FIRST NATIONAL BANKSHARES OF FLORIDA INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-31883

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

FLORIDA 20-0175526
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)

2150 GOODLETTE ROAD NORTH, NAPLES, FLORIDA, 34102
(Address of principal executive offices and zip code)

800-262-7600
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT (TITLE OF CLASS):
COMMON STOCK, PAR VALUE $0.01 PER SHARE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

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

Indicate by check mark 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 Parts 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 Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

The Registrant's common stock began trading on the New York Stock Exchange
on January 2, 2004, and was not publicly traded prior to that date. On March 1,
2004, the aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last sale price as reported by the
New York Stock Exchange for such date, was approximately $907,388,566.

As of March 1, 2004, the registrant had outstanding 46,295,335 shares of
common stock having a par value of $0.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for its 2004 Annual Meeting of
Shareholders are incorporated herein by reference in response to Part III of
this Form 10-K.

FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003

INDEX

1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. We base these
forward-looking statements on our expectations and projections about future
events, which we have derived from the information currently available to us. In
addition, forward-looking statements may be included in our filings with the SEC
or press releases or oral statements made by or with the approval of one of our
executive officers. For each of these forward-looking statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements relate to future events or our future performance, including but not
limited to:

- benefits resulting from our spin-off from F.N.B. Corporation;

- possible or assumed future results of operations;

- future revenue and earnings; and

- business and growth strategies.

Forward-looking statements are those that are not historical in nature,
particularly those that use terminology such as "may," "could," "will,"
"should," "likely," "expects," "anticipates," "contemplates," "estimates,"
"believes," "plans," "projects," "predicts," "potential" or "continue" or the
negative of these or similar terms. Forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those expressed in any forward-looking statements. These risks
and uncertainties include, but are not limited to, the following important
factors: (1) the uncertainty of general business and economic conditions; (2)
the impact of competition, both expected and unexpected; and (3) the risk that
underlying assumptions or expectations related to the spin-off prove to be
inaccurate or unrealized.

Forward-looking statements are only predictions and speak only as of the
date they are made. You should not place undue reliance on forward-looking
statements. The forward-looking events discussed in this document and other
statements made from time to time by us may not occur, and actual events and
results may differ materially and are subject to risks, uncertainties and
assumptions. Except for our ongoing obligations to disclose material information
as required by the federal securities laws, we are not obligated to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this document and in
other statements that we make from time to time might not occur.

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PART I

ITEM 1. BUSINESS

We were incorporated under the laws of the State of Florida on August 12,
2003 as a wholly owned subsidiary of F.N.B. Corporation. We did not have any
material assets or activities until our spin-off from F.N.B. on January 1, 2004.
After the spin-off, we became an independent public company, and we are no
longer affiliated with F.N.B. For additional information on the spin-off, refer
to First National Bankshares of Florida, Inc.'s consolidated financial
statements included in this document.

We are a financial holding company under the Gramm-Leach-Bliley Act of
1999. We have three reportable business segments: community banking, insurance
agencies, and wealth management. For additional information regarding these
segments, refer to the Business Segments footnote in the notes to the
consolidated financial statements included in this document. We own and operate
First National Bank of Florida, a national bank; First National Wealth
Management Company, a nationally chartered trust company; and Roger Bouchard
Insurance, Inc., an insurance agency.

Through our subsidiaries, we provide a full range of financial services,
principally to consumers and small-to medium-size businesses in our market
areas. Our business strategy is to focus primarily on providing quality,
community-based financial services adapted to the needs of each of the markets
we serve. Our results have emphasized a community orientation by preserving
local advisory boards of directors and by allowing local management certain
autonomy in decision-making, enabling them to respond to customer requests more
quickly and concentrate on transactions within their market areas. However,
while we preserve some decision-making at a local level, we have centralized our
legal, loan review, accounting, investment, audit, loan operations and data
processing functions. The centralization of these processes enables us to
maintain consistent quality of these functions and to achieve certain economies
of scale.

Following is information as of December 31, 2003 regarding our
subsidiaries, all of which are wholly owned by us (dollars in thousands).

- ---------------

(1) Includes Southern Exchange Bank, which was acquired on March 31, 2003 and
merged into First National Bank of Florida on October 10, 2003 as part of an
internal reorganization.

(2) Represents net interest income and non-interest income for the year ended
December 31, 2003.

OPERATIONS OF FIRST NATIONAL BANK OF FLORIDA

First National Bank of Florida, offers services traditionally offered by
full-service commercial banks, including commercial and individual demand and
time deposit accounts and commercial, mortgage and individual installment loans.

No material portion of our deposits has been obtained from a single or
small group of customers, and the loss of any customer's deposits or a small
group of customers' deposits would not have a material adverse effect on our
business. The deposits held by the bank have been generated within its market
area. The bank does not have any brokered deposits.

Our lending philosophy is to minimize credit losses by following strict
credit approval standards (which include independent analysis of realizable
collateral value), diversifying our loan portfolio by industry and

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borrower and conducting ongoing review and management of the loan portfolio. We
do not have any highly leveraged transaction loans.

The following is a description of each of the principal types of loans in
our loan portfolio, the relative risk of each type of loan and the steps we take
to reduce its risk:

Commercial Loans. These loans are customarily granted to our
established local business customers in our market area on a fully
collateralized basis to meet their credit needs. The loans can be extended
for periods of between one year and five years and are usually structured
to fully amortize over the term of the loan or balloon after the third year
or fifth year of the loan with an amortization period up to 10 years. The
terms and loan structure are dependent on the collateral and strength of
the borrower. The loan-to-value ratios range from 50% to 80%. The risks of
these types of loans depend on the general business conditions of the local
economy and the local business borrower's ability to sell its products and
services in order to generate sufficient business profits to repay us under
the agreed upon terms and conditions.

Commercial lending generally involves greater credit risk than
residential real estate or consumer lending, and involves risks that are
different from those associated with commercial real estate lending.
Although commercial loans may be collateralized by equipment or other
business assets, the liquidation of collateral in the event of a borrower
default may represent an insufficient source of repayment because equipment
and other business assets may, among other things, be obsolete or of
limited use. Accordingly, the repayment of a commercial loan depends
primarily on the credit worthiness and projected cash flow of the borrower
(and any guarantors), while liquidation of collateral is considered a
secondary source of repayment. To manage these risks, our policy is to
secure the commercial loans it makes with both the assets of the borrowing
business and other additional collateral and guarantees that may be
available. In addition, it actively monitor certain measures of the
borrower, including advance rate, cash flow, collateral value and other
appropriate credit factors.

Commercial Real Estate. We offer commercial real estate loans to
developers of both commercial and residential properties. Because payments
on these loans are often dependent on the successful development, operation
and management of the properties, repayment of these loans may be affected
by adverse conditions in the real estate market or the economy. If the
estimate of value proves to be inaccurate, the property may not provide the
lender with full repayment in the event of default and foreclosure. We seek
to minimize risks by limiting the maximum loan-to-value ratio and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan. We also
actively monitors such measures as advance rate, cash flow, collateral
value and other appropriate credit factors. We also generally obtain loan
guarantees from financially capable parties to the transaction based on a
review of personal financial statements.

