FIRST NATIONAL BANCSHARES INC/ FL/ - 10-K Annual Report

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Filed with Securities and Exchange Commission on March 28, 2003

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, 2002

FIRST NATIONAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


State of Florida		06-1522028

(Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

5817 Manatee Avenue West, Bradenton, Florida 34209

(Address of principal office including Zip Code)

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

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


		Name of each exchange
Title of each Class		on which registered

Common		None

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

Common Stock, $.10 par value

(Title of Class)

The number of shares of Common Stock in the Company outstanding on February 28, 2003 was 1,892,993.

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, 2002, was $30,039,712.


DOCUMENTS INCORPORATED BY REFERENCE		Part of Form 10-K into
in this Form 10-K		which incorporated

Portions of the Company’s definitive Proxy Statement
for its Annual Meeting of Shareholders to be held May 15, 2003		Part III

PART I

ITEM 1. BUSINESS

A. General Development of Business

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

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

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

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

B. Financial Information About Segments

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 2002, the trust department had over $74,162,000 in assets under management. The department showed a profit in 1996, its first full year of operation, and has been profitable in each subsequent year.

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

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 intends to open a Loan Production Office in downtown Sarasota in an effort to increase loan volume.

(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 21 deposit taking/lending institutions operating in Manatee County. The Bank currently ranks 7^th in the market with 4.7% market share. Bank of America, NA ranks first, with a market share of 30.2%. No other deposit taking/lending institution in Manatee County possesses a market share over 9%. 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), American Bank, and Provident Bank have branches within one block of the Bank’s principal office. The Bank’s island office is located on a highly visible corner on Anna Maria Island. There are two commercial banks located on the island. The Braden River Branch on highway 64 is 1/2 mile east of a Bank of America branch. The Highway 70 branch is about 1/2 mile east of Bank of America. The Bank’s Ellenton branch is east of a Southtrust branch and an American Bank branch.

(5) Loan Commitments

At December 31, 2002 and 2001, the Bank had commitments to originate and disperse on loans of approximately $19,758,000 and $17,417,000 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, 2002 will be exercised within the current year. In addition, at December 31, 2002 and 2001, the Bank had in place letters of credit of approximately $1,337,000 and $301,000, respectively. The Bank does not expect that any of the standby letters of credit in place at December 31, 2002 will be exercised within the current year. The Bank had no commitments to purchase loans at December 31, 2002 and 2001.

(6) Financial History

The Bank first opened to the public on July 18, 1986. As of December 31, 2002, the Company had total assets of $222,161,000 compared with total assets of $212,470,000 at December 31, 2001 and $197,043,000 of total assets at December 31, 2000. At year-end 2002, the Company had total deposits $180,511,000, compared with Bank deposits of $175,848,000 at year end 2001 and $170,271,000 of total deposits at year end 2000. In addition, the Company had loans of $158,530,000 at the end of 2002, compared with $145,944,000 of loans in the Bank at the end of 2001 and $137,365,000 of loans at the end of 2000. 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, 2002, the Company had no direct employees. The Bank employed 75 employees, of which nine were executive officers, and eight were part-time employees. The Company’s employees are not represented by a collective bargaining group, and the Company considers its relations with its employees to be excellent. The Company provides employee benefits customary in the banking industry, which include major medical insurance, group term life insurance, a defined benefit pension plan, a 401-K plan, and vacation and sick leave.

ITEM 2. PROPERTIES

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

The Bank was party to a lease agreement (the “Lease”) with an unrelated Florida general partnership (the “Lessor”), for the lease of the Building and land on which the Building is situated. In January of 2002, the bank purchased the branch property and as a result, lowered its costs by $60,000 annually, including cost of funds expense. In addition, the bank leased the adjacent parking for $25,600 per year with an option to purchase. This provided immediate relief to the Bank’s parking problems and allows room for the future expansion of the existing branch building.

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 its other 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 of the landlord and the CPI increases that are incorporated into long term leases.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

No matter was submitted for approval by the Bank’s shareholders during the fourth quarter of the fiscal year ended December 31, 2002.

PART II

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

As a result of the merger of the Bank into the First National Bancshares, Inc. on January 1, 1999 the then shareholders of the Bank now own 2 shares of Company stock for each share of Bank stock previously held. Upon the merger, all Bank Common Stock was held by the Company and all previous shareholders of the Bank became shareholders in the Company. Effective October 1, 2002, the Company stock began trading on the NASDAQ small Cap Market. The following table shows the high and low prices for each quarter of 2001 and 2002 after adjusting for the 5% stock dividends in each year.


	1st Quarter				2nd Quarter				3rd Quarter				4th Quarter				Year

	Low		High		Low		High		Low		High		Low		High		Low		High

2001		12.70		14.29		13.15		14.29		13.00		17.00		12.15		15.00		12.70		17.00
2002		13.33		15.33		15.238		18.095		16.25		19.50		18.29		21.00		13.33		21.00

As of February 28, 2003, there were 761 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 2002. 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 dividends to the Company is included in note to the audited financial statements attached hereto.

Equity Compensation Plan Information

Number of securities

remaining available for

future issuance under

Number of securities to

Weighted-average

equity compensation

be issued upon exercise

exercise price of

plans (excluding

of outstanding options,

outstanding options,

securities reflected in

Plan Category

warrants and rights

column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

164,210

11.87

191,450

Equity compensation plans not approved by security holders

Total

164,210

11.87

191,450

Item 6. SELECTED FINANCIAL DATA

SELECTED INCOME DATA
Years Ended December 31,
(000’s except per share & dividend data)


	2002			2001			2000			1999			1998**

Interest income	$	13,026		$	14,164		$	13,812		$	11,743		$	10,737
Interest expense		3,795			6,699			7,334			5,687			5,659
Net interest income		9,231			7,465			6,477			6,056			5,078
Provision for loan losses		321			250			152			227			154
Net interest income after provision for loan losses		8,910			7,215			6,325			5,829			4,924
Other non-interest income		1,645			1,847			1,342			1,293			976
Other non-interest expenses		6,672			6,209			5,522			5,084			4,572
Income before income taxes		3,883			2,852			2,146			2,036			1,328
Provision for income taxes		1,349			975			666			635			459
Net income (loss)		2,534			1,877			1,480			1,402			869
Earnings per share *		1.38			1.02			.81			.77			.49
Cash dividends declared		N/A			N/A			N/A			N/A			N/A
Stock dividends declared		5	%		5	%		5	%		5	%		5	%

SELECTED BALANCE SHEET DATA
YEAR ENDED DECEMBER 31
(000’s except per share & outstanding share data)


	2002		2001		2000		1999		1998

Total assets	$	222,161	$	212,471	$	197,043	$	175,802	$	158,218
Average total assets		214,652		203,218		185,789		167,575		149,129
Net investment securities		41,781		37,903		41,061		40,849		41,397
Net loans		156,590		144,302		135,932		120,708		99,279
Total deposits		180,512		175,849		170,271		152,184		136,887
Repurchase agreements & other borrowed money		20,311		17,966		9,918		9,032		7,083
Capital lease obligation		-0-		414		462		505		543
Total stockholders’ equity		19,996		17,047		14,635		12,575		12,011
Book value per share *		10.83		9.29		8.01		6.89		6.61
Average total equity		18,571		16,022		14,293		12,180		11,540
Average common shares Outstanding *		1,839,900		1,831,686		1,826,751		1,826,852		1,811,899

* Retroactively adjusted for 5% stock dividends paid in 1998 thru 2002 and a two for one stock split in 1999.

