    
    (359,300
    )Deferred gain on land sale
    
    
    (124,400
    )
    
    
    (124,400
    )Valuation allowance for securities available for sale
    
    
    (92,000
    )
    
    
    (362,179
    )(778,100
    )
    
    
    (906,200
    )Net deferred tax assets (liabilities)
    
    $
    73,700
    
    
    $
    (234,100
    )
 Significant components of the provision for income taxes are as follows: 2003
    
    2002
    
    2001Current:Federal
    
    $
    970,600
    
    
    $
    1,028,800
    
    
    $
    710,000State
    
    
    186,600
    
    
    
    196,800
    
    
    
    141,600Total current
    
    
    1,157,200
    
    
    
    1,225,600
    
    
    
    851,600Deferred:Federal
    
    
    (32,000
    )
    
    
    104,600
    
    
    
    107,500State
    
    
    (5,600
    )
    
    
    18,300
    
    
    
    16,000Total deferred
    
    
    (37,600
    )
    
    
    122,900
    
    
    
    123,500$
    1,119,600
    
    
    $
    1,348,500
    
    
    $
    975,100
 The effective tax rate for 2003, 2002, and 2001 differs from the statutory tax rate as follows: 2003
    
    2002
    
    2001%of
    
    
    
    
    
    %of
    
    
    
    
    
    %ofPretax
    
    
    
    
    
    Pretax
    
    
    
    
    
    PretaxAmount
    
    Income
    
    Amount
    
    Income
    
    Amount
    
    IncomeStatutory federal tax rate
    
    $
    1,112,000
    
    
    
    34.0
    %
    
    $
    1,320,000
    
    
    
    34.0
    %
    
    $
    969,800
    
    
    
    34.0
    %State income taxes, net
of federal income tax
benefit
    
    
    117,700
    
    
    
    3.6
    %
    
    
    139,900
    
    
    
    3.6
    %
    
    
    104,000
    
    
    
    3.6
    %Tax-exempt interest
    
    
    (133,900
    )
    
    
    (4.1
    )%
    
    
    (137,000
    )
    
    
    (3.5
    )%
    
    
    (131,600
    )
    
    
    (4.6
    )%Other
    
    
    23,800
    
    
    
    0.7
    %
    
    
    25,600
    
    
    
    0.6
    %
    
    
    32,900
    
    
    
    1.2
    %$
    1,119,600
    
    
    
    34.2
    %
    
    $
    1,348,500
    
    
    
    34.7
    %
    
    $
    975,100
    
    
    
    34.2
    %
 Income taxes related to securities gains amounted to approximately
$30,000.00, $-0-, and $-0- in 2003, 2002, and 2001, respectively. - 16 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED 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: 2003
    
    2002
    
    2001Benefit obligation at beginning of year
    
    $
    2,130,546
    
    
    $
    1,474,991
    
    
    $
    1,133,650Service cost
    
    
    261,131
    
    
    
    217,501
    
    
    
    181,241Interest cost
    
    
    168,459
    
    
    
    131,018
    
    
    
    98,515Actuarial gain
    
    
    356,069
    
    
    
    309,749
    
    
    
    64,301Benefits paid
    
    
    (45,359
    )
    
    
    (2,716
    )
    
    
    (2,716
    )Benefit obligation at end of year
    
    $
    2,870,846
    
    
    $
    2,130,543
    
    
    $
    1,474,991Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    2,129,674
    
    
    $
    1,372,326
    
    
    $
    998,122Actual return on plan assets
    
    
    (226,836
    )
    
    
    8,769
    
    
    
    91,172Employer contribution
    
    
    756,718
    
    
    
    751,295
    
    
    
    285,748Benefits paid
    
    
    (45,359
    )
    
    
    (2,716
    )
    
    
    (2,716
    )Fair value of plan assets at end of year
    
    $
    2,614,197
    
    
    $
    2,129,674
    
    
    $
    1,372,326
 2003
    
    2002
    
    2001Unrecognized prior service cost
    
    $
    25,549
    
    
    $
    27,837
    
    
    $
    5,164Funded status
    
    
    (256,649
    )
    
    
    (872
    )
    
    
    (102,665
    )Unrecognized actuarial loss
    
    
    1,587,142
    
    
    
    928,021
    
    
    
