Filed with Securities and Exchange Commission on March 29, 2004

SECURITIES AND EXCHANGE COMMISSION

FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003

FIRST NATIONAL BANCSHARES, INC.

5817 Manatee Avenue West, Bradenton, Florida 34209

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

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

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

Common Stock, $.10 par value

The number of shares of Common Stock in the Company outstanding on March 22, 2004 was 2,055,109.

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value of the voting stock held by non-affiliates of the company at June 30, 2003, was $38,394,855.

PART I

ITEM 1. BUSINESS

A. General Development of Business

     First National Bancshares, Inc. (the “Company) is a Bank Holding Company formed in 1998 and incorporated in the State of Florida. Effective January 1, 1999, the Company merged First National Bank of Manatee (the “Bank) with and into an interim national bank that was a wholly owned subsidiary of the Company. As a result of that transaction, the Bank became and continues to be a wholly owned subsidiary of the Company. In April 1999, the Bank changed its name to 1^st National Bank & Trust. The Company has no other subsidiaries. Accordingly, the discussion of the Company’s business and operations will refer solely to the Bank.

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

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

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

B. Financial Information

     See the Company’s audited, consolidated financial statements, attached hereto, for information for each of the last three fiscal years regarding revenues from external customers, the measure of profit and loss and total assets.

C. Narrative Description of Business

     (1) Banking Services

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

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

     In December 1994, the Bank received permission from the Office of the Comptroller of the Currency to open a Trust Department. The Bank hired an experienced trust officer and after a period of organization began operations and opened the department for solicitation of trust business in March of 1995. At year-end 2003, the trust department had over $101,000,000 in customer assets. The department showed a profit in 1996, its first full year of operation, and has been profitable in each subsequent year. In October of 2003, the bank entered into an agreement to acquire The Trust Company of Florida, a trust bank through merger. In February, 2004, the shareholders of Trust Company approved the acquisition and the merger was consummated on March 15, 2004. At the time of merger, The Trust Company of Florida had in excess of $84,000,000 in customer assets and 1st National had more than $108,000,000 in customer assets. Management expects to integrate the trust accounting systems for the two entities by the end of May 2004.

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

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

     In April of 2003, the bank opened a Loan Production Office in downtown Sarasota in an effort to increase loan volume in the

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Sarasota market.

     (2) Operating Strategy

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

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

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

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

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

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

     (3) Market Area

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

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

     (4) Competition

     The banking business in Florida in general, and in Manatee County in particular, is highly competitive. The Bank competes with other commercial banks in Manatee County and the surrounding area for all services customarily provided by commercial banks. In addition, the Bank faces significant competition from non-bank institutions, including savings and loan associations, finance companies, insurance companies, mortgage companies, mutual funds, credit unions, and other types of financial institutions. According to the most recent market data, there are approximately 23 deposit taking/lending institutions operating in Manatee County. The Bank currently ranks fifth in deposits in the market with 5.1% market share. Bank of America, NA ranks first, with a market share of 26.6%. No other deposit taking/lending institution in Manatee County possesses a market share over 10%. Competition for deposits may have the effect of increasing rates of interest the Bank will pay on deposits, which would increase the Bank’s cost of money and possibly reduce its net earnings. Competition for loans may have the effect of lowering the rate of interest the Bank will receive on its loans, which would lower the Bank’s return on invested assets and possibly reduce its net earnings.

     The Bank’s main office is located adjacent to the Palma Sola Shopping Center at the southeast corner of 59th Street and Manatee Avenue West. Republic Bank (a Pinellas County community bank), Gold Bank, and Provident Bank have branches within one block of the Bank’s principal office. The Bank’s island office is located on a highly visible corner on Anna Maria Island. There are two commercial banks

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located on the island. The Braden River Branch on highway 64 is -1/2 mile east of a Bank of America branch across from an AmSouth office. The Highway 70 branch is about -1/2 mile east of Bank of America. The Bank’s Ellenton branch is east of a Southtrust branch and a Gold Bank branch.

     (5) Loan Commitments

     At December 31, 2003 and 2002, the Bank had commitments to originate and disperse on loans of approximately $34,566,000 and $19,758,000 respectively. Substantially all of both years’ figures include commitments to originate construction real estate loans and pre-approved commercial lines of credit. The Bank expects that all of the commitments at December 31, 2003 will be exercised within the current year. In addition, at December 31, 2003 and 2002, the Bank had in place letters of credit of approximately $1,895,000 and $1,337,000, respectively. The Bank does not expect that any of the standby letters of credit in place at December 31, 2003 will be exercised within the current year. The Bank had no commitments to purchase loans at December 31, 2003 and 2002.

     (6) Financial History

     The Bank first opened to the public on July 18, 1986. As of December 31, 2003, the Company had total assets of $277,232,000 compared with total assets of $222,161,000 at December 31, 2002 and $212,470,000 of total assets at December 31, 2001. At year-end 2003, the Company had total deposits of $233,327,000, compared with Bank deposits of $180,511,000 at year end 2002 and $175,848,000 of total deposits at year end 2001. In addition, the Company had loans of $206,742,000 at the end of 2003, compared with $158,530,000 of loans in the Bank at the end of 2002 and $145,9445,000 of loans at the end of 2001. For more detailed financial information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto appearing elsewhere in this Annual Report.

     (7) Employees

     At December 31, 2003, the Company had no direct employees. The Bank employed 82 people, of which three were executive officers, and 9 were part-time employees. The Company’s employees are not represented by a collective bargaining group, and the Company considers its relations with its employees to be excellent. The Company provides employee benefits customary in the banking industry, which include major medical insurance, group term life insurance, a defined benefit pension plan, a 401-K plan, and vacation and sick leave.

ITEM 2. PROPERTIES

     First National Bancshares, Inc.’s corporate office is located in the main office of the Bank at 5817 Manatee Avenue West. This facility is a two story building of approximately 6,000 square feet, which is adjacent to the Palma Sola Shopping Center. The Bank moved into the building on August 17, 1987 under a lease agreement and purchased the building in January of 2002.

     In addition to its main office, the Bank has branch offices in the following locations: 4770 State Road 64 East; 9000 State Road 70 East; 8425 US 301 North, Parrish; 5324 Gulf Drive, Holmes Beach. The Bank has owned all of these branch locations since their respective openings. The Bank believes that over time, this will reduce the bank’s operating expenses by eliminating the financing costs of the landlord and the CPI increases that are incorporated into long term leases. In addition, the bank occupies leased space in downtown Sarasota for a loan production office.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

     No matter was submitted for approval by the Company’s shareholders during the fourth quarter of the fiscal year ended December 31, 2003.

PART II

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

     As a result of the acquisition of the Bank by First National Bancshares, Inc. on January 1, 1999 the then shareholders of the Bank now own 2 shares of Company stock for each share of Bank stock previously held. Upon the consummation of the acquisition, all Bank Common Stock was held by the Company and all previous shareholders of the Bank became shareholders in the Company. Effective October 1, 2002, the Company stock began trading on the NASDAQ small Cap Market under the symbol FBMT. The following table shows the high and low bid prices for each quarter of 2002 and 2003 after adjusting for the 5% stock dividends in each year.

     As of March 22, 2004, there were 797 holders of record of the Common Stock of the Company.

     The Bank paid its first and only cash dividend of $.15 per share in 1991. In 1994 through 1998, the Bank paid annual stock dividends equal to 5% of the shares outstanding each time. On January 1, 1999, the Bank’s stock was exchanged two for one for Company stock. The Company also paid 5% stock dividends in 1999 thru 2003. Future Bank dividends, if any, will be paid to the Company. Future dividend payments to the holders of Common Stock of the Company will be at the discretion of the Board of Directors of the Company and will depend upon factors such as results of operations, capital requirements, regulatory restrictions, tax considerations and general economic conditions. The Bank’s capital requirements to open branches or acquire other institutions may also impact the Bank’s ability to make dividend distributions to the Company thus affecting the Company’s ability to pay dividends. Additionally, under certain circumstances, approval of the Comptroller may be required prior to the payment of any dividends by the Bank, which would in turn affect the Company’s ability to pay dividends to its shareholders. Future payment of dividends by the Bank to the Company and the Company to its shareholders cannot be guaranteed. A description of certain restrictions imposed upon the Banking Industry by the Comptroller with respect to the declaration and payment of dividends to the Company is included in notes to the audited financial statements attached hereto.

     During the 4^th Quarter of 2003, the Company did not repurchase any of its outstanding common shares.

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Equity Compensation Plan Information

In 1995, the shareholders of the Bank approved an Incentive Stock Option Plan for key officers and employees of the Bank to be administered by the Board of Directors of the Bank. In 1999, the shareholders approved a renewal of that plan. Under the plan, and at the discretion of the Board, deserving officers and employees of the Bank are awarded stock options at the current fair market value of the stock. When the Company, as a bank holding company acquired the Bank, it assumed the duties and responsibilities of the plan from the Bank. The following table summarizes the shares outstanding under the plan and the shares remaining in the plan.

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Item 6. SELECTED FINANCIAL DATA

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

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

*

Retroactively adjusted for 5% stock dividends paid in 1999 thru 2003 and a two for one stock split in 1999.

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

DECEMBER 31

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DECEMBER 31

*

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

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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.

*

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:

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The following table sets forth the maturities of investment securities at par value on December 31, 2003 and the weighted average yields of such securities calculated on the basis of the cost and effective yields weighted for the projected life of each security. Tax equivalent adjustments have not been made in calculating yields on obligations of state and political subdivisions. Mortgage backed securities are categorized by average life. Callable bonds are categorized by their projected call date under current market conditions.

Loan Portfolio

     The following table shows the maturity of fixed rate loans outstanding as of December 31, 2003. Also provided are the amounts with maturities beyond one year classified according to the sensitivity changes in interest rates. These numbers exclude loans on non-accrual.

Maturing or Repricing Opportunities

     Non-accrual, Past Due and Restructured Loans

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

Potential Problem Loans

At December 31, 2003 the Bank had identified no loans for which payments presently are current but the borrowers are experiencing or have recently experienced financial difficulties other than the non-accrual loans.

     Foreign Outstandings - None.

     Certain International Developments - None.

Loan Concentrations - Loan concentrations are considered to exist when there are amounts lent to a multiple number of borrowers engaged in similar activities that exceed 10% of total loans and would cause them to be similarly impacted by economic or other conditions. The Bank currently has no concentrations of credit.

Summary of Loan Loss Experience

This table summarizes the Bank’s loan loss experience for the years ended December 31, 2003 and 2002.

*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:

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.

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.

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

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

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

FORWARD LOOKING STATEMENTS

     Statements contained in this portion of the Company’s annual report may be forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of such words as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Such forward-looking statements are based on current expectations, but may differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. Other factors which could have a material adverse effect on the operations of the Company and its subsidiaries which include, but are not limited to, changes in interest rates, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank’s market area, changes in relevant accounting principles and guidelines and other factors over which management has no control. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Financial Condition

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

Sources and Uses of Funds Trends

     The Bank uses its funds primarily to support its lending activities. Average loans increased by $15,039,000 or 9.8% in 2003 after increasing by $13,307,000 or 9.4% in 2002. The increase was largely the result of continued emphasis on lending by Bank management and continued economic conditions in the local market.

     Average taxable bond investments, another use of funds, increased by $1,548,000 or 5.0% in 2003 and are used to provide liquidity for the Bank, while tax-exempt bond investments decreased by $1,495,000 or 17.3% and provide enhanced yield due to their special income tax treatment..

     The Bank’s increase in earning assets from 2002 to 2003 was funded by increased deposits. The Bank sought to grow its loan portfolio in 2003, and to fund this growth, it sought deposits in the local market place. Although deposit growth was from all types of deposits, the Bank showed the greatest absolute growth in NOW and money market accounts.

Liquidity and Interest Rate Sensitivity Management

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

     Marketable investment securities, particularly those of shorter maturities, are a principal source of asset liquidity. Securities maturing or expected to be called within one year or less amounted to $4,945,000 at December 31, 2003 representing 11% of the investment securities portfolio, a decrease from the 2002 amount of $13,227,000. This is due to the Bank making an effort to shorten its average bond maturity while rates are low. Shortening the maturity of the portfolio will have the effect of not locking in investment rates while rates are low.

     The Bank moderates its liquidity needs by maintaining short term borrowing lines with several regional banks. At year-end, the Bank had lines of credit established with other banking institutions totaling $105,000,000.

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

     Maturities of time certificates of deposit and other time deposits of $100,000 or more, outstanding at December 31, 2003, are summarized as follows:

     Interest rate sensitivity varies with different types of interest earning assets and interest-bearing liabilities. Overnight federal funds, on which rates change daily, and loans, which are tied to the prime rate, differ considerably from long-term investment securities and fixed-rate loans. Similarly, time deposits over $100,000 and money market accounts are much more interest rate sensitive than passbook savings accounts. The shorter term interest rate sensitivities are key to measuring the interest sensitivity gap, or excess interest-sensitive earning assets over interest-bearing liabilities. The following table shows the interest sensitivity gaps for four different time intervals as of December 31, 2003. For the first year, interest-sensitive assets exceed liabilities by $30,986,000. Over the following two years, liabilities re-price faster than assets. The excess of interest-bearing liabilities over interest-earning assets for the one-to-three year period is primarily related to the longer maturities of CD’s and NOW and MMA accounts that are regarded as much less rate sensitive.

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

Capital Resources

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

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

     The Federal Reserve Board standards classify capital into two tiers, referred to as Tier 1 and Tier 2. For the Bank, Tier 1 capital consists of common shareholders’ equity. Tier 2 capital consists of allowance for loan and lease losses. All banks must maintain a minimum leverage ratio of Tier 1 capital to total assets of 3%. To be considered adequately capitalized, banks are required to meet a minimum ratio of 8% of qualifying total Tier 1 and Tier 2 capital to risk-adjusted total assets and at least 4% ratio of Tier 1 capital to total assets. The Bank had corresponding ratios of 11.5% and 8.3% at year-end. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital.

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

At December 31, 2003, there were no commitments for expenditures that would impact the capital of the Bank or the Company.

Relationship Between Significant Financial Ratios

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

     From a level of 8.0% in 1998, the rate of internal capital growth has increased to 12.8% in 2001, 15.1% in 2002 and 11.1% in 2003. This increasing growth rate is directly related to the increasing profitability of the Bank.

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

Results of Operations

     The Company’s net income for 2003 was $2,151,000, a decrease of 15% from 2002 earnings of $2,534,000 but up 15% from 2001 earnings of $1,877,000. On a per share basis, net income for the similar periods were $1.08, $1.31 and $.98 after retroactively adjusting for annual 5% stock dividends.

     Income improved significantly from 2001 to 2003, despite the growth in overhead due to the opening of a branch and an investment sales subsidiary of the Bank and expansion of the Trust Department. However, 2003 income was impacted by low interest rates and the proliferation of refinancing in the real estate markets. The overhead associated with the replacement of refinanced loans and with the growth of the bank impacted the bank’s net profits. However, many of these expenses are non-recurring and the overhead associated with the loan portfolio is expected to return to more normal levels in 2004. Net interest income was up by $242,000 for 2003 over 2002. These increased revenues were offset by increased loan loss reserve expenses of $126,000 due to loan portfolio growth. Most of this growth and corresponding expense occurred in the fourth quarter and accordingly was too late in the year to significantly contribute to increased net interest income.

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

     To the extent possible, the Bank follows a strategy intended to insulate the Bank’s interest rate spread from adverse changes in interest rates by maintaining spreads through the adjustability of its earning assets and interest-bearing liabilities. At December 31, 2003, approximately 60% of the loan portfolio was repriceable or expected to repay within one year.

     Results of operations can be measured by various ratio analyses. Two widely recognized performance indicators are return on equity and return on assets. The Bank’s return on average equity was 10.2% in 2003, down from 13.6% in 2002, and 11.7% in 2001. The Bank’s returns on average assets (ROAA) were .92% in 2001 and 1.58% in 2002 to .91% in 2003. In 1995, the Board of Directors adopted a strategy of growth for the Bank knowing that the increased overhead would impact the Bank’s earnings for several years. The strategy anticipated that increased revenues would eventually offset the substantial increase in overhead resulting from branch openings. This in fact happened in 1997 through 1999. With the slower growth in overhead expenses, earnings improved during those years. With the opening of the new branch in 2000, some of the overhead efficiencies were lost, but were regained in 2001 and 2002. Early in 2003, the bank increased staffing in both the financial product sales staff and in the loan production area. By the fourth quarter of 2003, both areas began showing significant increases in business which will result in future income to the bank.

LOANS

Loan Portfolio

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

     Real estate mortgage loans at year-end 2003 and 2002 comprised the greatest percentage of total loans. Commercial non-real estate and consumer loans were approximately 5% and 2% respectively at the year-end 2003. The growth in loans outstanding at year-end 2003 was the result of an initiative by management to grow the loan portfolio.

Allowance for Loan Losses

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

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

Composition of Allowance for Loan Losses

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

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

     In 2003 the allowance for loan losses approximates 1.00% of loans, down slightly from 1.07% in 2002. The allowance for loan losses is changed when management determines that the prospects of recovery of the principal or interest of a loan or lease are doubtful. Subsequent recoveries, if any, are credited to the allowance. Real estate mortgage loans are written down to fair value upon the earlier receipt of a deed in lieu of foreclosure, upon completion of foreclosure proceedings, or upon in-substance foreclosure. Commercial and other loan charge-offs are made based on management’s on-going evaluation of non-performing loans. At year-end, the Bank had no “impaired” loans under SFAS 114, which became effective on January 1, 1995.

Non-performing Assets

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

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

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

     At year-ends 2003 and 2002, there was $1,317,000 and $1,611,000 non-accrual loans respectively, and consequently there was $8,600 additional interest income that would have been recorded had the loans been accruing interest.

     At December 31, 2003, the Bank had no loans, which were not included in the 90 day past due or non-accrual categories, where the borrowers are currently experiencing or have recently experienced financial difficulties but are current on their payments. This is down from $894,000 at December 31, 2002.

     At December 31, 2003, the Bank had no commitments to lend additional funds with respect to non-performing loans.

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

Income Taxes

     The Company’s effective tax rate was 34% in 2003 which is down from 35% in 2002. The effective rate is lower than the statutory rate primarily due to certain tax-exempt interest income.

Impact of Inflation and Changing Prices

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

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

Off Balance Sheet Arrangements

     At December 31, 2003 and 2002, the Bank had commitments to originate and disperse on loans of approximately $34,566,000 and $19,758,000 respectively. Substantially all of both years’ figures include commitments to originate construction real estate loans and pre-approved commercial lines of credit. The Bank expects that all of the commitments at December 31, 2003 will be exercised within the current year. In addition, at December 31, 2003 and 2002, the Bank had in place letters of credit of approximately $1,895,000 and $1,337,000, respectively. The Bank does not expect that any of the standby letters of credit in place at December 31, 2003 will be exercised within the current year. The Bank had no commitments to purchase loans at December 31, 2003 and 2002.

Governance

     The Company’s audit committee is comprised of members of the Board of Directors excluding officers and certain other board members, who by definition, could have conflicts of interest. The members of the audit committee all have varying levels of financial expertise, but none meet the regulatory definition of financial expert. The Company currently has no board member who qualifies as a “financial expert” that is eligible to serve on the audit committee. As the holding company for a community bank, the Company has chosen not to seek out board members solely for the purpose of filling this role but rather sought board members who are leaders in the community and/or hold significant investment in the Company. When the board considers the nomination of new members, consideration will be given to filling the role of financial expert.

     During the 4^th Quarter of the year, the Board of Directors of the Company and the Bank adopted a Code of Ethics and Business Conduct applicable to the members of the Board of Directors and the officers of the Company and the Bank. The Chief Executive Officer, Chief Financial Officer and other senior financial officers of the Company and the Bank, specifically are subject to the Code. A copy of the Code may be obtained, at no cost, by contacting Angela O’Reilly, Corporate Secretary.

     Also, during the year, the Board of Directors amended the bylaws of the Company eliminating the classified board system, thus changing the term of service for the directors from three years to only one year. The previous bylaw read as follows:

Section 4. Term of Office. The Board of Directors shall be divided into three classes as nearly equal in number as possible with the term of office of one class expiring each year; and at the annual meeting of shareholders in 1999, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting; directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting; and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter, at each annual meeting of shareholders, the successors to the class of directors whose terms shall then expire, shall be elected to hold office until the third succeeding annual meeting after such election and until their successors are elected and qualified. When the number of directors is changed, the newly established directorships shall be apportioned among the classes so as to make all classes as nearly equal in number as possible.

The amended bylaw reads as follows:

Section 4. Term of Office. Directors shall be elected at the annual meeting of shareholders and shall hold office until the annual meeting next succeeding their election and until their successors are elected and qualified.

     A complete copy of the bylaws of the company is attached as Exhibit 3.2 to this document.

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

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

(i)		“Management’s Discussion and Analysis of Financial Condition and Results of Operations"—Liquidity and Interest Rate Sensitivity Management.
(ii)		PART II — Item 6. — “Selected Financial Data” — Investment Portfolio
(iii)		PART II — Item 6. — “Selected Financial Data” — Loan Portfolio
(iv)		PART II — Item 8. — “Financial Statements and Supplementary Data.”

     ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

1. All per share information is presented to reflect all stock dividends and stock splits including the 5% stock dividends declared for shareholders of record August 31, 2002 and 2003.

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

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

     ITEM 9A. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

There were no significant changes made in the Company’s internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the evaluation performed by the Company’s Chief Executive Officer and Chief Financial Officer.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

A. Directors

     The information required by Item 10 pertaining to directors of the Company is incorporated herein by reference to the sections entitled “Election of Directors”, “Committees of the Board of Directors and Certain Meetings” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy statement of the Company of the Bank for its 2004 Annual Meeting of Shareholders, pages three through five. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Company’s fiscal year ended December 31, 2003 at the time it is mailed to the shareholders.

B. Executive Officers

     With respect to Francis I. duPont, III, the Chairman of the Board and Chief Executive Officer of the Company, and Glen W. Fausset, President of the Company, who are also directors of the Company, and Thomas Moseley, Executive Vice President of the Bank, the information required by Item 10 pertaining to the Company’s executive officers is incorporated herein by reference to the section entitled “Election of Directors” in the definitive proxy statement of the Company of the Bank for its 2004 Annual Meeting of Shareholders, pages three and four, which will be filed with the Securities and Exchange Commission within 120 days of the end of the Bank’s fiscal year ended December 31, 2003 at the time it is mailed to the shareholders.

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

ITEM 11. EXECUTIVE COMPENSATION

     The information required by Item 11 pertaining to executive compensation is incorporated herein by reference to the sections entitled “Executive Compensation,” and “Compensation Pursuant to Plans” in the definitive proxy statement of the Company of the Bank for its 2004 Annual Meeting of Shareholders, pages seven through nine, which will be filed with the Securities and Exchange Commission 120 days of the end of the Company’s fiscal year ended December 31, 2003 at the time it is mailed to the shareholders.

Change of Control Agreements

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 pertaining to the security ownership of certain beneficial owners and management is incorporated herein by reference to the sections entitled “Election of Directors” and “Stock Ownership of Certain Beneficial Owners and Management” in the definitive proxy statement of the Company for its 2004 Annual Meeting of Shareholders, pages two through four, which will be filed with the Securities and Exchange Commission within 120 days of the end of the Company’s fiscal year ended December 31, 2003 at the time it is mailed to the shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 pertaining to certain relationships and related transactions is incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” in the definitive proxy statement of the Company of the Bank for its 2004 Annual Meeting of Shareholders, pages six and seven, which will be filed with the Securities and Exchange Commission within 120 days of the end of the Company’s fiscal year ended December 31, 2003 at the time it is mailed to the shareholders.

     ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 pertaining to Principal Accountant Fees and Services is incorporated herein by reference to the section entitled “Information Concerning Independent Accountants” in the definitive proxy statement of the Company of the Bank for its 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission 120 days of the end of the Company’s fiscal year ended December 31, 2003 at the time it is mailed to the shareholders.

     ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

(1)

Financial Statements and Schedules