** Restated to reflect the consolidation of the Bank and the Company subsequent to the 1998 year-end.

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

DECEMBER 31


			2002								2001								2000

			AVERAGE					YIELD/			AVERAGE					YIELD/			AVERAGE					YIELD/
			BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE

ASSETS
Interest-earning assets:
		Loans*	$	154,238		$	10,987		7.12	%	$	140,931		$	11,681		8.23	%	$	132,614		$	11,421		8.61	%
	Taxable investment securities		$	31,102		$	1,550		4.98	%	$	30,505		$	1,731		5.69	%	$	31,922		$	1,851		5.80	%
	Tax-exempt investment securities		$	8,627		$	387		4.49	%	$	8,864		$	376		4.24	%	$	8,732		$	369		4.23	%
	Federal funds sold & interest bearing bank balances		$	6,612		$	102		1.54	%	$	9,899		$	376		3.80	%	$	2,819		$	171		6.07	%

Total interest-earning assets			$	200,579		$	13,026		6.49	%	$	190,199		$	14,164		7.41	%	$	176,087		$	13,812		7.84	%
Non-interest-earning assets:
Cash and due from banks			$	5,813							$	4,973							$	4,389
Premises and equipment (net)			$	8,101							$	6,214							$	4,842
Other assets			$	1,989							$	3,007							$	3,257
Less allowance for loan losses, deferred fees & securities market valuation			$	(1,830	)						$	(1,175	)						$	(2,786	)

TOTAL			$	214,652							$	203,218							$	185,789

DECEMBER 31


		2002							2001							2000

		AVERAGE				YIELD/			AVERAGE				YIELD/			AVERAGE				YIELD/
		BALANCE		INTEREST		RATE			BALANCE		INTEREST		RATE			BALANCE		INTEREST		RATE

LIABILITIES AND STOCKHOLDERS’ EQUITY
	Interest-bearing liabilities:
Demand deposits		$	29,505	$	135		0.46	%	$	23,300	$	261		1.12	%	$	19,764	$	238		1.20	%
Savings deposits		$	15,570	$	181		1.16	%	$	12,516	$	285		2.28	%	$	14,654	$	499		3.41	%
Time deposits		$	102,909	$	29166		2.83	%	$	113,551	$	5,510		4.85	%	$	104,336	$	5,927		5.68	%
Federal funds purchased & other borrowed money		$	6,340	$	310		4.89	%	$	5,000	$	302		6.04	%	$	5,464	$	332		6.08	%
Repurchase agreements		$	17,131	$	252		1.47	%	$	8,342	$	288		3.45	%	$	4,629	$	280		6.05	%
Other		$	6	$	1		16.67	%	$	436	$	53		12.13	%	$	482	$	58		12.03	%

Total interest-bearing Liabilities		$	171,461	$	3,795		2.21	%	$	163,145	$	6,699		4.11	%	$	149,329	$	7,334		4.91	%
Non-interest-bearing liabilities:
Demand deposits		$	22,994						$	22,258						$	21,294
Other		$	1,446						$	1,928						$	1,884

Total Liabilities		$	195,901						$	187,331						$	172,507
Shareholders’ equity		$	18,751						$	15,887						$	13,282

Total		$	214,652						$	203,218						$	185,789
Net interest on earnings				$	9,231						$	7,465						$	6,478
Net yield on interest earning assets							4.28	%						3.92	%						3.68	%

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

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.


	2002 Compared to 2001									2001 Compared to 2000

	Increase (Decrease) Due to *									Increase (Decrease) Due to *

	Volume			Rate			Net			Volume			Rate			Net

	(THOUSANDS OF DOLLARS)
Interest earned on:
Loans (domestic)	$	1,095		($	1,789	)	($	694	)	$	716		($	456	)	$	260
Taxable investment securities		34			(215	)		(181	)		(82	)		(38	)		(120	)
Tax-exempt investment securities		(10	)		21			11			6			1			7
Federal funds sold & interest bearing balances		(125	)		(149	)		(274	)		429			(224	)		205

Total interest earning assets	$	994		$	(2132	)	$	(1,138	)	$	1,069		($	717	)	$	352
Interest paid on:
Demand deposits	$	69		($	195	)	($	126	)	$	43		($	20	)	$	23
Savings deposits		70			(174	)		(104	)		(73	)		(141	)		(214	)
Time deposits		(516	)		(2,078	)		(2,594	)		523			(940	)		(417	)
Federal funds purchased		81			(73	)		8			(28	)		(2	)		(30	)
Repurchase Agreements		303			(339	)		(36	)		225			(217	)		8
Other		52			-0-			(52	)		(6	)		1			(5	)

Total interest bearing liabilities	$	211		($	3,116	)	($	2,904	)	$	684		($	1,319	)	($	635	)

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

Investment Portfolio

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


	December 31
	2002		2001		2000

	(thousands of dollars)
U.S. Treasury and other U.S Government agencies	$	31,437	$	27,843	$	31,108
States and political subdivisions	$	9,285	$	9,136	$	9,074
Other	$	1,059	$	923	$	879

TOTAL	$	41,781	$	37,902	$	41,061

The following table sets forth the maturities of investment securities at par value on December 31, 2002 and the weighted average yields of such securities calculated on the basis of the cost and effective yields weighted for the projected life of each security. Tax equivalent adjustments have not been made in calculating yields on obligations of state and political subdivisions. Mortgage backed securities are categorized by average life. Callable bonds are categorized by their projected call date under current market conditions.

Maturing
(thousands of dollars)


		Within					After One But					After Five But					After
		One Year					Within Five Years					Within Ten Years					Ten Years				Total

		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield		Amount		Yield
U.S. Treasury & Government Agencies
	Fixed rate	$	5,500		4.63	%	$	0		N/A		$	00		N/A		$	00		N/A	$	5,500		4.63	%
	Floating Rate	$	00		N/A		$	00		N/A		$	00		N/A		$	00		N/A	$	00		N/A
U.S. government agencies, MBS’s and CMO’s
	Fixed rate	$	6,061		4.25	%	$	10,499		4.54	%	$	00		N/A		$	00		N/A	$	16,560		4.44	%
	Floating rate	$	61		2.67	%	$	528		3.26	%	$	00		N/A		$	00		N/A	$	589		3.20	%
States and political subdivisions		$	1,605		4.72	%	$	5,020		4.21	%	$	2,250		4.30	%	$	00		N/A	$	8,875		4.25	%
Other		$	00		N/A		$	2,000		7.58	%	$	00		N/A		$	00		N/A	$	2,000		7.58	%

TOTAL		$	13,227		4.46	%	$	18,047		4.75	%	$	2,250		4.30	%	$	00		M/A	$	33,524		4.60	%

Loan Portfolio

The following table shows the maturity of fixed rate loans outstanding as of December 31, 2002. Also provided are the amounts with maturities beyond one year classified according to the sensitivity changes in interest rates. These numbers exclude loans on non-accrual.

Maturing or Repricing Opportunities


		Within		After One But		After
		One Year		Within Five Years		Five Years		Total

Loans with:
	1-4 Family 1st Mortgages	$	16,811	$	32,512	$	303	$	49,626
	All Other Loans	$	34,844	$	68,352	$	4,096	$	107,292

Total		$	51,655	$	100,864	$	4,399	$	156,918

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)
		2002		2001

Non-accrual loans:		$	1,611	$	0
Accruing loans past due 90 days or more:		$	0	$	0
Restructured loans:		$	0	$	0

	Total	$	1,611	$	0
Interest Income not collected that would have been collected under original terms:		$	14	$	0
Commitments to lend additional funds:		$	0	$	0

Potential Problem Loans

At December 31, 2002 the Bank had no loans for which payments presently are current but the borrowers are experiencing or have recently experienced financial difficulties

Foreign Outstandings - None.

Certain International Developments - None.

Loan Concentrations - Loan concentrations are considered to exist when there are amounts lent to a multiple number of borrowers engaged in similar activities that exceed 10% of total loans and would cause them to be similarly impacted by economic or other conditions. 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, 2002 and 2001.