    565,387Net amount recognized
    
    $
    1,356,042
    
    
    $
    954,986
    
    
    $
    467,886Amounts recognized in statement
of financial position consist of:Prepaid benefit cost
    
    $
    1,356,042
    
    
    $
    954,986
    
    
    $
    467,886Weighted average assumptions as
of December 31,Discount rate
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.5
    %Expected return on plan assets
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    8.0
    %Rate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Component of net periodic benefit cost:Service cost
    
    $
    261,131
    
    
    $
    217,504
    
    
    $
    181,241Interest cost
    
    
    168,459
    
    
    
    131,018
    
    
    
    98,515Expected return on plan assets
    
    
    (168,324
    )
    
    
    (130,028
    )
    
    
    (91,171
    )Amortization of prior service cost
    
    
    2,288
    
    
    
    2,288
    
    
    
    368Recognized net actuarial gain or loss
    
    
    92,108
    
    
    
    43,413
    
    
    
    29,193$
    355,662
    
    
    $
    264,195
    
    
    $
    218,146
 - 17 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 9 - PENSION PLANS - CONTINUED 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 $103,400, $106,600, and $53,500, in 2003, 2002, and 2001,
respectively. NOTE 10 -  INTEREST EXPENSE Interest on deposits is summarized as follows: 2003
    
    2002
    
    2001Interest bearing demand
Deposits  interest expense
    
    $
    162,922
    
    
    $
    135,772
    
    
    $
    228,115Money Market
Deposits  interest expense
    
    
    477,493
    
    
    
    599,954
    
    
    
    1,361,195Savings
deposits  Interest
expense
    
    
    132,167
    
    
    
    180,926
    
    
    
    284,939Time deposits less than
$100,000  interest expense
    
    
    1,401,707
    
    
    
    1,601,088
    
    
    
    3,019,477$
    2,174,289
    
    
    $
    2,517,740
    
    
    $
    4,893,726
 NOTE 11 - STOCK OPTION PLAN The Bank has incentive stock option plans (the Option Plans), which
authorizes 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 2003 and 2002 under the Option Plans were as
follows: 2003
    
    2002
    
    OPTION PRICESShares under option at
beginning of year
    
    
    169,909
    
    
    
    151,545
    
    
    $
    5.07  $18.30Options granted
    
    
    28,048
    
    
    
    34,072
    
    
    
    19.71  23.38Forfeitures
    
    
    -0-
    
    
    
    (10,802
    )Options exercised
    
    
    (53,465
    )
    
    
    (10,606
    )
    
    
    5.08  13.76Shares under option at
end of year
    
    
    144,492
    
    
    
    164,209
    
    
    
    11.36  22.27Shares available for future
grants at end of year
    
    
    172,975
    
    
    
    191,450
 - 18 -




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##### 



FIRST NATIONAL BANCSHARES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED 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, 2003, the Bank had commitments to fund loans of $34,566,000
and $1,895,000 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,
2003, the Banks Risk-Based Capital Ratio is 11.51% 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. NOTE 14 -  AGREEMENT FOR MERGER On October 17, 2003, First National Bancshares, Inc. and 1st National Bank &
Trust, jointly, entered into an agreement to acquire through merger,
pending regulatory approvals, the Trust Company of Florida, a
non-depository Trust Company organized under the law of the State of
Florida, having its principal place of business in Englewood, Florida. The
transaction received final regulatory approval on January 13, 2004. The
transaction is subject to approval by the shareholders of the Trust Company
of Florida at its shareholder meeting on February 25, 2004 and, if approved,
is scheduled to close on March 12, 2004. The exact price is undetermined at
this time and will be calculated based on the book values of the stocks of
the respective companies on February 29, 2004.




---



##### 



EXHIBIT INDEX Exhibit Number
    
    Description of Document21
    
    
    Consolidation Agreement dated as ofSeptember 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.3.2
    
    
    Bylaws of First National Bancshares, Inc.103
    
    
    Companys Incentive Stock Option Plan114
    
    
    Statement regarding computation of per share
earnings.23
    
    
    Consent of Christopher, Smith, Leonard,
Bristow, Stanell, and Wells, P. A.31.1
    
    
    Certification31.2
    
    
    Certification32.1
    
    
    Certification Pursuant to 18 U.S.C. § 135032.2
    
    
    Certification Pursuant to 18 U.S.C. § 1350
  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.