Residential Real Estate. We are an active residential mortgage
lender. We offer both first and second mortgage residential real estate and
home equity lines of credit and term loans secured by first and second
mortgages on the residences of borrowers for purchases, refinances, home
improvements, education and other personal expenditures. Both fixed and
variable rate loans are offered with competitive terms and fees. We retain
loans for our portfolio when it has sufficient liquidity to fund the needs
of its established customers and when rates are favorable to retain the
loans. The loans that we retain for our portfolio are usually structured to
balloon after the third year or fifth year with an amortization up to 30
years. These loans are priced according to proper index and margin, and
should not lag behind funding costs. We also originate certain residential
mortgage loans for sale in the secondary loan market. These loans are
collateralized by one-to-four family residential real estate and typically
sold with servicing rights released. The risk we assume is conditioned upon
its internal controls, loan underwriting and market conditions in the
national mortgage market. The risk associated with residential real estate
loans is minimized by limiting the maximum loan-to-value ratio and strictly
scrutinizing the financial condition of the borrower.

Construction Real Estate. Our construction loans represent less than
13% of our total loans. Our construction loan portfolio consists of single
family residential properties, multi-family properties and commercial
projects. Maturities for construction loans generally range from 6 to 24
months for residential property and from 12 to 24 months for
non-residential and multi-family properties. Construction lending
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entails significant additional risks compared with residential mortgage
lending. Construction loans involve risks in that loan funds are advanced
upon the security of property under construction, which is of uncertain
value prior to the completion of construction. Thus, it is more difficult
to evaluate accurately the total loan funds required to complete a project
and related loan-to-value ratios. To minimize the risks associated with
construction lending, we limit loan-to-value ratios for owner-occupied
residential or commercial properties to 85%, and for investor-owned
residential or commercial properties to 80% of when-completed appraised
values. We expect that these loan-to-value ratios will be sufficient to
compensate for fluctuations in the real estate market to minimize the risk
of loss.

Installment Loans. These loans are granted to individuals for the
purchase of personal goods. These loans are generally granted for periods
ranging between one and five years at fixed rates of interest 1% to 5%
above prime interest rate quoted in The Wall Street Journal. Loss or
decline of income by the borrower due to unplanned occurrences may
represent risk of default to us. In the event of default, a shortfall in
the value of the collateral may pose a loss to us in this loan category. We
assess the applicant's credit history and ability to meet existing and
proposed debt obligations. Although the applicant's creditworthiness is the
primary consideration, the underwriting process also includes a comparison
of the value of the collateral, if any, to the proposed loan amount. We
obtain a lien against the item purchased by the consumer and hold title
until the loan is repaid in full.

In addition to traditional banking products, we offer various alternative
investment products, including mutual funds and annuities.

OPERATIONS OF FIRST NATIONAL WEALTH MANAGEMENT COMPANY

First National Wealth Management Company is a newly formed national trust
company to which F.N.B. transferred all of the Florida operations of its First
National Trust Company subsidiary. It provides a broad range of personal and
corporate fiduciary services, including the administration of decedent and trust
estates. As of January 1, 2004, the market value of corporate-wide trust assets
under management totaled approximately $910.2 million.

OPERATIONS OF ROGER BOUCHARD INSURANCE, INC.

Roger Bouchard Insurance, Inc., is a full-service insurance agency offering
all lines of commercial and personal insurance through major carriers. At
January 1, 2004, they operated 10 offices in Southwest and Central Florida.

MARKET AREA AND COMPETITION

Our subsidiaries operate in an area represented by high growth and high
median family income. The industries served in this market include diversified
mix of tourism, construction, services, light manufacturing, distribution and
agriculture. Our market area is southwest and central Florida, with branches
located in the key metropolitan areas of Orlando, Tampa, Sarasota, Fort Myers
and Naples.

Historically, southwest and central Florida's population has grown at a
faster pace than most markets in the country. From 1990 to 2002, the population
in this market area grew 44% compared with 15% and 28% for the United States and
the state of Florida, respectively. This trend is expected to continue. The
projected population growth for 2002 to 2007 in the southwest and central
Florida markets is projected to be 14%, compared with 5% and 10% in the United
States and the state of Florida, respectively.

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In addition, the median household income in the southwest and central
Florida markets exceeds other sections of the United States and the state of
Florida. The following table depicts the 2002 median household income and the
projected growth in median household income from 2002 to 2007 for our market,
the United States, the state of Florida, and our base market, Naples, Florida:

Our subsidiaries compete with a large number of other financial
institutions, such as commercial banks, savings banks, savings and loan
associations, mortgage banking companies, credit unions and commercial finance
and leasing companies. Many of these other financial institutions have greater
resources than we do for deposits, loans and service business. Our market share
of aggregate deposits in Florida was 4.8% as of December 31, 2002, ranking 6th
behind the major financial institutions in the southeastern United States.
Collectively, these financial institutions represent aggregate deposit market
share of 47% in the state of Florida. In providing wealth and asset management
services, our subsidiaries compete with many other financial service firms,
brokerage firms, mutual fund complexes, investment management firms, trust and
fiduciary service providers and insurance agencies.

The ability to access and use technology is an increasingly important
competitive factor in the financial services industry. Technology is not only
important with respect to delivery of financial services, but in processing
information. Each of our subsidiaries consistently must make technological
investments to remain competitive.

EMPLOYEES

As of January 1, 2004, we employed approximately 1,237 full-time and 117
part-time employees.

SUPERVISION AND REGULATION

Sarbanes-Oxley Act. On July 30, 2002, President Bush signed into law the
Sarbanes-Oxley Act of 2002, a law designed to address, among other issues,
corporate governance, auditing and accounting, executive compensation, and
enhanced and timely disclosure of corporate information. The New York Stock
Exchange has also recently revised its corporate governance rules to allow
shareholders to more easily and efficiently monitor the performance of companies
and the qualifications and activities of "insiders."

As directed by Section 302(a) of Sarbanes-Oxley, our chief executive
officer and chief financial officer are each required to certify that our
Quarterly and Annual Reports do not contain any untrue statement of a material
fact. The rules have several requirements, including having these officers
certify that: they are responsible for establishing, maintaining and regularly
evaluating the effectiveness of our internal controls; they have made certain
disclosures to auditors and the audit committee of the Board of Directors about
our internal controls; and they have included information in our Quarterly and
Annual Reports about their evaluation and whether there have been significant
changes in our internal controls or in other factors that could significantly
affect internal controls subsequent to the evaluation.

Banking Activities and Financial Holding Company Regulation. We operate in
a highly regulated environment, and our business activities are governed by
statute, regulation and administrative policies. Our business activities are
closely supervised by a number of regulatory agencies, including the FRB, the
OCC and the FDIC.

We are regulated by the FRB under the Federal Bank Holding Company Act of
1956, as amended, which requires every bank holding company to obtain the prior
approval of the FRB before acquiring more than 5% of the voting shares of any
bank or all or substantially all of the assets of any bank, and before merging
or consolidating with another bank holding company. The FRB has maintained that
a bank holding company must

6

serve as a source of financial strength to its subsidiary banks. In adhering to
the FRB policy, we may be required to provide financial support to our
subsidiary bank at a time when, absent such FRB policy, we may not deem it
advisable to provide such assistance.

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, we or any other bank holding company may acquire a bank located in a state
other than the state in which such holding company is located, subject to
certain deposit percentage and other restrictions. The legislation also provides
that, unless an individual state has elected to prohibit out-of-state banks from
operating interstate branches within its territory, adequately capitalized and
managed bank holding companies may consolidate their multi-state bank operations
into a single bank subsidiary and branch interstate through acquisitions.