			Year Ended December 31
			2002			2001

			(thousands of dollars)
Loan Loss Reserve
		Balance at January 1	$	1,551		$	1,373
Charge-offs:
		Commercial and other loans		0			0
		Real estate		0			10
		Installment/consumer		182			73

	Total Charge-offs		$	182		$	83
	Recoveries:
		Commercial and other loans	$	0		$	11
		Real estate		0			0
		Installment/consumer		14			0

	Total Recoveries		$	14		$	11
Net charge-offs (recoveries)				168			72
Additions charged to operations *				321			250

Loan Loss Reserve
		Balance at December 31	$	1,704		$	1,551
Ratio of net charge-offs to average loans outstanding:				0.11	%		0.05	%

*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:


		Year Ended December 31
		2002					2001

		Amount		Rate			Amount		Rate

		(thousands of dollars)
Domestic bank offices:
Non-interest-bearing demand deposits		$	22,994		0	%	$	22,258		0	%
Interest-bearing demand Deposits		$	29,505		0.46	%	$	23,300		1.12	%
Savings deposits			15,570		1.16	%		12,516		2.28	%
Time deposits			102,909		2.83	%		113,551		4.88	%

	Total	$	170,978		1.89	%	$	171,625		3.55	%

Return on Average Equity and Average Assets

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


	Year Ended December 31
	2002			2001			2000

Return on average assets		1.18	%		.92	%		.80	%
Return on average equity		13.51	%		11.71	%		11.15	%
Dividend pay out ratio		0.00	%		0.00	%		0.00	%
Average equity to average assets ratio		8.74	%		7.88	%		7.15	%

Short-Term Borrowings

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


		Over Night Funds
		Purchased &
		Securities Sold Under						Other
		Agreements to			Commercial			Short-Term
		Repurchase*			Paper			Borrowings

		(thousands of dollars)
Balance at December 31:
	2002	$	15,811		$	0		$	4,500
	2001	$	12,966		$	0		$	5,000
	1000	$	4,918		$	0		$	0
Weighted average interest rate at year-end:
	2002		1.07	%		0.00	%		4.19	%
	2001		1.85	%		0.00	%		5.93	%
	2000		5.88	%		0.00	%		0.00	%
Maximum amount outstanding at any month’s end:
	2002	$	21,295		$	0		$	13,750
	2001	$	12,966		$	0		$	5,000
	2000	$	6,883		$	0		$	0
Average amount outstanding during the year:
	2002	$	17,117		$	0		$	6,334
	2001	$	8,342		$	0		$	5,000
	2000	$	5,093		$	0		$	0
Weighted average interest rate during the year:
	2002		1.47	%		0.00	%		4.89	%
	2001		3.45	%		0.00	%		5.93	%
	2000		6.20	%		0.00	%		0.00	%

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

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

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

Financial Condition

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

Sources and Uses of Funds Trends


			2002								2001								2000

			Average		Amount			%			Average		Amount			%			Average
			Balance		Change			Change			Balance		Change			Change			Balance

			(thousands of dollars)
Funding uses:
	Loans		$	154,238	$	13,307			9.44	%	$	140,931	$	8,273			6.2	%	$	132,614
	Taxable investment securities			31,102		597			1.96	%		30,505		(1,417	)		(4.4	%)		31,922
	Tax-exempt investment securities			8,627		(237	)		(2.67	%)		8,864		132			1.5	%		8,732
	Federal funds sold & Interest bearing bank balances			6,612		(3,287	)		(33.21	%)		9,899		7,080			251.1	%		2,819

		Total uses	$	200,579	$	10,380			5.46	%	$	190,199	$	14,112			8.0	%	$	176,087
Funding sources:
	Demand deposits:
		Non-interest-bearing	$	22,994	$	736			3.31	%	$	22,258	$	964			4.5	%	$	21,294
		Interest-bearing		29,505		6,205			26.63	%		23,300		3,536			17.9	%		19,764
	Savings Deposits			15,570		3,045			24.40	%		12,516		(2,138	)		(14.6	%)		14,654
	Time deposits			102,909		(10,642	)		(9.37	%)		113,551		9,215			8.8	%		104,336
	Federal funds purchased and other borrowings			6,346		910			16.74	%		5,436		(28	)		(.5	%)		5,464
	Repurchase agreements			17,131		8,789			105.36	%		8,342		3,713			80.2	%		4,629
	Other			6,124		1,328			27.69	%		4,796		(1,150	)		(19.3	%)		5,946

Total sources			$	200,579	$	10,380			5.46	%	$	190,199	$	14,112			8.0	%	$	176,087

The Bank uses its funds primarily to support its lending activities. Average loans increased by $13,307,000 or 9.44% in 2002 after increasing by $8,273,000 or 6.2% in 2001. 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 $597,000 or 1.96% in 2002 and are used to provide liquidity for the Bank, while tax-exempt bond investments decreased by $237,000 or 2.67% and provide enhanced yield due to their special income tax treatment.

The Bank’s increase in earning assets from 2001 to 2002 was funded mainly by increased repurchase agreements. The Bank sought to grow its loan portfolio in 2001, and to fund this growth, it sought deposits in the local market place. Although deposit growth was from all types of deposits, the Bank showed the greatest absolute growth in money market accounts.

Liquidity and Interest Rate Sensitivity Management

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

Marketable investment securities, particularly those of shorter maturities, are a principal source of asset liquidity. Securities maturing or expected to be called within one year or less amounted to $13,227,000 at December 31, 2002 representing 39% of the investment securities portfolio, an increase from the 2001 amount of $3,200,000. This is due to the Bank making an effort to shorten its average bond maturity while rates are low. Shortening the maturity of the portfolio will have the effect of not locking in investment rates while rates are low.

The Bank moderates its liquidity needs by maintaining short term borrowing lines with several regional banks. At year-end, the Bank had lines of credit established with other banking institutions totaling $36,375,000.

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, 2002, are summarized as follows:


	Time Deposits

	(thousands of dollars)
3 months or less	$	4,651
Over 3 through 12 months		10,040
Over 12 through 36 months		6,581
Over 36 months		984

Total	$	22,256

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, 2002. For the first year, interest-sensitive assets exceed liabilities by $26,319,000. Over the following two years, liabilities re-price faster than assets. The excess of interest-bearing liabilities over interest-earning assets for the one-to-three year period is primarily related to the longer maturities of CD’s and NOW and MMA accounts that are regarded as much less rate sensitive.


	As of December 31
	(thousands of dollars)
	0-90		91-365		1-3			Over 3
	Days		Days		Years			Years

Interest-sensitive assets	$	57,902	$	55,888	$	60,344		$	30,335
Interest-sensitive liabilities		41,564		45,907		85,529			3,565

Interest sensitivity gap		16,338		9,981		(25,185	)		26,770
Cumulative gap	$	16,338	$	26,319	$	1,134		$	27,904

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 13.47% and 8.81% 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


	2002			2001

	(thousands of dollars)
Tier 1 Capital	$	19,395		$	16,720
Tier 2 Capital	$	1,704		$	1,551

Total Qualifying Capital	$	21,099		$	18,271
Risk Adjusted Total Assets (including off-balance exposures)	$	156,636		$	146,422
Tier 1 Risk-Based Capital Ratio		12.38	%		11.4	%
Total Risk-Based Capital Ratio		13.47	%		12.5	%
Leverage Ratio		8.81	%		7.9	%

At December 31, 2002, there were commitments for expenditures that would impact the capital of the Bank or the Company.

Relationship Between Significant Financial Ratios

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


	2002			2001			2000

Return on average equity		13.51	%		11.7	%		11.1	%
Earnings retained		100	%		100	%		100	%
Internal capital growth		13.51	%		11.7	%		11.1	%

From a level of 8.0% in 1998, the rate of internal capital growth has increased to 11.1% in 2000, 11.7% in 2001 and 13.51% in 2002. 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 2002 was $2,534,000, an increase of 35% over 2001 earnings of $1,877,000 and also up 71% from 2000 earnings of $1,480,000. On a per share basis, net income for the similar periods were $1.38, $1.02 and $.81 after retroactively adjusting for annual 5% stock dividends and the two for one split in 1999.

