##### Table of Contents



---

---

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB

|           |  |                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                     
|           |  |                                                                                                     
|x          |  | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required)       
|           |  | For the fiscal year ended December 31, 2001                                                         
|           |  |                                                                                                     
|           |  | or                                                                                                  
|           |  |                                                                                                     
|o          |  | Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)

For the transition period from ________ to ________

Commission file no. 000-22505

FNB BANCSHARES, INC.




(Name of Small Business Issuer in Its Charter)


|                                         |  |                    
|---------------------------------------- |  | -------------------
|South Carolina                           |  | 57-1033165         
|                                         |  |                    
|(State or Other Jurisdiction             |  | (I.R.S. Employer   
|of Incorporation or Organization)        |  | Identification No.)
|                                         |  |                    
|217 North
Granard Street                 |  |                    
|Gaffney, South Carolina                  |  | 29341              
|                                         |  |                    
|(Address of Principal Executive Offices) |  | (Zip Code)         

(864) 488-2265




Issuers Telephone Number, Including Area Code


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.
Yes x No o

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. o

The issuers income for its most recent fiscal year was $247,525. As of
March 5, 2002, 616,338 shares of Common Stock were issued and outstanding.

The aggregate market value of the Common Stock held by non-affiliates of
the Company on March 5, 2002 was $4,460,165. This calculation is based upon an
estimate of the fair market value of the Common Stock by the Companys Board of
Directors of $10.25 per share. There is not an active trading market for the
Common Stock and it is not possible to identify precisely the market value of
the Common Stock.

Transitional Small Business Disclosure Format. (Check one): Yes o            No x

DOCUMENTS INCORPORATED BY REFERENCE

The Companys Annual Report to Shareholders for the year ended December 31,
2001 is incorporated by reference in this Form 10-KSB in Part II, Items 6 and
7. The Companys Proxy Statement for the Annual Meeting of Shareholders to be
held on April 23, 2002 is incorporated by reference in this Form 10-KSB in Part
III, Items 9 through 12.



---

---





---

TABLE OF CONTENTS



|                              |  |  |  |  |  |  |  | 
|----------------------------- |  |  |  |  |  |  |  | 
|SUPERVISION AND REGULATION   
|SIGNATURES                   
|INDEX TO EXHIBITS            
|ANNUAL REPORT TO SHAREHOLDERS
|SUBSIDIARIES OF THE COMPANY  



---



##### Table of Contents



Item 1. Description of Business

This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements are based
on many assumptions and estimates and are not guarantees of future performance.
Our actual results may differ materially from those projected in any
forward-looking statements, as they will depend on many factors about which we
are unsure, including many factors which are beyond our control. The words
may, would, could, will, expect, anticipate, believe, intend,
plan, and estimate, as well as similar expressions, are meant to identify
such forward-looking statements. Potential risks and uncertainties include,
but are not limited to:



| |  |  | significant increases in competitive pressure in the banking
and financial services industries;                                                                                                                
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in the interest rate environment which could reduce anticipated or actual margins;                                                                                                                     
|
| |  |  | changes in political conditions or the legislative or regulatory environment;                                                                                                                                  
|
| |  |  | general economic conditions, either nationally or regionally
and especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
|
| |  |  | changes occurring in business conditions and inflation;                                                                                                                                                        
|
| |  |  | changes in technology;                                                                                                                                                                                         
|
| |  |  | changes in monetary and tax policies;                                                                                                                                                                          
|
| |  |  | changes in the securities markets; and                                                                                                                                                                         
|
| |  |  | other risks and uncertainties detailed from time to time in
our filings with the Securities and Exchange Commission.                                                                                           

General

FNB Bancshares, Inc. was incorporated in South Carolina on September 27,
1995 for the purpose of operating as a bank holding company. The Companys
wholly owned subsidiary, First National Bank of the Carolinas, commenced
business on October 18, 1996 and is primarily engaged in the business of
accepting savings and demand deposits and providing mortgage, consumer, and
commercial loans to the general public. Our bank has a main office in Gaffney
and two branch offices in Blacksburg, South Carolina and Gaffney, South
Carolina. The bank is organized as a national banking association under the
laws of the United States, with deposits insured by the FDIC. The bank is a
member of the Federal Reserve System.