As national banks, First National Bank of Florida and First National Wealth
Management Company are subject to the supervision of the OCC and, to a limited
extent, the FDIC and the FRB. The bank is also subject to state banking and
usury laws restricting the amount of interest which may be charged in making
loans or other extensions of credit. In addition, First National Bank of
Florida, our subsidiary, is subject to restrictions under federal law when
dealing with us and our affiliates. These restrictions apply to extensions of
credit to an affiliate, investments in the securities of an affiliate and the
purchase of assets from an affiliate.

Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, also known as the
Financial Services Modernization Act of 1999 (GLBA), enables bank holding
companies to acquire insurance companies and securities firms and effectively
repeals depression-era laws that prohibited the affiliation of banks and these
other financial services entities under a single holding company. Bank holding
companies, and other types of financial services entities, may elect to become
financial holding companies under the new law, allowing them to offer virtually
any type of financial service, or services incident to financial services,
including banking, securities underwriting, merchant banking and insurance (both
underwriting and agency services). We have elected financial holding company
status. The new financial services authorized by the GLBA also may be engaged in
by a "financial subsidiary" of a national or state bank, with the exception of
insurance or annuity underwriting, insurance company portfolio investments, real
estate investment and development, and merchant banking, all of which must be
conducted under the financial holding company.

The GLBA establishes a system of functional regulation, under which the FRB
regulates the banking activities of financial holding companies and other
federal banking regulators regulate banks' financial subsidiaries. The SEC
regulates securities activities of financial holding companies and state
insurance regulators regulate their insurance activities. The GLBA also provides
new protections against the transfer and use by financial institutions of
consumers' non-public, personal information.

The implementation of the GLBA increases competition in the financial
services sector by allowing many different entities, including banks and bank
holding companies, to affiliate and/or to merge with other financial services
entities and cross-sell their financial products in order to better serve their
current and prospective customers.

Capital Adequacy Requirements. We are subject to regulatory capital
adequacy guidelines imposed by the FRB and the OCC. These guidelines define a
three-tier capital framework. Tier 1 capital includes common shareholders'
equity, noncumulative perpetual preferred stock, minority interests in the
equity accounts of consolidated subsidiaries and trust preferred securities
(limited to 25% of total Tier 1 capital). Tier 2 capital consists of preferred
stock not qualifying as Tier 1 capital, mandatorily convertible debt, limited
amounts of subordinated debt, other qualifying term debt and the allowance for
credit losses up to 1.25% of risk-weighted assets. The sum of Tier 1 and Tier 2
capital less investments in unconsolidated subsidiaries represents a bank's
qualifying total capital.

Risk-based capital ratios are calculated by dividing Tier 1 and total
capital by risk-weighted assets. Assets and off-balance sheet exposures are
assigned to one of four categories of risk-weights, based primarily on relative
credit risk. The minimum Tier 1 capital ratio is 4.0% and the minimum total
capital ratio is 8.0%. On January 1, 2004, our consolidated Tier 1 and total
risk-based capital ratios under these guidelines were approximately 8.4% and
10.1%, respectively.

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The FRB, FDIC and the OCC have also implemented minimum capital leverage
ratios to be used in tandem with the risk-based guidelines in assessing the
overall capital adequacy of banks and bank holding companies. These rules
provide for a minimum leverage ratio of at least 3.0% Tier 1 capital to total
average assets (net of goodwill, certain intangible assets, and certain deferred
tax assets) for institutions having the highest regulatory rating, while all
other institutions are generally required to maintain a ratio of at least 4.0%.
On January 1, 2004, our consolidated leverage ratio was approximately 6.2%.

For additional information regarding our capital ratios, refer to the
Regulatory Matters footnote in the notes to our consolidated financial
statements, included elsewhere in this document.

Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (the FDICIA) provided a number of reforms relating to
the safety and soundness of the deposit insurance system, supervision of
domestic and foreign depository institutions and improvement of accounting
standards. One element of the FDICIA provides for the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions. The
FDICIA created five "capital categories" ("well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized") which are defined in the FDICIA and are used to
determine the severity of corrective action the appropriate regulator may take
in the event an institution reaches a given level of undercapitalization. For
example, an institution which becomes "undercapitalized" must submit a capital
restoration plan to the appropriate regulator outlining the steps it will take
to become adequately capitalized. Upon approving the plan, the regulator will
monitor the institution's compliance. Before a capital restoration plan will be
approved, any entity controlling a bank (i.e., a holding company) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of 5% of the institution's total assets or the amount
which is necessary to bring the institution into compliance with all capital
standards. In addition, "undercapitalized" institutions will be restricted from
paying management fees, dividends and other capital distributions, are subject
to certain asset growth restrictions and are required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business. At January 31, 2004, our subsidiary national bank was well capitalized
under the FDICIA.

As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.

In addition, the FRB, the OCC and the FDIC have adopted regulations,
pursuant to the FDICIA, defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. Both the capital
standards and the safety and soundness standards which the FDICIA seeks to
implement are designed to bolster and protect the deposit insurance fund.

Reporting Requirements. The Bank and the Wealth Management Company are
subject to periodic on-site examinations under the supervisory jurisdiction of
the OCC. The OCC, at will, can access quarterly reports of condition, as well as
such additional reports as may be required by national banking laws and
regulations.

We and our subsidiaries are subject to periodic examinations by the FRB.
On-site FRB holding company inspections are typically conducted on an annual
basis. As a financial holding company, we are required to file with the FRB an
annual report of operations at the end of each fiscal year and such additional
information as the FRB may require pursuant to the Bank Holding Company Act.

The scope of our regulation and permissible activities are subject to
change by future federal and state legislation. In addition, regulators
sometimes require higher capital levels on a case-by-case basis based on such
factors as the risk characteristics or management of a particular institution.
We are not aware of any attributes of our management or operating plans that
would cause regulators to impose higher requirements.

Roger Bouchard Insurance, Inc. Roger Bouchard Insurance, Inc. is subject
to licensing requirements and extensive regulation under the laws of the United
States and the State of Florida. These laws and regulations are primarily for
the benefit of clients. In all jurisdictions, the applicable laws and
regulations are subject to
8

amendment or interpretation by regulatory authorities. Generally, such
authorities are vested with relatively broad discretion to grant, renew and
revoke licenses and approvals, and to implement regulations. Licenses may be
denied or revoked for various reasons, including the violation of such
regulations, conviction of crimes and the like. Possible sanctions which may be
imposed for violation of regulations include the suspension of individual
employees, limitations on engaging in a particular business for a specified
period of time, revocation of licenses, censures and fines.

Governmental Policies. Our operations are affected not only by general
economic conditions, but also by the policies of various regulatory authorities.
In particular, the FRB regulates money and credit and interest rates in order to
influence general economic conditions. These policies have a significant
influence on overall growth and distribution of loans, investments and deposits
and affect interest rates charged on loans or paid for time and savings
deposits. FRB monetary policies have had a significant effect on the operating
results of all financial institutions in the past and will continue to do so in
the future.

AVAILABLE INFORMATION

We maintain a website at www.firstnationalbankshares.com. We will make
available free of charge our annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K on our website as soon as practicable
after such reports are filed with the SEC.

ITEM 2. PROPERTIES

Our banking subsidiary, First National Bank of Florida, owns an eight-story
building in Naples, Florida, which serves as our executive and administrative
offices. The bank also owns an operations center in Naples, Florida.

Our banking, wealth management and insurance agency offices are located in
nine counties in southwestern and central Florida. We own 50 of our 74 offices
and lease the remaining 24 offices under operating leases expiring at various
dates through the year 2087.