Income improved significantly from 2000 to 2002, despite the growth in overhead due to the opening of a branch and an investment sales subsidiary of the Bank and expansion of the Trust Department. However, 2000 income was impacted by falling interest rates and narrowing margins throughout the banking industry, particularly in the fourth quarter. These narrowed margins continued into the first quarter of 2001 but began to recover as the year progressed. Net interest income was up by $1,761,664 for 2002 over 2001. These increased revenues were offset by increased overhead of $463,000 due to increased staffing to support growth.

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, 2002, approximately 59% 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 13.51% in 2002, up from 11.7% in 2001, and up from 11.1% in 2000. This is the result of the Bank’s earnings growth. The Bank’s return on average assets (ROAA) increased from .80% in 2000 and .92% in 2001 to 1.18% in 2002. 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 have been regained in 2001 and 2002.

LOANS

Loan Portfolio

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


			December 31,
			2002		2001

			(Thousand of dollars)
Domestic Loans:
	Commercial and Other		$	10,500	$	11,748
	Real estate-construction			2,509		5,053
	Real estate - Residential			59,303		52,137
	Real estate - Other			80,454		71,025
	Installment/Consumer			4,153		5,981
	Non-accrual			1,611		-0-

		Total domestic loans	$	158,530	$	145,944

Real estate mortgage loans at year-end 2002 and 2001 comprised the greatest percentage of total loans. Commercial non-real estate and consumer loans were approximately 7% and 3% respectively at the year-end 2002. The growth in loans outstanding at year-end 2002 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, 2002					December 31, 2001

				Percent of					Percent of
				Loans in each					Loans in each
				category to					category to
		Amount		Total Loans			Amount		Total Loans

		(thousands of dollars)
Commercial, Commercial RE, Construction & Agricultural		$	241		63	%	$	388		60	%
Real estate-residential		$	106		32	%		95		36	%
Consumer		$	12		4	%		150		4	%
Special allocations		$	136		1	%		10		0	%
Unallocated		$	1,209		0	%		908		0	%

	Total	$	1,704		100	%	$	1,551		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 2002 the allowance for loan losses approximates 1.07% of loans, up slightly from 1.06% in 2001. 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 Assets
		December 31
		2002			2001

		(thousands of Dollars)
Commercial, Commercial RE, & Construction		$	1,611		$	0
Residential RE			0			0
Installment/Consumer			0			0

	Total non-performing loans	$	1,611		$	0
Other real estate owned		$	0		$	593
Other Assets		$	16		$	61
Debt Security		$	0			0

	Total non-performing assets	$	16		$	654
Non-performing loans to year-end loans			1	%		0	%
Non-performing assets to year-end loans and other real estate owned			0.1	%		45	%

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 2002 and 2001, there was $1,611,000 and $0 non-accrual loans respectively, and consequently there was $27,000 additional interest income that would have been recorded had the loans been accruing interest.

At December 31, 2002, the Bank had $894,000 of real estate secured criticized “watch” loans, which were not included in the 90 day past due or non-accrual categories, where the borrowers are currently experiencing or have recently experienced financial difficulties but are current on their payments. This is down from $1,465,000 at December 31, 2001.

At December 31, 2002, 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 35% in 2002 which is up from 34% in 2001. 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.

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

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


(i)		“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—Liquidity and Interest Rate Sensitivity Management.

(ii)		PART II – Item 6. – “Selected Financial Data” – Investment Portfolio

(iii)		PART II – Item 6. – “Selected Financial Data” – Loan Portfolio

(iv)		PART II – Item 14. — “Financial Statements of First National Bancshares, Inc.”

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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


		(thousands, except share amounts)
		2002								2001

		Fourth		Third		Second		First		Fourth		Third		Second		First
		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter

Interest Income		$	3,218	$	3,278	$	3,304	$	3,226	$	3,399	$	3,523	$	3,590	$	3,652
Interest Expense			890		967		951		986		1,299		1,628		1,782		1,992
Net Interest Income			2,328		2,311		2,353		2,240		2,100		1,895		1,808		1,660
Provision for Loan Losses			86		46		89		100		142		39		65		4
Earnings before Income Taxes			1,084		1,049		1,105		1,020		1,104		637		603		508
Net Earnings			653		655		661		602		702		423		402		350
Basic Earnings per Common Share			0.35		0.36		0.36		0.33		.39		.23		.22		.19
Diluted Earnings per Common Share			0.33		0.33		0.33		0.30		.36		.21		.20		.18
Cash Dividends per Common Share			0		0		0		0		0		0		0		0
Market Price Range¹
	High		18.29		16.25		15.238		13.33		15.00		17.00		14.29		14.29
	Low		21.00		19.50		18.095		15.33		12.15		13.00		13.15		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, 2001 and 2002.

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

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

A. Directors

The information required by Item 10 pertaining to directors of the Company is incorporated herein by reference to the sections entitled “Election of Directors” and “Committees of the Board of Directors and Certain Meetings” in the definitive proxy statement of the Company of the Bank for its 2003 Annual Meeting of Shareholders, pages three through five. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Bank’s fiscal year ended December 31, 2002 at the time it is mailed to the shareholders.

B. Executive Officers

With respect to Francis I. duPont, III, the Chairman of the Board and Chief Executive Officer of the Company, and Glen W. Fausset, President of the Company, who are also directors of the Company, the information required by Item 10 pertaining to the Company’s executive officers is incorporated herein by reference to the section entitled “Election of Directors” in the definitive proxy statement of the Company of the Bank for its 2003 Annual Meeting of Shareholders, pages three and four, which will be filed with the Securities and Exchange Commission within 120 days of the end of the Bank’s fiscal year ended December 31, 2002 at the time it is mailed to the shareholders.

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

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 pertaining to executive compensation is incorporated herein by reference to the sections entitled “Executive Compensation,” and “Compensation Pursuant to Plans” in the definitive proxy statement of the Company of the Bank for its 2003 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, 2002 at the time it is mailed to the shareholders.

Change of Control Agreements

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The information required by Item 12 pertaining to the security ownership of certain beneficial owners and management is incorporated herein by reference to the sections entitled “Election of Directors” and “Stock Ownership of Certain Beneficial Owners and Management” in the definitive proxy statement of the Company of the Bank for its 2003 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, 2002 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 2003 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, 2002 at the time it is mailed to the shareholders.

ITEM 14. 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.

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

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

EXHIBIT INDEX


Exhibit Number				Description of Document

2¹				Consolidation Agreement dated as of September 17, 1998, by and between First National Bank of Manatee and Manatee Interim Bank, National Association, joined in by First National Bancshares, Inc.

3.1²				Amended and Restated Articles of Incorporation of First National Bancshares, Inc.

3.2²				Bylaws of First National Bancshares, Inc.


10³				Company’s Incentive Stock Option Plan

11⁴				Statement regarding computation of per share earnings.

23				Consent of Christopher, Smith, Leonard, Bristow, Stanell, and Wells, P. A.

99.1				Certification Pursuant to 18 U.S.C. § 1350

99.2				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.