Location and Service Area

The bank engages in a general commercial and retail banking business,
emphasizing the needs of small- to medium-sized businesses, professional
concerns, and individuals, primarily in Gaffney, South Carolina and the
surrounding area, including Cherokee County. The principal executive offices
of both the company and the bank are located at 217 North Granard Street,
Gaffney, South Carolina 29342. The address of the Blacksburg office is 207
West Cherokee Street, Blacksburg, South Carolina 29702. The

1



---



##### Table of Contents



address of the second Gaffney office is 626 Chesnee Highway, Gaffney, South
Carolina 29341. The companys telephone number is (864) 488-2265. See Item
2. Description of Property.

Our primary service area is Cherokee County, South Carolina. Blacksburg
and Gaffney are approximately eight miles from each other and are the two
largest municipalities in Cherokee County. Cherokee County is part of a
five-county metropolitan statistical area covering the upstate area of South
Carolina, including Greenville, Spartanburg, Pickens, Cherokee, and Laurens
Counties. Cherokee County is located between the major metropolitan
statistical areas of Greenville-Spartanburg-Anderson of South Carolina and
Charlotte-Gastonia-Rock Hill of North Carolina. The counties from
Greenville-Spartanburg-Anderson to Charlotte-Gastonia-Rock Hill and Cherokee
and Laurens make up an area that is known to many as the I-85 Business Belt.
The presence of I-85 enhances the economic potential of the area by linking the
seven counties to other major southeastern markets, including the Charlotte and
Atlanta markets, which are easily accessible to this area by I-85.

Cherokee Countys economy is dominated by manufacturing and agriculture.
With over 60 manufacturing plants, including the Nestle Frozen Foods Company,
Milliken & Co.  Magnolia Finishing Plant, and the Timken Company, Cherokee
County enjoys a diversified manufacturing community. Manufacturing companies
employ approximately 50% of the countys workforce, and the textile mills
products sector accounts for nearly 50% of this manufacturing employment.

Marketing Focus

Most of the banks in the Cherokee County area are now local branches of
large regional banks. Although size gives the larger banks certain advantages
in competing for business from large corporations, including higher lending
limits and the ability to offer services in other areas of South Carolina and
the Cherokee County area, management believes there has been a void in the
community banking market in the Cherokee County area and believes that the bank
is successfully filling this void. As a result, we generally do not attempt to
compete for the banking relationships of large corporations, but we concentrate
our efforts on small- to medium-sized businesses and on individuals.

Banking Services

The bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts, and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
banks principal market area at rates competitive to those offered in the
Cherokee County area. In addition, we offer certain retirement account
services, such as Individual Retirement Accounts (IRAs) and, beginning in
February 2001 and through Raymond James, brokerage services. All deposit
accounts are insured by the FDIC up to the maximum amount allowed by law
(generally, $100,000 per depositor, subject to aggregation rules). The bank
solicits these accounts from individuals, businesses, associations and
organizations, and governmental authorities.

Lending Activities

General. The bank emphasizes a range of lending services, including real
estate, commercial and consumer loans, to individuals and small- to
medium-sized businesses and professional concerns that are located in or
conduct a substantial portion of their business in the banks market area.

2



---



##### Table of Contents



Real Estate Loans. One of the primary components of the banks loan
portfolio is loans secured by first or second mortgages on real estate. These
loans generally consist of commercial real estate loans,
construction and development loans, and residential real estate loans (but
exclude home equity loans, which are classified as consumer loans). Loan terms
generally are limited to five years or less, although payments may be
structured on a longer amortization basis. Interest rates are fixed or
adjustable. The bank generally charges an origination fee. Management attempts
to reduce credit risk in the commercial real estate portfolio by emphasizing
loans on owner-occupied office and retail buildings where the loan-to-value
ratio, established by independent appraisals, does not exceed 80%. In
addition, the bank typically requires personal guarantees of the principal
owners of the property backed with a review by the bank of the personal
financial statements of the principal owners. The principal economic risk
associated with each category of loans, including real estate loans, is the
creditworthiness of the banks borrowers. The risks associated with real
estate loans vary with many economic factors, including employment levels and
fluctuations in the value of real estate. The bank competes for real estate
loans with a number of bank competitors which are well established in the
Cherokee County area. Most of these competitors have substantially greater
resources and lending limits than the bank. As a result, the bank occasionally
must charge a lower interest rate to attract borrowers. See    Competition.
The bank also originates loans for sale into the secondary market. The bank
attempts to limit interest rate risk and credit risk on these loans by locking
the interest rate for each loan with the secondary investor and receiving the
investors underwriting approval prior to originating the loan.

Commercial Loans. The bank makes loans for commercial purposes in various
lines of businesses. Equipment loans typically are made for a term of five
years or less at fixed or variable rates, with the loan fully amortized over
the term and secured by the financed equipment and with a loan-to-value ratio
of 80% or less. Working capital loans typically have terms not exceeding one
year and are usually secured by accounts receivable, inventory, or personal
guarantees of the principals of the business. For loans secured by accounts
receivable or inventory, principal is typically repaid as the assets securing
the loan are converted into cash, and in other cases principal is typically due
at maturity. The principal economic risk associated with each category of
loans, including commercial loans, is the creditworthiness of the banks
borrowers. The risks associated with commercial loans vary with many economic
factors, including the economy in the Cherokee County area, especially the
tourist economy. The well-established banks in the Cherokee County area will
make proportionately more loans to medium- to large-sized businesses than the
bank. Many of the banks commercial loans are made to small- to medium-sized
businesses which may be less able to withstand competitive, economic, and
financial conditions than larger borrowers.

Consumer Loans. The bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment
and term loans, home equity loans and lines of credit, and revolving lines of
credit such as credit cards. These loans typically carry balances of less than
$25,000 and, in the case of non-revolving loans, are amortized over a period
not exceeding 48 months. The revolving loans typically bear interest at a fixed
rate and require monthly payments of interest and a portion of the principal
balance. The underwriting criteria for home equity loans and lines of credit
is generally the same as applied by the bank when making a first mortgage loan,
as described above, and home equity lines of credit typically expire fifteen
years or less after origination. As with the other categories of loans, the
principal economic risk associated with consumer loans is the creditworthiness
our borrowers, and the principal competitors for consumer loans are the
established banks in the Cherokee County area.

Loan Approval and Review. The banks loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate
loans to a single borrower exceeds an individual officers lending authority,
the loan request is considered and approved by an officer with a higher

3



---



##### Table of Contents



lending
limit. We have established a management loan committee that must approve to
its limit any loan over the Presidents lending limit. The banks loan
committee approves any loan over the management loan committee authority. We
do not make any loans to directors, officers, or employees of the bank unless
the loan is approved by our board of directors and is made on terms not more
favorable to such person than would be
available to a person not affiliated with us (excluding consumer loans less
than $20,000 which are available at employee rates).

Lending Limits.The banks lending activities are subject to a variety of
lending limits imposed by federal law. While differing limits apply in certain
circumstances based on the type of loan or the nature of the borrower
(including the borrowers relationship to us), in general we are subject to a
loan-to-one-borrower limit. This limit will increase or decrease as the banks
capital increases or decreases. Unless we are able to sell participations in
our loans to other financial institutions, we will not be able to meet all of
the lending needs of loan customers requiring aggregate extensions of credit
above these limits.

Other Banking Services

Other bank services include cash management services, safe deposit boxes,
travelers checks, direct deposit of payroll and social security checks,
brokerage services and automatic drafts for various accounts. The bank is
associated with a shared network of automated teller machines that may be used
by our customers throughout South Carolina and other regions. We also offer
MasterCard and VISA credit card services through a correspondent bank as an
agent for the bank.

Competition

The banking business is highly competitive. The bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds operating in the
Cherokee County area and elsewhere. As of December 31, 2001, there were four
commercial banks (none of which are headquartered in Cherokee County), one
savings bank, and one credit union operating in Cherokee County. A number of
these competitors are well established in the Cherokee County area. Most of
them have substantially greater resources and lending limits than our bank and
offer certain services, such as extensive and established branch networks and
trust services, that we either do not expect to provide or do not currently
provide. As a result of these competitive factors, the bank may have to pay
higher rates of interest to attract deposits.

Employees

We have 28 full-time employees as of December 31, 2001.




SUPERVISION AND REGULATION

We are subject to extensive state and federal banking laws and regulations
which impose specific requirements or restrictions on, and provide for general
regulatory oversight of, virtually all aspects of our operations. These laws
and regulations are generally intended to protect depositors, not shareholders.
The following summary is qualified by reference to the statutory and
regulatory provisions discussed. Changes in applicable laws or regulations may
have a material effect on our business and prospects. Our operations may be
affected by legislative changes and the policies of various regulatory
authorities. We cannot predict the effect that fiscal or monetary policies,
economic control, or new federal or state legislation may have on our business
and earnings in the future.

4



---



##### Table of Contents



Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999, was signed into law on November 12, 1999. Among
other things, the Act repeals the restrictions on banks affiliating with
securities firms contained in sections 20 and 32 of the Glass-Steagall Act.
The Act also permits bank holding companies to engage in a statutorily provided
list of financial activities, including insurance and securities underwriting
and agency activities, merchant banking, and insurance company portfolio
investment activities. The Act also authorizes activities that are
complementary to financial activities.

The Act is intended, in part, to grant to community banks certain powers
as a matter of right that larger institutions have accumulated on an ad hoc
basis. Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have
on us. From time to time other changes are proposed to laws affecting the
banking industry, and these changes could have a material effect on our
business and prospects.

The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market an institutions own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing, or
other marketing to the consumer.

FNB Bancshares, Inc.

Because our holding company, FNB Bancshares, Inc., owns the outstanding
capital stock of our bank, our holding company is a bank holding company under
the federal Bank Holding Company Act of 1956 and the South Carolina Banking and
Branching Efficiency Act.

The Bank Holding Company Act.Under the Bank Holding Company Act, our
holding company is subject to periodic examination by the Federal Reserve and
required to file periodic reports of its operations and any additional
information that the Federal Reserve may require. Our activities at the
holding company level are limited to:



| |  |  | banking and managing or controlling banks;                                                          
| | - |  | ----------------------------------------------------------------------------------------------------
| |  |  | furnishing services to or performing services for our subsidiaries; and                             
| |  |  | engaging in other activities that the Federal Reserve
determines to be so closely related to banking
| |  |  | and managing or controlling banks as to be a proper incident
thereto.                               

Investments, Control, and Activities.With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:



| |  |  | acquiring substantially all the assets of any bank;
| | - |  | ---------------------------------------------------

5



---



##### Table of Contents





| |  |  | acquiring direct or indirect ownership or control of any
voting shares of any bank if after the acquisition it would own or
control more than 5% of the voting shares of such bank (unless it
already owns or controls the majority of such shares); or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | merging or consolidating with another bank holding company.                                                                                                                                                                                            

In addition, and subject to certain exceptions, the Bank Holding Company
Act and the Change in Bank Control Act require Federal Reserve approval prior
to any person or company acquiring control of a bank holding company.
Control is conclusively presumed to exist if an individual or company acquires
25% or more of any class of voting securities of a bank holding company.
Control is rebuttably presumed to exist if a person acquires 10% or more, but
less than 25%, of any class of voting securities and either the company has
registered securities under Section 12 of the Securities Exchange Act of 1934
or no other person owns a greater percentage of that class of voting securities
immediately after the transaction. Our common stock is registered under the
Securities Exchange Act of 1934. The regulations provide a procedure for
challenge of the rebuttable control presumption.

Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in, nonbanking activities
unless the Federal Reserve Board has found those activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Some of the activities that the Federal Reserve Board has determined
by regulation to be proper incidents to the business of a bank holding company
include:



| |  |  | making or servicing loans and certain types of leases;                                                 
| | - |  | -------------------------------------------------------------------------------------------------------
| |  |  | engaging in certain insurance and discount brokerage activities;                                       
| |  |  | performing certain data processing services;                                                           
| |  |  | acting in certain circumstances as a fiduciary or investment or financial adviser;                     
| |  |  | owning savings associations; and                                                                       
| |  |  | making investments in certain corporations or projects
designed primarily to promote community welfare.

The Federal Reserve Board imposes certain capital requirements on our
holding company under the Bank Holding Company Act, including a minimum
leverage ratio and a minimum ratio of qualifying capital to risk-weighted
assets. These requirements are described below under Capital Regulations.
Subject to capital requirements and certain other restrictions, our holding
company is able to borrow money to make a capital contribution to our bank, and
these loans may be repaid from dividends paid from our bank to our company.
Our ability to pay dividends is subject to regulatory restrictions as described
below in First National Bank of the Carolinas  Dividends. Our holding
company is also able to raise capital for contribution to our bank by issuing
securities without having to receive regulatory approval, subject to compliance
with federal and state securities laws.

Source of Strength; Cross-Guarantee.In accordance with Federal Reserve
Board policy, our holding company is expected to act as a source of financial
strength to our bank and to commit resources to support our bank in
circumstances in which our holding company might not otherwise do so. Under
the Bank Holding Company Act, the Federal Reserve Board may require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve
Boards determination that such activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository
institution of the banks holding company. Further, federal bank regulatory
authorities have additional discretion

6



---



##### Table of Contents



to require a bank holding company to
divest itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institutions financial condition.

South Carolina State Regulation.As a South Carolina bank holding company
under the South Carolina Banking and Branching Efficiency Act, we are subject
to limitations on sale or merger and to
regulation by the South Carolina Board of Financial Institutions. Prior
to acquiring the capital stock of a national bank, we are not required to
obtain the approval of the Board, but we must notify them at least 15 days
prior to doing so. We must receive the Boards approval prior to engaging in
the acquisition of a South Carolina state chartered bank or another South
Carolina bank holding company.

First National Bank of the Carolinas

Our bank, First National Bank of the Carolinas, operates as a national
banking association incorporated under the laws of the United States and
subject to examination by the Office of the Comptroller of the Currency.
Deposits in the bank are insured by the FDIC up to a maximum amount, which is
generally $100,000 per depositor subject to aggregation rules.

The Office of the Comptroller of the Currency and the FDIC regulate or
monitor virtually all areas of our banks operations, including:



| |  |  | security devices and procedures;                                                    
| | - |  | ------------------------------------------------------------------------------------
| |  |  | adequacy of capitalization and loss reserves;                                       
| |  |  | loans;                                                                              
| |  |  | investments;                                                                        
| |  |  | borrowings;                                                                         
| |  |  | deposits;                                                                           
| |  |  | mergers;                                                                            
| |  |  | issuances of securities;                                                            
| |  |  | payment of dividends;                                                               
| |  |  | interest rates payable on deposits;                                                 
| |  |  | interest rates or fees chargeable on loans;                                         
| |  |  | establishment of branches;                                                          
| |  |  | corporate reorganizations;                                                          
| |  |  | maintenance of books and records; and                                               
| |  |  | adequacy of staff training to carry on safe lending and deposit gathering practices.

The Office of the Comptroller of the Currency requires banks to maintain
specified capital ratios and imposes limitations on banks aggregate investment
in real estate, bank premises, and furniture and fixtures. The Office of the
Comptroller of the Currency also requires banks to prepare quarterly reports on
their financial condition and to conduct annual audits of their financial
affairs in compliance with its minimum standards and procedures.

Under the FDIC Improvement Act, all insured institutions must undergo
regular on-site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and their state
supervisor when applicable. The FDIC Improvement Act directs the FDIC to
develop a method for insured depository institutions to provide

7



---



##### Table of Contents



supplemental
disclosure of the estimated fair market value of assets and liabilities, to the
extent feasible and practicable, in any balance sheet, financial statement,
report of condition or any other report of any insured depository institution.
The FDIC Improvement Act also requires the federal banking regulatory agencies
to prescribe, by regulation, standards for all insured depository institutions
and depository institution holding companies relating, among other things, to
the following:



| |  |  | internal controls;                    
| | - |  | --------------------------------------
| |  |  | information systems and audit systems;
| |  |  | loan documentation;                   
| |  |  | credit underwriting;                  
| |  |  | interest rate risk exposure; and      
| |  |  | asset quality.                        

National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Office of the Comptroller of the Currency or the
Federal Reserve Board to be troubled institutions must give the Office of the
Comptroller of the Currency or the Federal Reserve Board 30 days prior notice
of the appointment of any senior executive officer or director. Within the 30
day period, the Office of the Comptroller of the Currency or the Federal
Reserve Board, as the case may be, may approve or disapprove any such
appointment.

Deposit Insurance.The FDIC has adopted a risk-based assessment system
for determining an insured depository institutions insurance assessment rate.
The system that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. An institution is
placed into one of three capital categories: (1) well capitalized; (2)
adequately capitalized; or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subgroups, based on the FDICs
determination of the institutions financial condition and the risk posed to
the deposit insurance funds. Assessments range from 0 to 27 cents per $100 of
deposits, depending on the institutions capital group and supervisory
subgroup. In addition, the FDIC imposes assessments to help pay off the $780
million in annual interest payments on the $8 billion Financing Corporation
bonds issued in the late 1980s as part of the government rescue of the thrift
industry.

The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.

Transactions With Affiliates and Insiders.Our bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on
the amount of loans or extensions of credit to, or investments in, or certain
other transactions with, affiliates and on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. The
aggregate of all covered transactions is limited in amount, as to any one
affiliate, to 10% of our banks capital and surplus and, as to all affiliates
combined, to 20% of the banks capital and surplus. Furthermore, within the
foregoing limitations as to amount, each covered transaction must meet
specified collateral requirements. Compliance is also required with certain
provisions designed to avoid the taking of low quality assets.

Our bank is also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging
in certain transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable to such institution
or

8



---



##### Table of Contents



its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies. Our bank is subject to certain restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of credit (i) must
be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.

Dividends.A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock
until its surplus equals its stated capital, unless there has been transferred
to surplus no less than one-tenth of the banks net profits of the preceding
two consecutive half-year periods (in the case of an annual dividend). The
approval of the Office of the Comptroller of the Currency is required if the
total of all dividends declared by a national bank in any calendar year exceeds
the total of its net profits for that year combined with its retained net
profits for the preceding two years, less any required transfers to surplus.

Branching.National banks are required by the National Bank Act to adhere
to branch office banking laws applicable to state banks in the states in which
they are located. Under current South Carolina law, the bank may open branch
offices throughout South Carolina with the prior approval of the Office of the
Comptroller of the Currency. In addition, with prior regulatory approval, the
bank will be able to acquire existing banking operations in South Carolina.
Furthermore, federal legislation permits interstate branching, including
out-of-state acquisitions by bank holding companies, interstate branching by
banks if allowed by state law, and interstate merging by banks. South Carolina
law, with limited exceptions, currently permits branching across state lines
through interstate mergers.

Community Reinvestment Act.The Community Reinvestment Act requires that,
in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or
facility. Failure to adequately meet these criteria could impose additional
requirements and limitations on our bank. Under the Gramm-Leach-Bliley Act,
banks with aggregate assets of not more than $250 million will be subject to a
Community Reinvestment Act examination only once every 60 months if the bank
receives an outstanding rating, once every 48 months if it receives a
satisfactory rating, and as needed if the rating is less than satisfactory.
Additionally, under the Gramm-Leach-Bliley Act, banks are required to publicly
disclose the terms of various Community Reinvestment Act-related agreements.

Other Regulations.Interest and other charges collected or contracted for
by the bank are subject to state usury laws and federal laws concerning
interest rates. The banks loan operations are also subject to federal laws
applicable to credit transactions, such as:



| |  |  | the federal Truth-In-Lending Act, governing disclosures of
credit terms to consumer borrowers;                                                                                                                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;

9



---



##### Table of Contents





| |  |  | the Equal Credit Opportunity Act, prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending
credit;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;                      
| |  |  | the Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and                  
| |  |  | the rules and regulations of the various federal agencies
charged with the responsibility of implementing such federal laws.             

The deposit operations of the bank also are subject to:



| |  |  | the Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of
financial records; and                                                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the Electronic Funds Transfer Act and Regulation E issued by
the Federal Reserve Board to implement that act, which governs
automatic deposits to and withdrawals from deposit accounts and
customers rights and liabilities arising from the use of automated
teller machines and other electronic banking services.

Capital Regulations.The federal bank regulatory authorities have adopted
risk-based capital guidelines for banks and bank holding companies that are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies and account for
off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have
not received any notice indicating that either our holding company or our bank
is subject to higher capital requirements. The current guidelines require all
bank holding companies and federally-regulated banks to maintain a minimum
risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital. Tier 1 capital includes common shareholders equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.

Under these guidelines, banks and bank holding companies assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are
assigned to the 20% category, except for municipal or state revenue bonds,
which have a 50% rating, and direct obligations of or obligations guaranteed by
the United States Treasury or United States Government agencies, which have a
0% rating.

The federal bank regulatory authorities have also implemented a leverage
ratio, which is equal to Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum

10



---



##### Table of Contents



required leverage ratio for top-rated institutions is 3%,
but most institutions are required to maintain an additional cushion of at
least 100 to 200 basis points.

The FDIC Improvement Act established a new capital-based regulatory scheme
designed to promote early intervention for troubled banks which requires the
FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. To qualify as a well capitalized institution,
a bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio
of no less than 6%, and a total risk-based capital ratio of no less than 10%,
and the bank must not be
under any order or directive from the appropriate regulatory agency to
meet and maintain a specific capital level. Currently, we qualify as well
capitalized.

Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution
is in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:



| |  |  | submit a capital restoration plan;                                  
| | - |  | --------------------------------------------------------------------
| |  |  | raise additional capital;                                           
| |  |  | restrict their growth, deposit interest rates, and other activities;
| |  |  | improve their management;                                           
| |  |  | eliminate management fees; or                                       
| |  |  | divest themselves of all or a part of their operations.             

These capital guidelines can affect us in several ways. If we grow at a
rapid pace, our capital may be depleted too quickly, and a capital infusion
from our holding company may be necessary which could impact our ability to pay
dividends. Our capital levels currently are adequate; however, rapid growth,
poor loan portfolio performance, poor earnings performance, or a combination of
these factors could change our capital position in a relatively short period of
time. If we fail to meet these capital requirements, our bank would be
required to develop and file a plan with the Office of the Comptroller of the
Currency describing the means and a schedule for achieving the minimum capital
requirements. In addition, our bank would generally not receive regulatory
approval of any application that requires the consideration of capital
adequacy, such as a branch or merger application, unless our bank could
demonstrate a reasonable plan to meet the capital requirement within a
reasonable period of time. Bank holding companies controlling financial
institutions can be called upon to boost the institutions capital and to
partially guarantee the institutions performance under their capital
restoration plans.

Enforcement Powers.The Financial Institutions Reform, Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain institution-affiliated parties. Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institutions affairs. These practices can include the failure of an
institution to timely file required reports or the filing of false or
misleading information or the submission of inaccurate reports. Civil
penalties may be as high as $1,000,000 a day for such violations. Criminal
penalties for

11



---



##### Table of Contents



some financial institution crimes have been increased to 20 years.
In addition, regulators are provided with greater flexibility to
commence enforcement actions against institutions and institution-affiliated
parties. Possible enforcement actions include the termination of deposit
insurance. Furthermore, banking agencies power to issue cease-and-desist
orders were expanded. Such orders may, among other things, require affirmative
action to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnification or guarantees against loss. A
financial institution may also be ordered to restrict its growth, dispose of
certain assets, rescind agreements or contracts, or take other actions as
determined by the ordering agency to be appropriate.

Effect of Governmental Monetary Policies.Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Banks monetary
policies have had, and are likely to continue to have, an important
impact on the operating results of commercial banks through its power to
implement national monetary policy in order, among other things, to curb
inflation or combat a recession. The monetary policies of the Federal Reserve
Board have major effects upon the levels of bank loans, investments and
deposits through its open market operations in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.

Proposed Legislation and Regulatory Action.New regulations and statutes
are regularly proposed that contain wide-ranging proposals for altering the
structures, regulations, and competitive relationships of the nations
financial institutions. We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may
be affected by any new regulation or statute.

Item 2. Description of Property

Gaffney Property. Our principal place of business and the main office of
the bank is located on property that we own at the corner of Granard Street and
West Meadow Street in Gaffney, South Carolina. The banking facility is
approximately 11,000 square feet and costs approximately $1,500,000, including
furniture, fixtures, and equipment. We completed construction of these
facilities in late 1998 and commenced operations from these new facilities in
January 1999.

Blacksburg Property. We also operate a branch of the bank out of a
Blacksburg office facility at 207 West Cherokee Street, Blacksburg, South
Carolina 29702. The Blacksburg site, which we own, is on approximately one
acre of land. We have constructed a permanent banking facility of 2,550 square
feet on the site at an approximate cost of $600,000 which was paid out of funds
from operations of the bank and, to the extent necessary, remaining proceeds of
the offering.

Chesnee Highway Property. We also operate a branch of the bank out of a
second Gaffney office facility at 626 Chesnee Highway, Gaffney, South Carolina
29341. The Chesnee Highway site, which we own, is on approximately two acres
of land. We have constructed a permanent banking facility of 2,550 square feet
on the site at an approximate cost of $700,000 which was paid out of funds from
operations of the bank.

We believe that these facilities will adequately serve our needs for the
next 12 months of operation.

12



---



##### Table of Contents



Item 3. Legal Proceedings.

Neither the company nor the bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the company or the bank.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

Item 5. Market for Common Equity and Related Stockholder Matters.

In response to this Item, the information contained on page 41 of the
companys Annual Report to Shareholders for the year ended December 31, 2001 is
incorporated herein by reference.

Item 6. Managements Discussion and Analysis or Plan of Operation

In response to this Item, the information contained on pages 4 through 18
of the companys Annual Report to Shareholders for the year ended December 31,
2001 is incorporated herein by reference.

Item 7. Financial Statements

In response to this Item, the information contained on pages 19 through 39
of the companys Annual Report to Shareholders for the year ended December 31,
2001 is incorporated herein by reference.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

In response to this Item, the information contained on page 10 of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on
April 23, 2002 is incorporated herein by reference.

Item 10. Executive Compensation

In response to this Item, the information contained on pages 5 through 7
of the companys Proxy Statement for the Annual Meeting of Shareholders to be
held on April 23, 2002 is incorporated herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management

In response to this Item, the information contained on page 8 of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on
April 23, 2002 is incorporated herein by reference.

13



---



##### Table of Contents



Item 12. Certain Relationships and Related Transactions

In response to this Item, the information contained on page 10 of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on
April 23, 2002 is incorporated herein by reference.

Item 13. Exhibits, List and Reports on Form 8-K

(a)       The following documents are filed as part of this report:

|        |  |                                                                    
|------- |  | -------------------------------------------------------------------
|Exhibit |  |                                                                    
|Number  |  | Description                                                        
|        |  |                                                                    
|13      |  | Annual Report to Shareholders for the year ended December 31, 2001.
|        | 
|21.1    |  | Subsidiaries of the Company                                        
|       
|        |  |                                                                    

(b)       Reports on Form 8-K

No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 2001.

14



---



##### Table of Contents






SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 (the Exchange Act), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

|                     |  |     |  |                                      
|-------------------- |  | --- |  | -------------------------------------
|                     |  |     |  | FNB BANCSHARES, INC.                 
|                     |  |     | 
|                     |  |     | 
|Date: March 15, 2002 |  | By: |  | /s/ V. Stephen Moss                  
|                     |  |     |  |                                      
|                     |  |     |  | V. Stephen Moss                      
|                     |  |     |  | President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints V. Stephen Moss, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.

|                       |  |          |  |               
|---------------------- |  | -------- |  | --------------
|Signature              |  | Title    |  | Date          
|                       |  |          |  |               
|                       |  |          |  |               
|/s/ Richard D. Gardner |  |          |  | March 15, 2002
|                       |  |          |  |               
|Richard D. Gardner     |  | Director |  |               
|                       |  |          |  |               
|/s/ Barry Hamrick      |  |          |  | March 15, 2002
|                       |  |          |  |               
|Barry Hamrick          |  | Director |  |               
|                       |  |          |  |               
|/s/ Haskell D. Mallory |  |          |  | March 15, 2002
|                       |  |          |  |               
|Haskell D. Mallory     |  | Director |  |               
|                       |  |          |  |               
|/s/ Bill Mason         |  |          |  | March 15, 2002
|                       |  |          |  |               
|Bill Mason             |  | Director |  |               





---



##### Table of Contents



|                              |  |                                                          |  |               
|----------------------------- |  | -------------------------------------------------------- |  | --------------
|Signature                     |  | Title                                                    |  | Date          
|                              |  |                                                          |  |               
|                              |  |                                                          |  |               
|/s/ V. Stephen Moss           |  |                                                          |  | March 15, 2002
|                              |  |                                                          |  |               
|V. Stephen Moss               |  | Director;                                                |  |               
|                              |  | President and CEO                                        |  |               
|                              |  |                                                          |  |               
|/s/ Harold D. Pennington, Jr. |  |                                                          |  | March 15, 2002
|                              |  |                                                          |  |               
|Harold D. Pennington, Jr.     |  | Director                                                 |  |               
|                              |  |                                                          |  |               
|/s/ Harold D. Pennington, Sr. |  |                                                          |  | March 15, 2002
|                              |  |                                                          |  |               
|Harold D. Pennington, Sr.     |  | Director                                                 |  |               
|                              |  |                                                          |  |               
|/s/ Heyward W. Porter         |  |                                                          |  | March 15, 2002
|                              |  |                                                          |  |               
|Heyward W. Porter             |  | Director                                                 |  |               
|                              |  |                                                          |  |               
|/s/ Kim Barrs                 |  |                                                          |  | March 15, 2002
|                              |  |                                                          |  |               
|Kimberly D. Barrs             |  | Chief Financial Officer and
Principal Accounting Officer |  |               





---



##### Table of Contents






INDEX TO EXHIBITS

|        |  |                                                                   
|------- |  | ------------------------------------------------------------------
|Exhibit |  |                                                                   
|Number  |  | Description                                                       
|        |  |                                                                   
|13      |  | Annual Report to Shareholders for the year ended December 31, 2001
|        |  |                                                                   
|21.1    |  | Subsidiaries of the Company