ITEM 3. LEGAL PROCEEDINGS

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

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

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the New York Stock Exchange under the
symbol "FLB" on January 2, 2004. On that day, our stock price opened at $16.65.
On March 1, 2004, our stock price closed at $19.60.

On January 21, 2004, our Board of Directors declared a $.07 per share
dividend, payable on February 15, 2004 to our shareholders of record on February
1, 2004. On March 1, 2004, there were 11,124 holders of record of our common
stock.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial data
that have been derived from our consolidated financial statements for each of
the five years in the period ended December 31, 2003. The financial data for the
years 2000-2003 were derived from our audited consolidated financial statements.
The financial data for 1999 were derived from our unaudited financial
statements, which were prepared on the same basis as our audited financial
statements and reflect all necessary adjustments and reclassifications in
accordance with generally accepted accounting principles. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated financial
statements and the notes thereto included elsewhere in this Form 10-K. Our
historical financial information may not be indicative of our future performance
as an independent company.

The selected financial data as of and for the year ended December 31, 2003
include Southern Exchange Bank ("SEB"), which was acquired in connection with
F.N.B.'s acquisition of SEB's holding company, Charter Banking Corp., on March
31, 2003. Refer to the "Mergers and Acquisitions" footnote in the notes to our
consolidated financial statements for further information regarding the
acquisition of SEB by F.N.B. and the spin-off of F.N.B.'s Florida operations.
SEB increased total assets by $795.6 million, stockholder's equity by $150.2
million and book value per common share by $3.24.

The selected financial data include transactions accounted for as poolings
of interests. Selected financial data for the years ended December 31, 2000 and
1999 reflect the historical financial data of Citizens Community Bancorp, Inc.
and OneSource Group, Inc., which were acquired in 2001 in transactions accounted
for as poolings of interest. The selected financial data for the year ended
December 31, 1999 includes the historical financial data of Guaranty Bank &
Trust, which was acquired in 1999 and accounted for as poolings of interest.
Refer to the "Mergers and Acquisitions" footnote in the notes to our audited
consolidated financial statements.

10

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

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

SEPARATION FROM F.N.B.

We were incorporated under the laws of the State of Florida on August 12,
2003 as a wholly owned subsidiary of F.N.B. Corporation. We did not have any
material assets or activities prior to F.N.B.'s contribution to us of its
Florida operations, as described in our Form 10 Registration Statement filed
with the Securities and Exchange Commission on December 22, 2003. On January 1,
2004, we became an independent public company through a tax-free spin-off from
F.N.B., with F.N.B. having no continuing ownership interest in us. Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, and reflect the
historical financial position, results of operations, and cash flows of the
businesses transferred to us from F.N.B. prior to the distribution. The
financial information included in this document, however, is not necessarily
indicative of what our results of operations or financial position would have
been had we operated as an independent company during the periods presented, nor
is it necessarily indicative of our future performance as an independent
company.

11

All material intercompany transactions between entities included in our
consolidated financial statements have been eliminated. We have been allocated
certain F.N.B. corporate assets, liabilities and expenses based on an estimate
of the proportion of such amounts allocable to us, utilizing such factors as
total revenues, employee headcount and other relevant factors. We believe that
these allocations have been made on a reasonable basis. We believe that all
costs allocated to us are a reasonable representation of the costs that we would
have incurred if we had performed these functions as a stand-alone company.

In conjunction with the separation of the F.N.B. businesses, we entered
into various agreements with F.N.B. that address the allocation of assets and
liabilities, and that define our relationship with F.N.B. after the spin-off,
including a Distribution Agreement, a Tax Disaffiliation Agreement, and an
Employee Benefits Agreement.

In connection with the separation from F.N.B., our subsidiaries incurred
approximately $10.5 million in restructuring expenses. These expenses consisted
of $5.3 million of early retirement expenses and involuntary separation costs,
$4.2 million in professional fees, and approximately $1.0 million in fixed asset
write-off and other expenses connected with the separation.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. Application of
these principles requires management to make estimates, assumptions and
judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions and judgments are based on
information available as of the date of the financial statements; accordingly,
as this information changes the financial statements could reflect different
estimates, assumptions and judgments.

Certain policies inherently have a greater reliance on the use of
estimates, assumptions, and judgments and as such have a greater possibility of
producing results that could be materially different than originally reported.
The most significant accounting policies that we follow are presented in the
notes to our consolidated financial statements.

These policies, along with the disclosures presented in the notes to our
consolidated financial statements provide information on how significant assets
and liabilities are valued in the financial statements and how those values are
determined. Based on the valuation techniques used and the sensitivity of
financial statement amounts to the methods, assumptions, and estimates
underlying those amounts, management has identified the following accounting
areas that require the most subjective or complex judgments, and as such could
be most subject to revision as new information becomes available.

The allowance for loan losses represents management's estimate of probable
credit losses inherent in the loan portfolio. Determining the amount of the
allowance for loan losses is considered a critical accounting estimate because
it requires significant judgment and the use of estimates related to the amount
and timing of expected future cash flows on impaired loans, estimated losses on
pools of homogeneous loans based on historical loss experience, and
consideration of current economic trends and conditions, all of which may be
susceptible to significant change.

The loan portfolio represents the largest asset type on the consolidated
balance sheet. Leases are carried at the aggregate of the lease payments and the
estimated residual value of the leased property, less unearned income.

Loans are classified as held for sale based on management's intent to sell
them. At the date a loan is determined to be held for sale, the loan is recorded
at the lower of cost or market. Any subsequent adjustment as a result of the
lower of cost or market analysis is recognized as a valuation adjustment with
changes included in non-interest income. These market value assumptions include
but are not limited to the timing of a sale, the market conditions for the
particular credit and overall investor demand for these assets. Changes in
market conditions, interest rate environment, and actual liquidation experience
may result in additional valuation adjustments that could adversely impact
earnings in future periods.

Goodwill arising from business acquisitions represents the value
attributable to unidentifiable intangible elements in the business acquired. Our
goodwill relates to value inherent in our banking and insurance businesses.

12

The value of this goodwill is dependent upon our ability to provide quality,
cost effective services in the face of competition. As such, the value of our
goodwill is supported ultimately by revenue which is driven by the volume of
business transacted and the market share acquired. A decline in earnings as a
result of a lack of growth or our inability to deliver cost effective services
over sustained periods can lead to impairment of goodwill which could result in
additional expense and adversely impact earnings in future periods.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

The Company has various financial obligations, including contractual
obligations and commitments that may require future cash payments.

The following table represents, as of December 31, 2003, significant fixed
and determinable contractual obligations to third parties by payment date:

The following table represents, as of December 31, 2003, the amounts and
expected maturities of significant commitments and other off-balance sheet
items:

Commitments to extend credit and standby letters of credit do not
necessarily represent future cash requirements in that the borrower has the
ability to draw upon these commitments at any time and these commitments often
expire without being drawn upon.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

Overview

Net income was $31.8 million for 2003 compared to net income of $32.1
million for 2002. Basic earnings per share were $.69 and $.70 for 2003 and 2002,
respectively, while diluted earnings per share was $.68 for both periods. Common
comparative ratios for results of operations include the return on average
assets and the return on average equity. Our return on average assets was .91%
for 2003 compared to 1.25% for 2002, while our return

13

on average equity was 7.91% for 2003 and 12.63% for 2002. Results of operations
include SEB which was acquired on March 31, 2003.

Full year 2003 diluted earnings per share were reduced $.17 per share due
to after-tax merger and restructuring expenses of $8.4 million. Full year 2002
diluted earnings were reduced $.03 per share due to after-tax merger expenses
and a prepayment penalty on early termination of FHLB debt totaling $1.3
million.

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

14

- ---------------

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

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

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

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

Net Interest Income

Net interest income, our primary source of earnings, is the amount by which
interest and fees generated by interest earning assets, primarily loans and
securities, exceed interest expense on deposits and borrowed funds. Net interest
income, on a fully taxable equivalent basis, totaled $125.7 million for 2003, an
increase of 20.8% as compared to $104.0 million for 2002. We were able to grow
net interest income by increasing interest earning assets and effectively
managing interest paid on deposits. With rates at a historical low point, we
expect to have limited ability to lower certain deposit rates further. Net
interest income consisted of interest income of $168.5 million and interest
expense of $42.8 million for 2003 compared to $151.3 million and $47.3 million,
respectively, for 2002. The yield on interest earning assets decreased by 108
basis points and the rate paid on interest bearing liabilities decreased by 80
basis points. Net interest margin decreased from 4.60% at December 31, 2002 to
4.19% at December 31, 2003. The decline in the margin can be attributed to SEB,
which reduced our margin by 25 basis points, and the acceleration of prepayments
and repricing of interest earning assets. We expect to continue to experience
margin compression during 2004 due to additional interest expense from the $41.2
million debenture and $17.0 million subordinated note. The impact of future rate
changes on our net interest income is discussed further under the "Liquidity and
Interest Rate Sensitivity" caption below.

15

The following table sets forth certain information regarding changes in net
interest income attributable to changes in the volumes of interest earning
assets and interest bearing liabilities and changes in the rates for the periods
indicated (in thousands):

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

For 2003, interest income on loans, on a fully taxable equivalent basis,
increased 3.1% from $133.0 million to $137.2 million. This increase resulted
from favorable loan volumes as average loans increased by $380.2 million.
Interest income on investment securities increased $13.9 million to $31.2
million during 2003 as the average balance of investment securities increased
$410.7 million to $731.0 million. The increase in the average balance of
investment securities was directly attributable to the acquisition of SEB.

Interest expense on deposits decreased $5.5 million or 13.4% in 2003 while
average interest bearing deposits increased by $488.7 million. The acquisition
of SEB increased interest expense on deposits by $3.1 million and average
interest bearing deposits by $278.7 million. Excluding SEB, the average balance
in interest bearing demand and savings deposits increased $24.1 million and
$202.5 million, respectively, while time deposits decreased $16.6 million. We
continued to generate non-interest-bearing deposits successfully as such
deposits, excluding SEB, increased by $45.1 million or 2.9% in 2003. Interest
expense on short-term borrowings increased by $379,000 and the interest rate
paid decreased by 17 basis points in 2003. Interest expense on long-term debt
increased $689,000 in 2003 solely from a $93.4 million increase in average
long-term debt as the rate paid decreased 331 basis points. SEB's FHLB
borrowings increased average long-term debt by $101.2 million.

The provision for loan losses charged to operations is a direct result of
management's analysis of the adequacy of the allowance for loan losses, which
takes into consideration factors, including qualitative factors, relevant to the
collectibility of the existing portfolio. The provision for loan losses
increased from $5.5 million for 2002 to $7.2 million for the same period in
2003.

Non-Interest Income

Total non-interest income increased 14.0% from $54.7 million for 2002 to
$62.4 million in 2003. Service charges on deposit accounts increased 30.3%
during 2003 to $18.1 million from $13.9 million. Income from wealth management
services increased $1.9 million, or 39.9%, to $6.6 million in 2003 compared to
$4.7 million

16

in 2002. Insurance commissions and fees increased 2.9% from $25.4 million in
2002 to $26.2 million in 2003. These higher levels of fee income are
attributable to growth in insurance, expanded banking services and our continued
focus on providing a wide array of wealth management services, such as
annuities, mutual funds and trust services. Our insurance commissions from
workmen's compensation policies, provided specifically to employee leasing
companies, have declined and are not expected to return to historical levels as
insurance carriers have discontinued providing coverage to this market segment.
We did not recognize any insurance commissions in 2003 from this line of
business which generated $2.8 million in insurance commissions during 2002.
Gains on the sale of mortgage loans for 2003 increased 8.9% to $5.6 million as
compared to $5.1 million for the same period in 2002. The increase in gains on
the sale of mortgage loans was a direct result of increases in homeowner
refinancing driven by mortgage interest rates declining to historical low
levels. As mortgage interest rates increase, we anticipate this level of growth
in gains to decline.

Non-Interest Expense

Total non-interest expense increased 24.8% from $104.4 million in 2002 to
$130.3 million in 2003. We recorded merger costs associated with SEB of $1.2
million in 2003 and with Central Bank Shares, Inc. of $413,000 in 2002. These
expenses were primarily involuntary separation costs associated with the
terminated employees and early retirement costs. In addition, the Company
recorded $10.5 million of restructuring expenses related to the spin-off
transaction. These expenses consisted of $5.3 million in early retirement
expenses, $4.2 million in professional fees, and approximately $1.0 million in
fixed asset write-off and other expenses connected with the separation. For
2003, salary and employee benefits increased $16.2 million from $60.5 million in
2002 to $76.7 million in 2003. The increase is due to increased health care
costs, the acquisition of SEB in 2003 and early retirement expenses associated
with the spin-off transaction. Excluding professional fees and other expenses
incurred in connection with the spin off transaction of $4.8 million, other
non-interest expenses totaled $32.1 million for 2003, a $762,000 decrease from
2002.

Our income tax expense was $16.6 million for 2003 compared to $16.4 million
for 2002. The 2003 effective tax rate of 34.4% was lower than the 35.0% federal
statutory tax rate due to the tax benefits resulting from non-taxable interest
and dividend income, offset by non-deductible restructuring expenses.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Overview

Net income was $32.1 million for 2002 compared to net income of $21.2
million in 2001. Basic earnings per share were $.70 and $.48 for 2002 and 2001,
while diluted earnings per share were $.68 and $.47 for those same periods.
Common comparative ratios for results of operations include the return on
average assets and the return on average equity. Our return on average assets
was 1.25% for 2002 compared to 1.00% for 2001, while our return on average
equity was 12.63% for 2002 and 12.33% for 2001. Full year 2002 diluted earnings
were reduced $.03 per share due to after-tax merger expenses and a prepayment
penalty on early termination of FHLB debt totaling $1.3 million. Full year 2001
diluted earnings were reduced $.04 per share due to after-tax merger expenses
totaling $1.8 million.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, increased by
24.2% to $104.0 million in 2002, as average net interest earning assets
increased by $57.3 million. Net interest income, on a fully taxable equivalent
basis, was $83.8 million for 2001. Net interest income consisted of interest
income of $151.3 million and interest expense of $47.3 million for 2002,
compared to $149.1 million and $65.3 million, respectively, in 2001. Our net
interest margin increased 27 basis points to 4.60% for 2002 as the yield on
interest earning assets decreased by 102 basis points and the rate paid on
interest bearing liabilities decreased by 149 basis points.

For 2002, interest income on loans, on a fully taxable equivalent basis,
increased 1.4% from $131.2 million to $133.0 million. This increase resulted
from favorable loan volumes as average loans increased by $256.8 million.

17

Interest expense on deposits decreased $14.9 million, or 26.6%, in 2002
while average interest bearing deposits increased by $236.4 million. The average
balance in interest bearing demand, savings and time deposits increased $44.7
million, $180.4 million, and $11.3 million, respectively. We continued to
generate non-interest bearing deposits successfully as such deposits increased
by $68.4 million, or 24.4%, in 2002. Interest expense on short-term borrowings,
consisting primarily of repurchase agreements, decreased by $3.1 million and the
interest rate paid decreased by 213 basis points in 2002. Interest expense on
long-term debt decreased $58,000 in 2002 as a result of a 12 basis point decline
in the interest rate.

Non-Interest Income

Total non-interest income increased 14.1% to $54.7 million in 2002 from
$48.0 million in 2001. Insurance commissions and fees increased 8.7% from $23.4
million in 2001 to $25.4 million in 2002. Service charges on deposit accounts
increased 22.9% during 2002. Income from wealth management services increased
$1.3 million, or 37.9%, to $4.7 million in 2002 compared to $3.4 million in
2001.

These higher levels of fee income are attributable to growth in insurance,
expanded banking services and our continued focus on providing a wide array of
wealth management services, such as annuities, mutual funds and trust services.

Non-Interest Expense

Total non-interest expense increased 11.7% from $93.5 million in 2001 to
$104.4 million in 2002. During 2002, we recorded merger costs associated with
our acquisition of Central Bank Shares, Inc. of $413,000. These expenses were
primarily involuntary separation costs associated with terminated employees,
early retirement and other employment-related expenses, professional fees and
data processing conversion charges. Salary and employee benefits increased 25.0%
to $60.5 million in 2002. The increase is due to the acquisition of Central Bank
Shares and increased health care costs in 2002. In addition, we incurred a
pre-payment penalty of $1.5 million in connection with the early retirement of
$15.0 million of high interest rate debt with the Federal Home Loan Bank. The
prepayment penalty is included in other non-interest expense.

Our income tax expense was $16.4 million for the 2002 compared to $12.1
million for the same period in 2001. The 2002 effective tax rate of 33.8% was
lower than the 35.0% federal statutory tax rate due to the tax benefits
resulting from tax-exempt instruments and excludable dividend income.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net income increased 7.4% to $21.2 million in 2001 from $19.8 million in
2000. Basic and diluted earnings per share were $.48 and $.47 for 2001 and $.44
and $.43 in 2000, respectively. Full-year 2001 diluted earnings were reduced by
$.04 per share due to pre-tax merger and consolidation expenses of $2.7 million.
Our return on average assets was 1.00% for 2001 compared to .97% for 2000, while
our return on average equity was 12.33% for 2001 and 12.20% for 2000.

Net interest income, on a fully taxable equivalent basis, increased by
10.3% to $83.8 million. Net interest income consisted of interest income of
$149.1 million and interest expense of $65.3 million in 2001 compared to $150.6
million and $74.6 million, respectively, in 2000. Our net interest margin
increased 21 basis points to 4.33% for 2001.

Interest income on loans, on a fully taxable equivalent basis, decreased
1.0% from $132.5 million in 2000 to $131.2 million in 2001. This decrease was a
result of the declining interest rate environment as average loan volumes
increased by $58.9 million.

Interest expense on deposits decreased $2.6 million or 4.5% in 2001 while
average interest bearing deposits increased $103.0 million. The average balance
in interest bearing demand, savings and time deposits increased $33.7 million,
$16.2 million and $53.1 million, respectively. Non-interest bearing deposits
increased by $26.8 million, or 10.6%, in 2001. Interest expense on short-term
borrowings decreased by $6.5 million and the interest rate paid decreased by 269
basis points in 2001. Interest expense on long-term debt decreased $138,000 in
2001 due to a $8.7 million decrease in average long-term debt.
18

Total non-interest income increased 32.2% from $36.3 million in 2000 to
$48.0 million in 2001. Insurance commissions and fees, service charges and trust
fees increased 31.9% from $28.9 million in 2000 to $38.1 million in 2001. These
higher levels of fee income are attributable to our insurance agency
acquisitions, expansion of our banking services and our continued focus on
providing a wide array of wealth management services, such as annuities, mutual
funds and trust services.

Total non-interest expense increased 23.2% from $75.9 million in 2000 to
$93.6 million in 2001. During 2001, we recorded a pre-tax charge of $4.0
million, or $.06 per diluted share on an after-tax basis, to cover estimated
legal expenses associated with five lawsuits filed against our subsidiary bank.
The plaintiffs allege that a third-party independent administrator
misappropriated funds from their individual retirement accounts held by the
subsidiary bank. Additionally, we recognized $2.7 million of merger-related
costs in connection with the acquisition of several insurance companies during
2001. We also recognized $2.1 million in expenses relating to our charter
consolidation plan. In addition, non-interest expense increased due to insurance
agency purchases during the second half of 2000 and the first half of 2001.

FINANCIAL CONDITION

LIQUIDITY AND INTEREST RATE SENSITIVITY

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

Liquidity sources from assets include payments from loans and investments
as well as the ability to sell loans and investment securities. Liquidity
sources from liabilities are generated through growth in core deposits and, to a
lesser extent, the use of wholesale sources which include federal funds
purchased, repurchase agreements and public deposits. In addition, our banking
subsidiary has the ability to borrow from the Federal Home Loan Bank (FHLB).
FHLB advances are a competitively priced and reliable source of funds. As of
December 31, 2003, outstanding advances were $231.9 million, or 6.2% of total
assets, while FHLB availability was $557.5 million, or 14.9% of total assets. As
of December 31, 2002, outstanding advances were $65.4 million, or 2.4% of total
assets, while FHLB availability was $351.3 million, or 12.9% of total assets.

The principal source of cash for the parent company is dividends from its
subsidiaries. Subsequent to the spin-off, the parent company obtained lines of
credit with several major domestic banks. These lines provide the parent company
a liquid source of short-term funding.

Core deposits increased $396.2 million during 2003 and increased $384.8
million during 2002, providing the primary source of financing for our lending
activities, including origination of mortgage loans held for sale in the
secondary market. We continued to expand our activities in originating mortgage
loans for resale in the secondary market rather than keeping these loans in
portfolio. Mortgage loans originated for sale remained strong in 2003 and 2002.
Originations of mortgage loans totaled $341.2 million for 2003, $363.3 million
for 2002, and $217.4 million for 2001.

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

Our financial performance is at risk from interest rate fluctuations. This
interest rate risk arises due to differences between the amount of interest
earning assets and interest bearing liabilities subject to repricing over a
period of time, the difference between the change in various interest rates and
the embedded options in certain financial instruments. We utilize an
asset/liability model to measure the impact of our balance sheet strategies. We
use net interest income simulations, gap analysis and the economic value of
equity to measure interest rate risk.

19

The following gap analysis measures our interest rate risk by comparing the
difference between the amount of interest earning assets and interest bearing
liabilities subject to repricing over a period of time. The ratio of rate
sensitive assets to rate sensitive liabilities maturing over a one year period
was 1.38 at December 31, 2003, as compared to 1.33 at December 31, 2002. A ratio
of more than one indicates a higher level of repricing assets over repricing
liabilities, assuming the current interest rate environment.

Following is the gap analysis as of December 31, 2003 (dollars in
thousands):

20

Net interest income simulations measure the short-term earnings exposure
from changes in market rates of interest in a more rigorous and explicit
fashion. Our current financial position is combined with assumptions regarding
future business to calculate net interest income under varying hypothetical rate
scenarios. The economic value of equity (EVE) measures our long-term earnings
exposure from changes in market rates of interest. EVE is defined as the present
value of assets minus the present value of liabilities at a point in time. A
decrease in EVE due to a specified rate change indicates a decline in the
long-term earnings capacity of the balance sheet assuming that the rate change
remains in effect over the life of the current balance sheet. The following
table presents an analysis of the potential sensitivity of our annual net
interest income and EVE to sudden and sustained changes in market rates:

The preceding measures indicate that the balance sheet structure as of
December 31, 2003 is somewhat more susceptible to large and immediate rate
changes than as of twelve months ago. This is largely a function of higher
holdings of mortgage-related assets and, to a lesser extent, a higher level of
short-term borrowings. Mortgage-related assets tend to create a higher level of
interest rate risk because the assets refinance when rates fall and their
effective maturities lengthen when rates rise. Our concentration of these assets
increased due to lower demand for commercial loans and due to the acquisition of
Charter. The ALCO considers this risk to be manageable and will be enhancing
strategies to reduce risk. As the economy recovers, we have begun to increase
our holdings of commercial loans which tend to more closely match the structure
of our liabilities. We plan to reduce the level of short-term borrowings by
using longer term FHLB advances and retail strategies which will promote longer
term certificates of deposits and checking deposits (which are less
rate-sensitive). The risk of declining rates has also increased as rates are
nearly at a historical low point from which there is a limited ability to lower
certain deposit rates further. However, from this low point, management does not
view a dramatic further decrease in rates as probable.

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

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

Changes in the interest rate environment can cause significant fluctuations
in the market value of mortgage loans originated for resale in the secondary
market. We began utilizing forward loan commitments on mortgage loans in 2002 to
offset the risk of decreases in the market values of the loans as a result of
increases in interest rates. At December 31, 2003 and 2002, we had $5.2 million
and $31.0 million in forward sales agreements, respectively.

21

LENDING ACTIVITY

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

We strive to minimize credit losses by utilizing credit approval standards,
diversifying our loan portfolio by industry and borrower and conducting ongoing
review and management of the loan portfolio. We continued to experience strong
loan growth as total loans, excluding SEB, increased $319.0 million to $2.4
billion at December 31, 2003, despite a 75.2%, or $18.3 million, decline in
lease financing receivable. The balance of the lease financing receivable has
been declining since 2000, when we decided to cease originating automobile
leases. This decline was offset by a $500.5 million, or 30.5%, increase in
residential, commercial and construction loans secured by real estate and a
11.1%, or $22.7 million, increase in commercial, financial and agricultural
loans during 2003.

Our loan portfolio is well-diversified with a significant portion of the
portfolio being made up of loans secured by real estate. Residential, commercial
and construction loans secured by real estate accounted for 87.3% and 83.6% of
the loan portfolio at December 31, 2003 and 2002, respectively.

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

As of December 31, 2003, and 2002, no concentrations of loans exceeding 10%
of total loans existed which were not disclosed as a separate category of loans.

Following is a summary of the maturity distribution of certain loan
categories based on remaining scheduled repayments of principal at December 31,
2003 (in thousands):

The total amount of loans due after one year includes $206.0 million with
floating or adjustable rates of interest and $38.6 million with fixed rates of
interest.

NON-PERFORMING ASSETS

Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. It is our policy to discontinue interest accruals when principal
or interest is due and has

22

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

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

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

NON-PERFORMING LOANS

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

All loans where information exists about possible credit problems that
would cause us to have serious doubts about the borrower's ability to comply
with the current terms of the loan have been reflected within the table
summarizing non-performing loans.

Following is a table showing the amounts of contractual interest income and
actual interest income recorded on non-accrual and restructured loans (in
thousands):

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Following is a summary of loans 90 days or more past due, on which interest
accruals continue (dollars in thousands):

ALLOWANCE AND PROVISION FOR LOAN LOSSES

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

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

The provision for loan losses charged to operations in each period
presented is a direct result of management's assessment of the adequacy of the
allowance for loan losses at the end of each period. Factors considered in
management's assessment include growth in the loan portfolio, changes in the
composition of the loan portfolio, concentrations of credit risk, current trends
in net charge-offs, trends in non-performing loans and current economic
conditions in the markets in which we operate. The provision for loan losses
increased to $7.2 million for 2003 compared with $5.5 million for 2002. Factors
considered in the level of the provision during 2003 included the continued
decline in the general economy, an increase in non accrual loans, increased loan
concentrations, primarily in commercial real estate loans and the integration of
consistent credit quality rating processes to acquired entities. For 2002, the
provision was $5.5 million, as compared to $4.5 million in 2001. The increase in
the provision during 2002 reflects additional concentrations in the loan
portfolio, primarily in commercial real estate loans, commercial loans and
consumer installment loans and the integration of consistent credit quality
rating processes to acquired entities. In addition, during the same period net
charge-offs increased by $1.1 million, with the majority of the increase in net
charge-offs in commercial loans and consumer installment loans. The provision
for loan losses decreased from $5.6 million in 2000 to $4.5 million in 2001.
Factors contributing to the reduction in the provision include the
discontinuation of auto lease financing in 2000 and a $557,000 reduction in
commercial loan net charge-offs.

Charge-offs reflect the realization of losses in the portfolio that were
recognized previously through provisions for credit losses. During 2003,
charge-offs totaled $4.6 million compared to $5.4 million for 2002. Loans
charged off in 2002 increased $1.7 million as compared to 2001. Loans charged
off in 2001 increased $833,000 over 2000. Net charge-offs as a percent of
average loans were 0.13% in 2003, 0.22% in 2002, and 0.19% in 2001.

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Following is a summary of changes in the allowance for loan losses (dollars
in thousands):

Following is a summary of the allocation of the allowance for loan losses
(dollars in thousands):

We have allocated the allowance according to the amount deemed to be
reasonably necessary to provide for the estimated losses being incurred within
each of the categories of loans shown in the table above. A portion of the
allowance for loan losses was specifically allocated to a commercial real estate
loan in which the borrower

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filed for protection under Chapter 11 of the U.S. Bankruptcy Code during the
fourth quarter of 2003. Based upon issues relating to this bankruptcy filing and
the collectibility of our loan, we estimate our loss exposure to be
approximately $1.8 million. Management's allocation considers amounts necessary
for concentrations and changes in portfolio mix and volume. The allocation of
the allowance should not be interpreted as an indication that loan losses in
future years will occur in the same proportions or that the allocation indicates
future loan loss trends. Furthermore, the portion allocated to each loan
category is not the sole amount available for future losses within such
categories since the total allowance is a general allowance applicable to the
entire portfolio.

Investment Activity

Investment activities serve to enhance overall yield on earning assets
while supporting interest rate sensitivity and liquidity positions. Securities
purchased with the intent and ability to retain until maturity are categorized
as securities held to maturity and carried at amortized cost. All other
securities are categorized as securities available for sale and are recorded at
fair market value. The relatively short average maturity of all securities
provides a source of liquidity to us and reduces the overall market risk of the
portfolio.

During 2003, securities available for sale increased by $394.7 million and
securities held to maturity decreased by $4.6 million from December 31, 2002.
The net increase in total investments of $390.1 million was primarily attributed
to SEB.

The following table indicates the respective maturities and
weighted-average yields of securities (dollars in thousands):

The weighted average yields for tax exempt securities are computed on a tax
equivalent basis.

DEPOSITS AND SHORT-TERM BORROWINGS

As a commercial bank holding company, our primary source of funds is our
deposits. Those deposits are provided by businesses and individuals located
within the markets served by our subsidiaries.

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For 2003, total deposits increased $597.9 million to $2.7 billion, of which
$481.5 million is attributable to SEB. Excluding SEB, interest bearing checking
and savings deposits increased $102.2 million, or 9.0%, while non-interest
bearing deposit accounts increased $51.2 million, or 142%. Time deposits
decreased $37.0 million or 5.9%.

Time deposits of $100,000 or more were $415.8 million, and $214.0 million
at December 31, 2003 and 2002, respectively. Following is a summary of these
time deposits by remaining maturity at December 31, 2003 (in thousands):

Short-term borrowings, made up of repurchase agreements, federal funds
purchased, FHLB advances and other short-term borrowings, increased by $93.6
million during the year ended December 31, 2003 to $354.1 million. During 2003,
securities sold under repurchase agreements and federal funds purchased
increased $17.0 million, and $72.0 million, respectively, while short-term FHLB
advances increased $4.6 million, as compared to 2002.

Repurchase agreements are the largest component of short-term borrowings.
At December 31, 2003 and December 31, 2002, repurchase agreements represented
74.2% and 88.7% of total short-term borrowings, respectively. Following is a
summary of selected information on repurchase agreements (dollars in thousands):

CAPITAL RESOURCES

The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. We seek to maintain a strong capital base to support our
growth and expansion activities, to provide stability to current operations and
to promote public confidence.

In connection with the spin-off, we issued a $41.2 million debenture to
First National Bankshares Statutory Trust I, an unconsolidated subsidiary trust.
This trust transferred to us shares of its common stock and exchanged the
proceeds from the issuance of $40 million of preferred securities to third-party
investors for our issuance to the trust of a $41.2 million debenture. We
transferred the $40.0 million, along with 46.3 million shares of our common
stock, to F.N.B. Corporation in consideration of the net assets of F.N.B.'s
Florida operations. The debenture and preferred securities bear an interest rate
equal to the three-month LIBOR plus 290 basis points. FASB Interpretation No. 46
raised questions about whether preferred securities issued by unconsolidated
subsidiary trusts could be treated as Tier I capital. On July 2, 2003, the
Federal Reserve Board issued a letter stating that trust preferred securities
will continue to be included in Tier 1 capital until notice is given to the
contrary. As such the debenture we issued to First National Bankshares Statutory
Trust I currently qualifies as Tier 1 capital under present Federal Reserve
Board guidance. Refer to the "New Accounting Standards" footnote of the
consolidated financial statements for further discussion regarding impact on
capital qualification of the debenture due to the adoption of FASB
Interpretation No. 46.

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In addition, First National Bank of Florida entered into a $17.0 million
subordinated loan commitment with a correspondent bank. The subordinated loan
has a seven-year maturity and bears interest at a rate based on LIBOR plus 170
basis points. The subordinated loan qualifies as Tier 2 capital.

Our subsidiaries paid $37.5 million in dividends to F.N.B. Corporation in
connection with the spin-off. The purpose of the dividends and the $40.0 million
payment to F.N.B. was to maintain desired capital levels for us and F.N.B.
following the spin-off.

Capital management is a continuous process. We and our subsidiaries are
subject to various regulatory capital requirements administered by the federal
banking agencies. (See the "Regulatory Matters" section in the notes to our
consolidated financial statements for a discussion of these requirements).

Stockholders' equity increased through earnings retention by $7.5 million
and $1.1 million in 2002 and 2001, respectively. Book value per share was $7.87
at December 31, 2003, $5.79 at December 31, 2002 and $4.05 at December 31, 2001.

Following are the capital ratios as of December 31, 2003 for our banking
subsidiary, First National Bank of Florida:

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information relating to Item 7A is provided in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," filed
herewith.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is provided in Exhibit 99.1 filed
herewith and is incorporated herein by reference.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of the Corporation's management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
design and operation of the Corporation's disclosure controls and procedures.
Based on that evaluation, our management, including our CEO and CFO, concluded
that our disclosure controls and procedures were effective as of December 31,
2003.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is provided under the captions
"Executive Officers," "Proposals to be Voted On -- Election of Directors,"
"Corporate Governance Matters," and "Ownership of Common Stock -- Section 16(a)
Beneficial Ownership Reporting Compliance," in our definitive proxy statement
filed with the SEC in connection with our annual meeting of shareholders to be
held April 19, 2004 and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is provided under the caption
"Executive Compensation" in our definitive proxy statement filed with the SEC in
connection with our annual meeting of shareholders to be held April 19, 2004 and
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is provided under the captions
"Ownership of Common Stock" and "Equity Compensation Plan Information" in our
definitive proxy statement filed with the SEC in connection with our annual
meeting of shareholders to be held April 19, 2004 and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is provided under the caption
"Related Party Transactions" in our definitive proxy statement filed with the
SEC in connection with our annual meeting of shareholders to be held April 19,
2004 and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is provided under the caption
"Principal Accountant Fees And Services" in our definitive proxy statement filed
with the SEC in connection with our annual meeting of shareholders to be held
April 19, 2004 and is incorporated herein by reference.

PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and report of independent
auditors are filed herewith as Exhibit 99.1:

Management's Report on Internal Control Over Financial
Reporting................................................. F-1
Consolidated Balance Sheets................................. F-3
Consolidated Income Statements.............................. F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Auditors.............................. F-2
Quarterly Earnings Summary.................................. F-34

(A) 2. FINANCIAL STATEMENT SCHEDULES

Not applicable.

(A) 3. EXHIBITS

The exhibits filed or incorporated by reference as a part of this report
are listed in the Index to Exhibits which appears immediately following the
signature pages of this Form 10-K and is incorporated herein by reference.

(B) REPORTS ON FORM 8-K

On December 24, 2003, we filed a report on Form 8-K announcing all
regulatory approvals for the spin-off had been obtained and confirmed the record
date and distribution date for the spin-off.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 12th day of
March, 2004.

FIRST NATIONAL BANKSHARES OF FLORIDA,
INC.

By: /s/ GARY L. TICE
------------------------------------
Gary L. Tice,
Chairman and Chief Executive Officer
(principal executive officer)

By: /s/ ROBERT T. REICHERT
------------------------------------
Robert T. Reichert,
Senior Vice President, Chief
Financial
Officer and Treasurer
(principal financial and accounting
officer)

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
registrant and in the capacities and on the dates indicated.

/s/ GARY L. TICE Chairman, Chief Executive March 12, 2004
- -------------------------------------- Officer and Director
Gary L. Tice

/s/ G. SCOTT BATON Director February 19, 2004
- --------------------------------------
G. Scott Baton

/s/ ALAN C. BOMSTEIN Director February 22, 2004
- --------------------------------------
Alan C. Bomstein

/s/ CHARLES T. CRICKS Director February 26, 2004
- --------------------------------------
Charles T. Cricks

/s/ JAMES S. LINDSAY Director February 26, 2004
- --------------------------------------
James S. Lindsay

/s/ EDWARD J. MACE Director February 26, 2004
- --------------------------------------
Edward J. Mace

/s/ LEE ROY SELMON Director February 22, 2004
- --------------------------------------
Lee Roy Selmon

/s/ DAVID A. STRAZ, JR. Director March 5, 2004
- --------------------------------------
David A. Straz, Jr.

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INDEX TO EXHIBITS

The following exhibits are filed or incorporated by reference as part of
this report:

Copies of any exhibits will be furnished to shareholders upon request and
payment of a fee of ten cents per page covering our costs. Requests should be
directed to Shareholder Services, P.O. Box 11929, Naples, Florida 34108.

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