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 27, 2003	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 27, 2003

/s/ Glen W. Fausset Glen W. Fausset	President, Chief Financial Officer and Director	March 27, 2003

/s/ Robert C. Matejcek Robert C. Matejcek	Treasurer	March 27, 2003

/s/ Beverly Beall Beverly Beall	Director	March 27, 2003

/s/ Robert G. Blalock Robert G. Blalock	Director	March 27, 2003

/s/ Allen J. Butler Allen J. Butler	Director	March 27, 2003

/s/ Rosemary R. Carlson Rosemary R. Carlson	Director	March 27, 2003

/s/ Sarah Pappas, Ph. D. Sara Pappas, Ph. D	Director	March 27, 2003


/s/ Wm. J. Thompson, D.D.S	Director	March 27, 2003

/s/ Raymond A. Weigel, III Raymond A. Weigel, III	Director	March 27, 2003

/s/ Irv Zamikoff, D.D.S. Irv Zamikoff, D.D.S.	Director	March 27, 2003

/s/ Dan C. Zoller Dan C. Zoller	Director	March 27, 2003

CERTIFICATIONS*

I, Francis I. duPont, III, certify that:

1. I have reviewed this annual report on Form 10-K of First National Bancshares, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: March 27, 2002				/s/ Francis I. duPont, III Title: Chief Executive Officer

CERTIFICATIONS*

I, Glen W. Fausset, certify that:


Date: March 27, 2002				/s/ Glen W. Fausset Title: Chief Financial Officer

FIRST NATIONAL BANCSHARES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

(INCLUDING WHOLLY OWNED SUBSIDIARY

1ST NATIONAL BANK AND TRUST)

FIRST NATIONAL BANCSHARES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS


		PAGE

INDEPENDENT AUDITORS’ REPORT			1
CONSOLIDATED FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS		2
	CONSOLIDATED STATEMENTS OF INCOME		3
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		4
	CONSOLIDATED STATEMENTS OF CASH FLOWS		5
NOTES 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, 2002 and 2001, and the related consolidated statements of income, stockholders’ equity, and cash flows for the years ended December 31, 2002, 2001, and 2000. 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, 2002 and 2001, and the results of their operations and cash flows for the years ended December 31, 2002, 2001, and 2000, in conformity with accounting principles generally accepted in the United States of America.


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

January 17, 2003

- 1 -

FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,

ASSETS


			2002			2001

Cash and due from banks			$	7,995,306		$	8,094,062
Interest bearing deposits				5,453,621			12,873,175

	Cash and cash equivalents			13,448,927			20,967,237

Investment securities:
	Available-for-sale			41,780,691			37,902,596
		(Market value of $41,780,691 and $37,902,596, respectively)
Loans				158,529,706			145,944,330
	Less allowance for loan losses			(1,704,433	)		(1,550,827	)
	Less deferred loan fees			(235,029	)		(91,054	)

				156,590,244			144,302,449

Bank premises and equipment, net				8,038,788			5,872,472
Accrued interest receivable				974,941			1,010,101
Deferred income taxes				-0-			90,950
Other real estate owned				-0-			593,154
Other assets				1,327,359			1,731,590

				10,341,088			9,298,267

	TOTAL ASSETS		$	222,160,950		$	212,470,549

LIABILITIES AND STOCKHOLDERS’ EQUITY


			2002		2001

Liabilities:
	Deposits:
		Non-interest bearing deposits	$	23,958,304	$	25,385,544
		Interest bearing demand and NOW deposits		31,735,282		27,656,637
		Money market deposits		40,688,494		46,447,696
		Savings deposits		16,511,613		13,688,909
		Time deposits		67,617,878		62,670,052

				180,511,571		175,848,838
	Accrued interest payable			722,137		867,296
	Accrued expenses and other liabilities			385,839		327,349
	Deferred tax liability			234,100		-0-
	Capital lease obligation			-0-		414,178
	Securities sold under agreements to repurchase			15,811,025		12,965,512
	Federal funds purchased and other borrowed funds			4,500,000		5,000,000

				21,653,101		19,574,335

		Total liabilities		202,164,672		195,423,173

	Stockholders’ equity:
		Common stock, .10 par value, 2,500,000 shares authorized: 1,846,721 and 1,748,779 shares issued and outstanding		184,672		174,878
	Capital in excess of par value			13,888,297		12,218,906
	Retained earnings			5,322,245		4,387,976

	Accumulated other comprehensive income			601,064		265,616

		Total stockholders’ equity		19,996,278		17,047,376

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	222,160,950	$	212,470,549

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,


			2002			2001			2000

Interest income:
	Interest and fees on loans		$	10,986,577		$	11,680,719		$	11,420,651

	Interest on investment securities:
		U.S. Treasury and Government agencies		1,494,945			1,653,617			1,770,783
		State and political subdivisions - - tax-exempt		387,064			395,360			387,948
		Other		156,955			434,348			232,250

				2,038,964			2,483,325			2,390,981

		Total interest income		13,025,541			14,164,044			13,811,632

Interest expense:
	Deposits			2,517,740			4,893,726			5,349,422
	Time deposits of $100,000 or more			714,818			1,162,551			1,314,866
	Short-term borrowings			562,404			589,682			611,816
	Capital lease obligation			755			52,891			58,316
		Total interest expense		3,795,717			6,698,850			7,334,420

		Net interest income		9,229,824			7,465,194			6,477,212

Provision for loan and debit card losses				321,000			250,226			151,890

Net interest income after provision for loan losses				8,908,824			7,214,968			6,325,322
Other income:
	Service charges on deposit accounts			502,344			484,997			406,022
	Investment securities gains (losses), net			-0-			(51,519	)		-0-
	Other real estate owned income (loss)			(2,230	)		-0-			-0-
	Trust fee income			556,319			575,267			525,640
	Securities investment income			212,845			220,757			177,837
	Other			377,842			286,922			233,023
	Gain (loss) on sale of assets			(1,725	)		330,300			-0-

		Total other income		1,645,395			1,846,724			1,342,522


			2002		2001		2000

Other expenses:
	Salaries and employee benefits		$	3,964,447	$	3,509,103	$	3,091,402
	Occupancy			598,419		682,259		581,570
	Legal, accounting and examination fees			229,095		231,304		200,615
	FDIC assessment			28,897		30,928		31,160
	Equipment			577,278		580,112		512,148
	Stationery, printing and postage			160,211		164,422		187,049
	Data processing			228,187		220,910		233,422
	Directors’ fees			127,573		125,973		120,822
	Advertising			44,090		29,828		34,240
	Other			713,697		634,414		529,118

		Total other expenses		6,671,894		6,209,253		5,521,546

Income before income taxes				3,882,325		2,852,439		2,146,298
Provision for income taxes				1,348,500		975,100		666,400

Net Income			$	2,533,825	$	1,877,339	$	1,479,898

Per share data:
	Basic EPS		$	1.38	$	1.02	$	0.81

Weighted average shares outstanding				1,839,900		1,831,686		1,826,751

	Diluted EPS		$	1.27	$	0.95	$	0.77

Adjusted weighted average				1,990,896		1,971,015		1,927,405

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, 2002, 2001, AND 2000


				COMMON STOCK				CAPITAL IN
								EXCESS OF
				SHARES		AMOUNT		PAR VALUE

Balance at December 31, 1999					1,577,869	$	157,787	$	9,670,361
			Net income		-0-		-0-		-0-
Change in valuation
		allowance, net of income taxes of $350,019			-0-		-0-		-0-

			*Total comprehensive income*		-0-		-0-		-0-
5% stock dividend					78,631		7,863		1,250,233
Exercise of stock options					440		44		3,956

Balance at December 31, 2000					1,656,940	$	165,694	$	10,924,550

			*Net income*		-0-		-0-		-0-
Change in valuation
		allowance, net of income taxes of $286,877			-0-		-0-		-0-

			*Total comprehensive income*		-0-		-0-		-0-
5% stock dividend					82,791		8,279		1,233,586
Exercise of stock options					9,048		905		60,770

Balance at December 31, 2001					1,748,779	$	174,878	$	12,218,906

Net income					-0-	$	-0-	$	-0-
Change in valuation
	allowance, net of income taxes of $201,679				-0-		-0-		-0-

			*Total comprehensive income*		-0-		-0-		-0-
5% stock dividend					87,336		8,733		1,586,022
Exercise of stock options					10,606		1,061		83,369

Balance at December 31, 2002					1,846,721	$	184,672	$	13,888,297


		ACCUMULATED OTHER
RETAINED		COMPREHENSIVE
EARNINGS		INCOME			TOTAL

$	3,540,006	$	(793,395	)	$	12,574,759
	1,479,898		-0-			1,479,898
	-0-		580,883			580,883

	1,479,898		580,883			2,060,781
	(1,262,647)		-0-			(4,551	)
	-0-		-0-			4,000

$	3,757,257	$	(212,512	)	$	14,634,989

	1,877,339		-0-			1,877,339
	-0-		478,128			478,128

	1,877,339		478,128			2,355,467
	(1,246,620)		-0-			(4,755	)
	-0-		-0-			61,675

$	4,387,976	$	265,616		$	17,047,376

$	2,533,825	$	-0-		$	2,533,825
	-0-		335,448			335,448

	2,533,825		335,448			2,869,273
	(1,599,556)		-0-			(4,801	)
	-0-		-0-			84,430

$	5,322,245	$	601,064		$	19,996,278

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

- 4 -

FIRST NATIONAL BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,


				2002			2001			2000

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	2,533,825		$	1,877,339		$	1,479,898
	Adjustments to reconcile net income to net cash from operating activities:
			Depreciation and leasehold amortization		547,053			539,226			454,928
			Net amortization of premiums and accretion of discounts on investment securities		171,132			74,105			49,114
			Amortization of deferred loan fees		143,975			31,528			13,529
			Allowance for loan losses		153,606			177,911			118,314
			Deferred income taxes		122,900			(109,800	)		(15,100	)
			Investment securities (gains) losses realized		-0-			51,519			-0-
			Loss (gain) on disposition of equipment		(1,725	)		-0-			-0-
			(Increase) decrease in accrued interest receivable		35,160			143,229			(189,714	)
			(Increase) decrease in other assets		404,230			(926,169	)		(191,246	)
			Increase (decrease) in accrued interest payable		(145,159	)		(663,210	)		479,814
			Increase (decrease) in accrued expenses and other liabilities		58,491			101,393			(217,033	)

Net cash provided by operating activities					4,023,488			1,297,071			1,982,504
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from sales and maturities of investment securities				8,824,381			13,301,270			1,500,000
	Purchase of investment securities, net				(12,291,341	)		(8,669,128	)		(807,160	)
	Loans originated, net of principal collections				(12,585,376	)		(8,579,575	)		(15,357,311	)
	Decrease (increase) other real estate owned				593,154			471,773			(1,064,927	)
	Purchase of bank premises and equipment				(3,111,540	)		(830,063	)		(1,759,193	)
	Proceeds from sale of fixed assets				11,870			525			-0-
	Recoveries on loans charged off				14,485			10,427			657

		Net cash provided by (used in) investing activities			(18,544,367	)		(4,294,771	)		(17,487,934	)


			2002			2001			2000

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net increase (decrease) in demand deposits and savings deposits			(285,093	)		19,999,626			15,982,385
	Net increase (decrease) in time deposits			4,947,826			(14,421,785	)		2,104,545
	Increase (decrease) in securities sold under agreements to repurchase			2,845,513			8,047,176			885,943
	Increase (decrease) in federal funds purchased and other borrowed funds			(500,000	)		-0-			-0-
	Cash in lieu of fractional shares for stock dividend			(4,801	)		(4,755	)		(4,551	)
	Principal payments under capital lease obligations			(876	)		(48,196	)		(42,771	)

		Net cash provided by financing activities		7,002,569			13,572,066			18,925,551

	Net increase (decrease) in cash and cash equivalents			(7,518,310	)		10,574,366			3,420,121
	Cash and cash equivalents at beginning of year			20,967,237			10,392,871			6,972,750

	Cash and cash equivalents at end of year		$	13,448,927		$	20,967,237		$	10,392,871

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
		Cash payments for interest	$	3,940,876		$	7,362,060		$	6,854,606

		Cash payments for income taxes	$	1,370,657		$	733,216		$	833,249

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

- 5 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of First National Bancshares, Inc. and its subsidiaries conform to generally accepted accounting principles and to general practice within the banking industry. Assets held in a fiduciary capacity by the trust and securities departments are not included in the financial statements. The following summarizes the more significant of these policies.

Nature of Operations – First National Bancshares, Inc. (Bancshares) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary 1st National Bank and Trust (the Bank). The Bank operates under a national bank charter and provides full banking services, including trust services. As a national bank, the Bank is subject to regulation of the office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The principal area served by 1st National Bank and Trust is Manatee County, Florida and services are provided at five offices.

Principles of Consolidation

The consolidated financial statements include the accounts of First National Bancshares, Inc. and its wholly owned subsidiary, 1st National Bank and Trust. All material intercompany transactions have been eliminated in consolidation.

Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Securities Held-To-Maturity and Available-For-Sale – The Bank follows Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, which requires the Bank to segregate its investment portfolio into trading, available-for-sale and held-to-maturity classifications. The Bank does not hold any equity securities. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Bank has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are stated at quoted market value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders’ equity. The Bank does not have a trading portfolio.

- 6 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. Realized gains and losses and declines in value judged to be other than temporary 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, 2002 and 2001, there were no impaired loans under SFAS No. 114.

Loan Origination Fee Income - Non-refundable fees and costs associated with originating or acquiring loans are recognized over the lives of the related loans as adjustments to interest income.

- 7 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Bank Premises and Equipment - Bank premises and equipment owned, leasehold improvements, and assets held under capital lease are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are determined primarily on the straight-line method over the estimated useful lives of the assets, which range from three to twelve years for office furniture and equipment and twenty to thirty years for the Bank’s building and leasehold improvements. Maintenance and repairs are charged to expense as incurred. Renewals and betterments, which materially increase the value of the property, are capitalized. When bank premises and equipment are sold, or otherwise disposed of, the cost and related depreciation or amortization are removed from the respective accounts and the respective gains and losses are included in earnings.

Other Real Estate Held for Resale - Other real estate includes foreclosed assets held for resale. After foreclosure, foreclosed assets are carried at the lower of fair value minus estimated costs to sell or cost. Cost at the time of foreclosure is the fair value of the asset foreclosed. If the fair value of the asset minus the estimated costs to sell the asset is less than the cost of the asset, the deficiency is recognized as a valuation allowance. Other real estate owned income (expense) consists of net carrying cost, legal fees, loss provisions and gains (losses) on sales of real estate. The Bank owned two items of other real estate at December 31, 2001 valued at $593,154.

Income Taxes - The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

Fair Value of Financial Instruments - The following methods and assumptions were used by the Bank in estimating the fair value disclosure for financial instruments:

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

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

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

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

- 8 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Fair Value of Financial Instruments - Continued

Deposits: Fair value for non-interest bearing demand, NOW, money market and savings deposits are based on carrying value. Fair value for time certificate deposits 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, 2002, the primary correspondent banks were Federal Home Loan Bank of Atlanta, Independent Bankers Bank of Florida, Bank of America, and SunTrust Bank of Georgia.

Earnings Per Share - Earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Basic EPS excludes all dilution. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if securities or options to issue common stock were exercised or converted into common stock. All differences between basic and diluted EPS were due to stock options.

Stock Options – 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,

		2002			2001			2000

Net income as reported		$	2,533,825		$	1,877,339		$	1,479,898

Deduct: Total stock-based employee compensation expense determined under fair value methods, net of related tax effects		$	(123,300	)	$	(118,600	)	$	(126,500	)

Pro forma net income		$	2,410,525		$	1,758,739		$	1,353,398

Earnings per share:
	Basic – as reported	$	1.38		$	1.02		$	0.81

	Basic – proforma	$	1.31		$	0.96		$	0.74

	Diluted – as reported	$	1.27		$	0.95		$	0.77

	Diluted – pro forma	$	1.21		$	0.89		$	0.70

- 9 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 2 - INVESTMENT SECURITIES

Investment securities at December 31, 2002 are summarized as follows:


				AVAILABLE-FOR-SALE

				GROSS		GROSS		APPROXIMATE
				AMORTIZED		UNREALIZED		UNREALIZED MARKET
		COST		GAINS		LOSSES		VALUE

	December 31, 2002
	U.S. Government agencies	$	7,506,749	$	243,076	$	-0-	$	7,749,825
	U.S. Government agencies - mortgage backed securities		23,335,868		350,800		-0-		23,686,668
	State and political subdivisions		8,915,750		369,367		-0-		9,285,117

Total Debt Securities			39,758,367		963,243		-0-		40,721,610
	Other		1,059,081		-0-		-0-		1,059,081

		$	40,817,448	$	963,243	$	-0-	$	41,780,691

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


				AVAILABLE-FOR-SALE

				GROSS		GROSS			APPROXIMATE
				AMORTIZED		UNREALIZED			UNREALIZED MARKET
		COST		GAINS		LOSSES			VALUE

	December 31, 2001
	U.S. Government agencies	$	5,513,731	$	214,578	$	-0-		$	5,728,309
	U.S. Government agencies – mortgage backed securities		21,855,588		292,585		(33,539	)		22,114,634
	State and political subdivisions		9,184,232		9,594		(57,553	)		9,136,273

Total Debt Securities			36,553,551		516,757		(91,092	)		36,979,216
	Other		923,380		-0-		-0-			923,380

		$	37,476,931	$	516,757	$	(91,092	)	$	37,902,596

- 10 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 2 - INVESTMENT SECURITIES - CONTINUED


		Cost		Proceeds		Gain (Loss)

2002
Available-for-sale:
	No gain or loss	$	1,260,000	$	1,260,000	$	-0-

2001
Available-for-sale:
	Gross gains on sale	$	2,344,747	$	2,353,228	$	8,481
	No gain or loss		2,750,000		2,750,000		-0-

			5,094,747		5,103,228		8,481
Held to maturity:
	Gross loss (securities sold)		1,000,000		940,000		(60,000	)

			1,000,000		940,000		(60,000	)

		$	6,094,747	$	6,043,228	$	(51,519	)

2000
Available-for-sale:
	No gain or loss	$	1,000,000		1,000,000		-0-

			1,000,000		1,000,000		-0-
Held to maturity:
	No gain or loss (securities called)		500,000		500,000		-0-

			500,000		500,000		-0-

		$	1,500,000	$	1,500,000	$	-0-

The amortized cost and approximate market value of debt securities at December 31, 2002, 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


		APPROXIMATE
		AMORTIZED		MARKET
		COST		VALUE

December 31, 2002 Available-for-Sale
	Due in one year or less	$	325,117	$	331,412
	Due after one year through five years		9,806,090		10,167,130
	Due after five years through ten years		5,996,654		6,222,853
	Due after ten years		294,638		313,547
	Mortgaged-backed securities		23,335,868		23,686,668
	Other		1,059,081		1,059,081

		$	40,817,448	$	41,780,691

Investment securities with aggregate book values of $31,684,969 and market values of approximately $32,514,758 at December 31, 2002, 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:


		2002			2001

		Carrying Value			Carrying Value

Commercial		$	10,500,325		$	11,748,446
Real estate - construction			2,508,489			5,053,179
Real estate - mortgage:
	Residential		59,303,140			52,137,075
	Commercial		80,453,776			71,025,086
Consumer/installment			4,095,620			5,934,889
Non-accrual			1,611,180			-0-
Other			57,176			45,655

			158,529,706			145,944,330
Allowance for loan losses			(1,704,433	)		(1,550,827	)
Deferred loan fees			(235,029	)		(91,054	)

Net loans		$	156,590,244		$	144,302,449

The fair value of loans at December 31, 2002 and 2001 approximates carrying value.

A summary of activity in loans owed to the Bank by its executive officers and directors during 2002 and 2001 is as follows:


	2002			2001

Balance, beginning of year	$	936,763		$	751,323
New loans		1,741,427			279,494
Payments		(1,022,443	)		(94,054	)

Balance, end of year	$	1,655,747		$	936,763

- 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:


	2002			2001			2000

Balance, beginning of year	$	1,550,827		$	1,372,916		$	1,253,945

Provision charged to income		321,000			250,226			151,890
Recoveries on loans previously charged-off		14,485			10,427			657

Total additions		335,485			260,653			152,547
Charge-offs		(181,879	)		(82,742	)		(33,576	)

Balance, end of year	$	1,704,433		$	1,550,827		$	1,372,916

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 $1,611,180, $-0-, and $-0- non-accrual loans at December 31, 2002, 2001, and 2000, respectively.

NOTE 4 - BANK PREMISES AND EQUIPMENT

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


	2002			2001

Land	$	2,622,561		$	1,672,560
Buildings		4,794,617			3,761,575
Leasehold improvements		54,528			165,895
Furniture, fixtures and equipment		3,334,284			3,241,000

		10,805,990			8,841,030
Less accumulated depreciation and amortization		(2,767,202	)		(2,968,558	)

	$	8,038,788		$	5,872,472

- 13 -

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:


	2002		2001

Three months or less	$	13,668,002	$	9,184,213
Over three through six months		11,153,714		17,501,329
Over six through twelve months		17,941,128		22,011,395
Over twelve months		24,855,034		13,973,115

	$	67,617,878	$	62,670,052

The aggregate amount of time certificate deposits of $100,000 or more at December 31, 2002 and 2001 was approximately $22,256,404 and $19,516,737, respectively.

The fair value of time certificate deposits at December 31, 2002 and 2001 approximated their carrying value.

The total amount of demand deposit overdrafts classified as loan balances at December 31, 2002, and 2001 was approximately $57,176 and $45,655, respectively.

At December 31, 2002 total executive officer and director deposits were approximately $578,634.

NOTE 6 - LEASES

In 2001, the Bank’s main branch building was leased with monthly payments of approximately $19,000. The lease had an initial term of twenty (20) years with four five-year renewal options. 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. At the beginning of 2002, the Bank closed on the purchase of the leased property. The Bank leases a second building under an operating lease with an initial term of five (5) years with three five-year renewal options. Lease payments are $3,657 per month.

Rental expense related to operating leases was approximately $50,900, $173,300, and $167,900, for the years ended December 31, 2002, 2001, and 2000, respectively.


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

The Bank enters into sales of securities under agreements to repurchase. Repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the balance sheets. The dollar amount of securities underlying the agreements remains in the asset accounts. The securities sold under repurchase agreements remain in the custody of a third-party trustee. The Bank may have sold, loaned, or otherwise disposed of such securities in the normal course of its operations and has agreed to maintain substantially identical securities during the agreements.

- 14 -

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, 2002 and 2001 is presented below, segregated by the type of securities sold (all agreements are due in less than 30 days):


		DECEMBER 31,

		2002			2001

Government Agencies:
	Carrying Value of Securities	$	17,030,079		$	13,448,121
	Market Value of Securities		17,581,583			13,721,985
	Repurchase Agreements with bank customers		15,811,025			12,965,512
	Interest Rate to customer		.75	%		1.125	%

At December 31, 2002, the Bank had borrowings of $4,500,000 at 4.19% from the Federal Home Loan Bank Board. Borrowings at December 31, 2002 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 15% of the Banks 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, 2002.

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, 2002, 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:


		2002		2001

Deferred tax assets:
	Book over tax bad debts	$	579,500	$	521,700
	Book over tax amortization		4,100		8,300
	Deferred loan fees		88,500		34,300
	Book over tax pension expense - nonqualified plan		-0-		3,000

		$	672,100	$	567,300

- 15 -

FIRST NATIONAL BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 8 – INCOME TAXES - CONTINUED


		2002			2001

Deferred tax liabilities:
	Book under tax depreciation	$	(58,321	)	$	(11,100	)
	Securities accretion		(2,000	)		(2,000	)
	Tax over book amortized expenses		-0-			(2,700	)
	Tax over book pension expense - qualified plan		(359,300	)		(176,100	)
	Deferred gain on land sale		(124,400	)		(124,400	)
	Valuation allowance for securities available for sale		(362,179	)		(160,050	)

			(906,200	)		(476,350	)

Net deferred tax assets (liabilities)		$	(234,100	)	$	90,950

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


			2002		2001		2000

Current:
	Federal		$	1,028,800	$	710,000	$	534,000
	State			196,800		141,600		117,300

		Total current		1,225,600		851,600		651,300

Deferred:
	Federal			104,600		107,500		14,310
	State			18,300		16,000		790

		Total deferred		122,900		123,500		15,100

			$	1,348,500	$	975,100	$	666,400

The effective tax rate for 2002, 2001, and 2000 differs from the statutory tax rate as follows:


	2002						2001						2000

				%of						%of						%of
				Pretax						Pretax						Pretax
	Amount			Income			Amount			Income			Amount			Income

Statutory federal tax rate	$	1,320,000			34.0	%	$	969,800			34.0	%	$	729,700			34.0	%
State income taxes, net of federal income tax benefit		139,900			3.6	%		104,000			3.6			77,400			3.6
Tax-exempt interest		(137,000	)		(3.5	)%		(131,600	)		(4.6	)		(117,300	)		(5.5	)
Other		25,600			0.6	%		32,900			1.2			(23,400	)		(1.1	)

	$	1,348,500			34.7	%	$	975,100			34.2	%	$	666,400			31.0	%

Income taxes related to securities gains amounted to approximately $-0-, $-0-, and $14,000 in 2002, 2001, and 2000, respectively.

- 16 -

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:


		2002			2001			2000

Benefit obligation at beginning of year		$	1,474,991		$	1,133,650		$	792,287
Service cost			217,501			181,241			132,110
Interest cost			131,018			98,515			59,320
Actuarial gain			309,749			64,301			152,649
Benefits paid			(2,716	)		(2,716	)		(2,716	)

Benefit obligation at end of year		$	2,130,543		$	1,474,991		$	1,133,650

Change in plan assets:
	Fair value of plan assets at beginning of year	$	1,372,326		$	998,122		$	906,619
	Actual return on plan assets		8,769			91,172			(96,393	)
	Employer contribution		751,295			285,748			190,612
	Benefits paid		(2,716	)		(2,716	)		(2,716	)

	Fair value of plan assets at end of year	$	2,129,674		$	1,372,326		$	998,122


		2002			2001			2000

Unrecognized prior service cost		$	27,837		$	5,164		$	4,900
Funded status			(872	)		(102,665	)		193,559
Unrecognized actuarial loss			928,021			565,387			201,824

	Net amount recognized	$	954,986		$	467,886		$	400,283

Amounts recognized in statement of financial position consist of:
Prepaid benefit cost		$	954,986		$	467,886		$	400,283

Weighted average assumptions as of December 31,
Discount rate			6.75	%		7.5	%		7.5	%
Expected return on plan assets			8.0	%		8.0	%		8.0	%
Rate of compensation increase			4.0	%		4.0	%		6.0	%
Component of net periodic benefit cost:
Service cost		$	217,504		$	181,241		$	132,110
Interest cost			131,018			98,515			59,320
Expected return on plan assets			(130,028	)		(91,171	)		(80,045	)
Amortization of prior service cost			2,288			368			368
Recognized net actuarial gain or loss			43,413			29,193			4,562

		$	264,195		$	218,146		$	116,315

- 17 -

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 $106,600, $53,500, and $55,000, in 2002, 2001, and 2000, respectively.

NOTE 10 - INTEREST EXPENSE

Interest on deposits is summarized as follows:


	2002		2001		2000

Interest bearing demand Deposits – interest expense	$	735,726	$	1,589,310	$	1,711,612
Savings deposits – Interest expense		180,926		284,939		498,963
Time deposits less than $100,000 – interest expense		1,601,088		3,019,477		3,138,847

	$	2,517,740	$	4,893,726	$	5,349,422

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 2002 and 2001 under the Option Plans were as follows:


	2002			2001			OPTION PRICES

Shares under option at beginning of year		151,545			127,115		$	5.330 - $15.238
Options granted		34,072			28,365			14.450 – 19.220
Forfeitures		(10,802	)		(1,325	)		9.011 – 14.966
Options exercised		(10,606	)		(9,308	)		5.330 – 12.752

Shares under option at end of year		164,209			144,847			5.076 – 17.970

Shares available for future grants at end of year		191,450			204,129

- 18 -

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, 2002, the Bank had commitments to fund loans of $19,758,000 and $1,337,098 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, 2002, the Bank’s Risk-Based Capital Ratio is 13.40% 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.

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	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.

1.		I have reviewed this annual report on Form 10-K of First National Bancshares, Inc.;

2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)		Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

			The accounting and reporting policies of First National Bancshares, Inc. and its subsidiaries conform to generally accepted accounting principles and to general practice within the banking industry. Assets held in a fiduciary capacity by the trust and securities departments are not included in the financial statements. The following summarizes the more significant of these policies.

			Nature of Operations – First National Bancshares, Inc. (Bancshares) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary 1st National Bank and Trust (the Bank). The Bank operates under a national bank charter and provides full banking services, including trust services. As a national bank, the Bank is subject to regulation of the office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The principal area served by 1st National Bank and Trust is Manatee County, Florida and services are provided at five offices.

			Principles of Consolidation

			The consolidated financial statements include the accounts of First National Bancshares, Inc. and its wholly owned subsidiary, 1st National Bank and Trust. All material intercompany transactions have been eliminated in consolidation.

			Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

			Securities Held-To-Maturity and Available-For-Sale – The Bank follows Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, which requires the Bank to segregate its investment portfolio into trading, available-for-sale and held-to-maturity classifications. The Bank does not hold any equity securities. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Bank has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

			Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are stated at quoted market value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders’ equity. The Bank does not have a trading portfolio.

		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, 2002 and 2001, 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.

		Bank Premises and Equipment - Bank premises and equipment owned, leasehold improvements, and assets held under capital lease are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are determined primarily on the straight-line method over the estimated useful lives of the assets, which range from three to twelve years for office furniture and equipment and twenty to thirty years for the Bank’s building and leasehold improvements. Maintenance and repairs are charged to expense as incurred. Renewals and betterments, which materially increase the value of the property, are capitalized. When bank premises and equipment are sold, or otherwise disposed of, the cost and related depreciation or amortization are removed from the respective accounts and the respective gains and losses are included in earnings.

		Other Real Estate Held for Resale - Other real estate includes foreclosed assets held for resale. After foreclosure, foreclosed assets are carried at the lower of fair value minus estimated costs to sell or cost. Cost at the time of foreclosure is the fair value of the asset foreclosed. If the fair value of the asset minus the estimated costs to sell the asset is less than the cost of the asset, the deficiency is recognized as a valuation allowance. Other real estate owned income (expense) consists of net carrying cost, legal fees, loss provisions and gains (losses) on sales of real estate. The Bank owned two items of other real estate at December 31, 2001 valued at $593,154.

		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.

			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, 2002, the primary correspondent banks were Federal Home Loan Bank of Atlanta, Independent Bankers Bank of Florida, Bank of America, and SunTrust Bank of Georgia.

		Earnings Per Share - Earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Basic EPS excludes all dilution. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if securities or options to issue common stock were exercised or converted into common stock. All differences between basic and diluted EPS were due to stock options.

		Stock Options – 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.

		The fair value of loans at December 31, 2002 and 2001 approximates carrying value.

		A summary of activity in loans owed to the Bank by its executive officers and directors during 2002 and 2001 is as follows:

		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 $1,611,180, $-0-, and $-0- non-accrual loans at December 31, 2002, 2001, and 2000, respectively.

		The aggregate amount of time certificate deposits of $100,000 or more at December 31, 2002 and 2001 was approximately $22,256,404 and $19,516,737, respectively.

		The fair value of time certificate deposits at December 31, 2002 and 2001 approximated their carrying value.

		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 2002 and 2001 under the Option Plans were as follows: