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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
|--- | ------------------------------------------------------------------------------

| | For the fiscal year ended December 31, 2003
| | -------------------------------------------

| | or
| | --

| | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
| | ----------------------------------------------------------------------------------
| | For the transition period from __________ to ________                             

Commission file no.
333-87503

First National Bancshares, Inc.
(Name of Small Business Issuer in Its Charter)

|South Carolina                    |  | 58-2466370         
|--------------------------------- |  | -------------------
|(State or Other Jurisdiction      |  | (I.R.S. Employer   
|of Incorporation or Organization) |  | Identification No.)

|215 N. Pine St.                          |  |           
|---------------------------------------- |  | ----------
|Spartanburg, South Carolina              |  | 29302     
|(Address of Principal Executive Offices) |  | (Zip Code)

864-948-9001Issuer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

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. [X]

The issuer's  revenues (total interest income plus  noninterest  income) for its most recent fiscal
year were $8,973,678.  As of March 1, 2004, 1,801,846 shares of Common Stock were issued and outstanding.

The aggregate market value of the Common Stock held by  non-affiliates  (shareholders  holding less
than 5% of an  outstanding  class of stock,  excluding  directors and executive  officers) of the Company on
March 1, 2004 was  $16,977,984.  This  calculation  is computed  by  reference  to the closing  price of our
common stock as reported on the OTC  Electronic  Bulletin  Board on March 1, 2004, of $16.00 per share after
adjustment  for the 3 for 2 stock  split  payable  March 1,  2004,  which was the price of the last trade of
which management is aware prior to this date.

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

|DOCUMENTS INCORPORATED BY REFERENCE
|-----------------------------------
|Company's 2003 Annual Report       
|Company's Proxy Statement for the  
|2004 Annual Shareholders Meeting   
|                                   

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# 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 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:

| | o | significant increases in competitive pressure in the banking and financial services industries;
| | - | -----------------------------------------------------------------------------------------------

| | o | changes in the interest rate environment which could reduce anticipated or actual margins;
| | - | ------------------------------------------------------------------------------------------

| | o | changes in political conditions or the legislative or regulatory environment;
| | - | -----------------------------------------------------------------------------

| | o | 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| | o | changes in technology;
| | - | ----------------------

| | o | changes in monetary and tax policies;
| | - | -------------------------------------

| | o | the level of allowance for loan loss;
| | - | -------------------------------------

| | o | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| | o | the rates of loan growth;
| | - | -------------------------

| | o | adverse changes in asset quality and resulting credit risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

| | o | loss of consumer confidence and economic disruptions resulting from terrorist activities;
| | - | -----------------------------------------------------------------------------------------

| | o | changes in the securities markets; and
| | - | --------------------------------------

| | o | other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------

# General

First
National Bancshares, Inc. was incorporated on July 14, 1999 in South Carolina for the
purpose of operating as a bank holding company pursuant to the Federal Bank Holding
Company Act of 1956 and the South Carolina Bank Holding Company Act, and to purchase 100%
of the issued and outstanding stock of First National Bank of Spartanburg, an association
organized under the laws of the United States, to conduct a general banking business in
Spartanburg, South Carolina. During 2002, we adopted a resolution changing the banks
legal name to First National Bank of the South which continues to do business in
Spartanburg County as First National Bank of Spartanburg.

On
November 10, 1999, we commenced our initial public offering and completed the sale of
1,200,000 shares of our common stock at $10 per share on February 10, 2000. The offering
raised approximately $11,800,000 net of sales expenses and commissions. These figures do
not reflect the 3 for 2 stock split approved by our board of directors on January 20, 2004
and payable March 1, 2004.

---

On
December 19, 2003, we formed FNSC Capital Trust I, a statutory trust, for the purpose of
issuing and selling floating rate securities having an aggregate liquidation amount of $3
million to institutional buyers in a private placement of trust preferred securities.

We
used $11 million of the proceeds from our initial public offering to capitalize the bank
which opened for business on March 27, 2000 in a temporary location at 451 E. St. John St.
that was also the headquarters of the holding company. The bank opened its second
full-service banking office at 2680 Reidville Road in Spartanburg on July 14, 2000 and
opened its third full-service office at 3090 Boiling Springs Road in Boiling Springs on
August 24, 2001. We completed the construction of our permanent main office at 215 N. Pine
St. and moved our headquarters and a full-service banking office to this location on
February 5, 2001. In August 2002, we announced the formation of a strategic alliance with
Colonial Trust Company to offer trust and investment management services. Colonial is the
oldest private trust company in South Carolina and has offices in Spartanburg and
Greenville. On March 15, 2004, we announced the formation of a small business lending
division based in Greenville, South Carolina. The division operates under the name First
National Business Capital.

# Marketing Focus

The
bank has positioned itself as a locally-owned and operated bank organized to serve
consumers and small-to mid-size businesses and professional concerns. Because there are
few locally owned banks left in Spartanburg, we believe we offer a unique banking
alternative for the market by offering a higher level of customer service and a management
team more focused on the needs of the community than most of our competitors. In order to
achieve the level of prompt, responsive service that we believe will be necessary to
attract customers and to develop First Nationals image as a local bank with an
individual focus, we are actively leveraging our community-oriented board of directors,
convenient branch locations, and local services and decision making to attract and retain
customers.

# Banking Services

The
bank is primarily engaged in the business of accepting demand and time deposits and
providing commercial, consumer and mortgage loans to the general public. Deposits of the
bank are insured up to $100,000 by the Federal Deposit Insurance Corporation
(FDIC). Other services which the bank offers include safe deposit boxes, bank
official checks, travelers checks, and wire transfer capabilities. The bank
activated its website and its remote internet banking product, First National Online, on
February 20, 2001 and launched its internet-based commercial cash management product in
October 2001. The bank also offers trust and investment management services through
Colonial Trust Company.

# Location and Service Area

Spartanburg
County has a growing and dynamic economic environment that we believe will support the
bank. It is South Carolinas fourth most populous county with over 247,000 residents.
The county and surrounding area are home to several large manufacturing concerns,
including BMW, Springs Industries, Michelin Tire Company, Advantica, Milliken &
Company, and Spartanburg Regional Medical Center, which support a stable business
foundation and a skilled labor force. The presence of companies like these has resulted in
Spartanburg County having the highest per capita international investment of any area in
the United States in 1995.

Our
primary service area consists of Spartanburg County, South Carolina, with a focus on the
ten mile radius of our main office and our branch office at 2680 Reidville Road. Our main
office is located at 215 N. Pine St. in downtown Spartanburg and provides excellent
visibility for the bank. We opened our second branch office on the west side of
Spartanburg on July 14, 2000 and we opened our third branch office at 3090 Boiling Springs
Road in the rapidly growing northern part of Spartanburg County on August 24, 2001. We
opened an office in Greenville in March 2004, to offer primarily lending products through
the US Small Business Administrations various loan programs. Our anticipated
expansion plans include opening additional branches strategically located

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within our service area to extend the
market reach of our bank while increasing our personal service delivery capabilities to
all of our customers. We plan to take advantage of existing contacts and relationships
with individuals and companies in this area to more effectively market the services of the
bank.

# Deposit Services

We
offer a full range of deposit services that are typically available in most banks and
savings and loan associations, including checking accounts, commercial accounts, savings
accounts, and 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 our primary market area at rates competitive to those offered in the
Spartanburg area. In addition, we offer certain retirement account services, such as
Individual Retirement Accounts (IRAs). We solicit these accounts from individuals,
businesses, associations, organizations, and governmental authorities.

# Lending Activities

General.
          We emphasize a range of lending services, including real estate, commercial, and
          consumer loans to individuals and small- to medium-sized businesses and
          professional firms that are located in or conduct a substantial portion of their
          business in the banks market area. We intend to originate quality,
          profitable loans which will benefit the areas economy and promote the
          growth of the bank. Management has focused on maintaining a quality loan
          portfolio and accepting only those credit risks which meet the banks
          underwriting standards.

Real
Estate and Mortgage Loans. One of the primary components of our 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, including home equity loans. Interest rates for all categories may be fixed
or adjustable, and will more likely be fixed for shorter-term loans. Loan terms generally
are limited to five years or less, although payments may be structured on a longer
amortization basis. We generally charge an origination fee for each loan.

Real
estate loans are subject to the same general risks as other loans. The principal economic
risk associated with each category of loans, including real estate loans, is the
creditworthiness of the banks borrowers. They are particularly sensitive to
fluctuations in the value of real estate, which is generally the underlying security for
real estate loans. Fluctuations in the value of real estate, as well as other factors
arising after a loan has been made, could negatively affect a borrowers cash flow,
creditworthiness, and ability to repay the loan. 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, we typically require personal guarantees of the
principal owners of the property backed with a review of the personal financial statements
of the principal owners.

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 ten years or less after origination. The bank currently
originates most residential real estate loans through a correspondent bank and is
therefore not subject to interest rate and credit risk on these loans.

Commercial
Loans. We make loans for commercial purposes in various lines of businesses.
Commercial loans are generally considered to have greater risk than first or second
mortgages on real estate because they may be unsecured, or if they are secured, the value
of the security may be difficult to assess and more likely to decrease than real estate.
Equipment loans are typically made for a term of five years or less at fixed or variable
rates, with the loan fully amortized over the term, 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 or inventory, and/or
personal guarantees of the principals of the business. We also make small business loans
utilizing government enhancements such as the Small Business Administration
(SBA)s 7(a) and SBAs 504 programs. These loans are typically
partially guaranteed by the government, which may help

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to reduce  our risk.  Government guarantees of SBA loans do not exceed 80% of the loan value and will generally be less.

As
with other categories of loans, the principal economic risk associated with commercial
loans is the creditworthiness of the borrower. The risks associated with commercial loans
vary with many economic factors, including the economy in the Spartanburg County area. The
well-established banks in the Spartanburg County area make proportionately more loans to
medium to large-sized businesses than we do. Many of our 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. We make a variety of loans to individuals for personal and household purposes,
including secured and unsecured installment loans and revolving lines of credit.
Installment loans typically carry balances of less than $50,000 and are amortized over
periods up to 60 months. Consumer loans may be offered on a single maturity basis where a
specific source of repayment is available. Revolving loan products typically require
monthly payments of interest and a portion of the principal. Consumer loans are generally
considered to have greater risk than first or second mortgages on real estate because they
may be unsecured, or if they are secured, the value of the security may be difficult to
assess and more likely to decrease than real estate. As with other categories of loans,
the principal economic risk associated with consumer loans is the creditworthiness of the
borrower. The principal competitors for consumer loans are the established banks and
financial services companies in the Spartanburg County area.

Underwriting
Procedures, Collateral and Risk.We use our established credit policies and procedures
when underwriting each type of loan. Although there are minor variances in the
characteristics and criteria for each loan type which may require additional underwriting
procedures, we generally evaluate borrowers using the following defined criteria:

| | o | Character  we determine that the borrower has sound character and integrity by
examining the borrowers history.
| | - | -----------------------------------------------------------------------------------------------------------------

| | o | Capital  we evaluate the borrowers overall financial strength, as well as the
equity investment in the asset being financed.
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | o | Collateral  we determine that the collateral is adequate from the standpoint of
quality, marketability, value and income potential.
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | o | Capacity  we evaluate the borrowers ability to service the debt.
| | - | ------------------------------------------------------------------

| | o | Conditions  we underwrite the credit in light of the effects of external factors,
such as economic conditions and industry trends.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

It
is our practice to obtain collateral for most loans to help mitigate the risk associated
with lending. We generally limit our loan-to-value ratio to 80%. We obtain a security
interest in real estate for loans secured by real estate, including construction and
development loans and other commercial loans. For commercial loans, we obtain security
interests in equipment and other company assets. For consumer loans used to purchase
vehicles, we obtain appropriate title documentation. For secured loans that are not
associated with real estate, or for which the mortgaged real estate does not provide an
acceptable loan-to-value ratio, we obtain other available collateral such as stocks and
bonds.

Each
type of loan carries a credit risk, simply defined as the potential that the borrower will
not be willing or able to repay the debt. While real estate loans have various risks
common to all types of loans, certain types of real estate loans have specific risk
characteristics that vary according to the collateral type securing the loan and the terms
and repayment sources for the loan. Real estate loans are sensitive to fluctuations in the
value of the real estate securing the loan. Certain types of real estate have specific
risk characteristics that vary according to the type of collateral that secures the loan,
the terms of the loan, and the repayment sources of the loan.

Commercial
real estate loans have risk that the primary source of repayment will be insufficient to
service the debt. Often, this occurs as the result of changes in local economic conditions
or in the industry in

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which the borrower operates which
impact cash flow or collateral value. Construction and development real estate loans
generally carry a higher degree of risk than long term financing of existing properties.
These projects are usually dependent on the completion of the project on schedule and
within cost estimates and on the timely sale of the property. Inferior or improper
construction techniques, changes in economic conditions during the construction and
marketing period, and rising interest rates which may slow the sale of the property are
all risks unique to this type of loan. Residential mortgage loans, in contrast to
commercial real estate loans, generally have longer terms and may have fixed or adjustable
interest rates.

Consumer
loans, other than home equity loan products, are generally considered to have more risk
than loans to individuals secured by first or second mortgages on real estate due to
dependence on the borrowers employment status as the sole source of repayment.
Agricultural loans carry the risk of crop failure, which adversely impacts both the
borrowers ability to repay the loan and the value of the collateral.

By
following defined underwriting criteria noted above, we can help to reduce these risks.
Additionally, we help to reduce the risk that the underlying collateral may not be
sufficient to repay the outstanding balances by using appraisals or taking other steps to
determine that the value of the collateral is adequate, and lending amounts based upon
lower loan-to-value ratios. We control risks by limiting the concentration of our loan
portfolio in any one type of loan. A concentration of credit report based upon SIC code is
reviewed on a quarterly basis by our Board of Directors.

Loan
Approval and Review. Our 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 lending limit, the executive management loan committee or the
directors loan committee. We do not make any loans to any of our directors or
executive officers unless the loan is approved by the board of directors of the bank and
is made on terms not more favorable to such person than would be available to a person not
affiliated with the bank. We adhere to Federal National Mortgage Association and Federal
Home Loan Mortgage Corporation guidelines in our residential mortgage loan review process,
but may choose to alter this policy in the future. We currently originate most of our
residential mortgage loans through a correspondent bank.

Lending
Limits. Our lending activities are subject to a variety of lending limits imposed by
federal law. In general, we are subject to a legal limit on loans to a single borrower
equal to 15% of the banks capital and unimpaired surplus. Different limits may apply
in certain circumstances based on the type of loan or the nature of the borrower,
including the borrowers relationship to the bank. These limits increase or decrease
as our capital increases or decreases. During 2003, our regulatory capital increased by
approximately 35%, primarily due to the issuance of $3 million in trust preferred
securities on December 19, 2003.

Based
upon the current total regulatory capital of the bank, we have a legal lending limit of
approximately $2,500,000. We actively engage in selling participations in our loans to
other financial institutions in order to more adequately meet all of the lending needs of
loan customers requiring aggregate extensions of credit above these limits. We compete for
real estate loans with a number of competitors which are well-established in the
Spartanburg County area and have substantially greater resources and lending limits. As a
result, we occasionally must charge a lower interest rate to attract borrowers.

# Other Banking Services

We
offer other banking services including drive-up ATMs, safe deposit boxes,
travelers checks, direct deposit, U.S. Savings Bonds, and banking by telephone. We
activated our website and First National Online, our internet banking product, on February
20, 2001. In addition, we introduced our internet-based commercial cash management product
in October of 2001.

We
are associated with the Cirrus and Pulse ATM networks, which may be used by our customers
throughout the country. We also offer merchant banking and credit card services through a
correspondent bank.

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Although
our bank does not have trust powers, we implemented a strategic alliance with Colonial
Trust Co. on August 15, 2002 to provide our consumer and commercial customers access to a
wide variety of services provided by Colonial Trust Co. including trust, professional
portfolio management, individual financial and retirement planning and corporate
retirement planning services.

# Market Share

As
of June 30, 2003, total deposits in our primary service area were $2.51 billion, which
represented a 3.6% deposit growth rate from 2002. Our market share as of this date was
5.6%, an increase of 44% over our market share in 2002 of 3.90%. Our initial plans are to
grow our deposit base to $200 million by 2005. Of course, we cannot be sure that these
deposit growth rates will continue, or that we will accomplish this objective.

# 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.

The
following discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

# USA PATRIOT Act of 2001

In
October 2001, the USA PATRIOT Act of 2001 (the PATRIOT Act) was enacted in
response to the terrorist attacks in New York, Pennsylvania and Washington D.C. which
occurred on September 11, 2001. The PATRIOT Act is intended to strengthen U.S. law
enforcements and the intelligence communities abilities to work cohesively to
combat terrorism on a variety of fronts. The potential impact of the PATRIOT Act on
financial institutions of all kinds is significant and wide ranging. The PATRIOT Act
contains sweeping anti-money laundering and financial transparency laws and imposes
various regulations, including standards for verifying client identification at account
opening, and rules to promote cooperation among financial institutions, regulators and law
enforcement entities in identifying parties that may be involved in terrorism or money
laundering.

On
May 9, 2003, the United States Treasury Department, the Financial Crimes Enforcement
Network and the federal financial regulators announced final regulations implementing
customer identification and verification requirements under Section 326 of the PATRIOT
Act. The regulations require that financial institutions develop a Customer Identification
Program (CIP) by October 1, 2003 that implements reasonable procedures to: (1) collect
identifying information about customers opening an account; (2) verify that the customers
are who they say they are; (3) maintain records of the information used to verify their
identity; and (4) determine whether the customer appears on any list of suspected
terrorists or terrorist organizations.

# Check 21

On
October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century
Act, also known as Check 21.  The new law, which is not effective until October 28,
2004, gives substitute checks, such as a digital image of a check and
copies made from that image, the same legal standing as the original paper check. 
Some of the major provisions include:

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| | o | Allows check truncation without making it mandatory;
| | - | ----------------------------------------------------

| | o | Demands that every financial institution communicate to accountholders in writing a
description of its substitute check processing program and their rights under the
law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Legalizes substitutions for and replacements of paper checks without agreement from consumers;
| | - | ----------------------------------------------------------------------------------------------

| | o | Keeps in place the previously mandated electronic collection and return of checks between
financial institutions only when individual agreements are in place;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cautions that when accountholders request verification, financial institutions must
produce the original check (or a copy that accurately represents the original) and
demonstrate that the account debit was accurate and valid; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Requires recrediting of funds to an individuals account on the next business
day after a consumer proves the financial institution has erred.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

This
new legislation will likely have a dramatic impact on bank capital spending as many
financial institutions assess whether technological or operational changes are
necessary to stay competitive and take advantage of the new opportunities presented by
Check 21.

# First National
Bancshares, Inc.

Because
our holding company, First National 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. Our
activities are also governed by the Glass-Steagall Act of 1933. These regulations may be
affected by the changes enacted by the Gramm-Leach-Bliley 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:

| | o | banking and managing or controlling banks;
| | - | ------------------------------------------

| | o | furnishing services to or performing services for its subsidiaries; and
| | - | -----------------------------------------------------------------------

| | o | 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:

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

| | o | 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
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | 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

7

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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, by order or
regulation, 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:

| | o | making or servicing loans and certain types of leases;
| | - | ------------------------------------------------------

| | o | engaging in certain insurance and discount brokerage activities;
| | - | ----------------------------------------------------------------

| | o | performing certain data processing services;
| | - | --------------------------------------------

| | o | acting in certain circumstances as a fiduciary or investment or financial adviser;
| | - | ----------------------------------------------------------------------------------

| | o | owning savings associations; and
| | - | --------------------------------

| | o | making investments in certain corporations or projects designed primarily to promote
community welfare.
| | - | -------------------------------------------------------------------------------------------------------

The
Federal Reserve Board imposes certain capital requirements on the 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 the bank, and these loans may be repaid from dividends paid from the bank
to our company. Our ability to pay dividends is subject to regulatory restrictions as
described below in First National Bank of Spartanburg  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 the 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 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.

The
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 that become financial 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.

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

8

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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 South

Our
bank, First National Bank of the South, operates three offices in Spartanburg County under
the name First National Bank of Spartanburg 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. First National Bank of the South also operates a small
business lending division through a loan production office in Greenville County. 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 the banks operations, including:

| | o | security devices and procedures;
| | - | --------------------------------

| | o | adequacy of capitalization and loss reserves;
| | - | ---------------------------------------------

| | o | loans;
| | - | ------

| | o | investments;
| | - | ------------

| | o | borrowings;
| | - | -----------

| | o | deposits;
| | - | ---------

| | o | mergers;
| | - | --------

| | o | issuances of securities;
| | - | ------------------------

| | o | payment of dividends;
| | - | ---------------------

| | o | interest rates payable on deposits;
| | - | -----------------------------------

| | o | interest rates or fees chargeable on loans;
| | - | -------------------------------------------

| | o | establishment of branches;
| | - | --------------------------

| | o | corporate reorganizations;
| | - | --------------------------

| | o | maintenance of books and records; and
| | - | -------------------------------------

| | o | 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 will
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 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:

| | o | internal controls;
| | - | ------------------

| | o | information systems and audit systems;
| | - | --------------------------------------

| | o | loan documentation;
| | - | -------------------

| | o | credit underwriting;
| | - | --------------------

| | o | interest rate risk exposure; and
| | - | --------------------------------

9

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| | o | 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 thirty 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 (FICO) bonds issued in the late 1980s as part of the government
rescue of the thrift industry. Although we pay a quarterly FICO assessment, the FDIC
assessment rate on our bank deposits currently is zero. The FDIC may increase or decrease
the assessment rate schedule on a semiannual basis. An increase in the BIF assessment rate
could have a material adverse effect on our earnings, depending on the amount of the
increase.

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.The 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 the 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 its subsidiaries, as those prevailing at the
time for comparable transactions with nonaffiliated companies. The 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.

The
Federal Reserve Board has recently issued Regulation W, which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with
respect to affiliate transactions. Regulation W incorporates the exemption from the
affiliate transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. In addition, under Regulation W:

| | o | a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
| | - | -----------------------------------------------------------------------------------

| | o | covered  transactions  and other specified  transactions  between a bank or its subsidiaries and an
affiliate  must be on terms and  conditions  that are  consistent  with safe and sound banking
practices; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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| | o | with some exceptions, each loan or extension of credit by a bank to an affiliate must be
secured by collateral with a market value ranging from 100% to 130%, depending on the type
of collateral, of the amount of the loan or extension of credit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation
W generally excludes all non-bank and non-savings association subsidiaries of banks from
treatment as affiliates, except to the extent that the Federal Reserve Board decides to
treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W,
the Federal Reserve Board has proposed a regulation which would further limit the amount
of loans that could be purchased by a bank from an affiliate to not more than 100% of the
banks capital and surplus. This regulation has not yet been adopted.

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.

The
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act, subject to certain
conditions imposed by their respective banking regulators, national and state-chartered
banks are permitted to form financial subsidiaries that may conduct financial
or incidental activities, thereby permitting bank subsidiaries to engage in certain
activities that previously were impermissible. The Gramm-Leach-Bliley Act imposes several
safeguards and restrictions on financial subsidiaries, including that the parent
banks equity investment in the financial subsidiary be deducted from the banks
assets and tangible equity for purposes of calculating the banks capital adequacy.
In addition, the Gramm-Leach-Bliley Act imposes new restrictions on transactions between a
bank and its financial subsidiaries similar to restrictions applicable to transactions
between banks and nonbank affiliates.

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.

11

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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:

| | o | the federal Truth-In-Lending Act,
governing disclosures of credit terms to consumer borrowers;
| | - | ----------------------------------------------------------------------------------------------

| | o | 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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Equal Credit Opportunity Act,  prohibiting  discrimination on the basis of race, creed or other
              prohibited factors in extending credit;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Credit  Reporting Act of 1978,  governing the use and provision of  information  to credit
              reporting agencies;
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Debt  Collection  Act,  governing the manner in which  consumer  debts may be collected by
              collection agencies; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | o | 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:

| | o | 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
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | 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 we or the 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

12

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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 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.

On
December 19, 2003, FNSC Capital Trust I, (the Trust) a subsidiary of our bank
holding company, was formed to issue $3 million in floating rate trust securities. Under
the provisions of FASB Interpretation No. 46 (FIN 46), we were allowed to
consolidate the Trust in our consolidated financial statements as of December 31, 2003.
However, FIN 46 requires us to deconsolidate the Trust from our consolidated financial
statements during 2004.

Currently,
the trust preferred securities satisfy the criteria of the Federal Reserve Board
authorizing the use of such instruments as Tier 1 capital for bank holding companies.
However, as a result of this change in the accounting treatment for statutory trusts, the
Federal Reserve is reconsidering the capital treatment of the trust preferred securities.
We believe that the likely results of this process will be: (1) in light of the estimated
$70 billion or more of trust preferred securities outstanding, existing trust preferred
securities will be grandfathered, either permanently or with a phase out over several
years, (2) new trust preferred securities issues will be treated as Tier 1 capital, but
only as a type of Tier 2 capital, with the exact amounts includable as various Tier 2
categories to be determined, and (3) new trust preferred issues for smaller institutions
or holding companies that are not internationally active may be granted Tier 1 status on a
case-by-case basis using more rigorous financial analysis by the Federal Reserve and
limited to a maximum of 15% or less of Tier 1 capital. If we are not able to include the
trust preferred securities as Tier 1 capital for our bank holding company, we would be
more likely to redeem the trust preferred securties or dissolve the trust.

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. As of December 31, 2003, we qualified 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:

| | o | submit a capital restoration plan;
| | - | ----------------------------------

| | o | raise additional capital;
| | - | -------------------------

| | o | restrict their growth, deposit interest rates, and other activities;
| | - | --------------------------------------------------------------------

| | o | improve their management;
| | - | -------------------------

| | o | eliminate management fees; or
| | - | -----------------------------

| | o | 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

13

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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. A bank that is not well-capitalized is also
subject to certain limitations relating to so-called brokered deposits. 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 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.

# Location and Service Area

We
conduct a general commercial and retail banking business, emphasizing the needs of
individuals and small- to medium-sized businesses. We operate our banking business through
our bank, First National Bank of the South. Our main office is located at 215 N. Pine
Street in Spartanburg, South Carolina. We also operate two additional full-service branch
offices in Spartanburg County and a loan production office in Greenville County. We
primarily serve Spartanburg, South Carolina and the surrounding area.

# Competition

The
banking business is highly competitive. We compete with other commercial banks, savings
and loan associations, credit unions and money market mutual funds operating in the
Spartanburg County area and elsewhere. As of June 30, 2003, there were 16 depository
institutions operating in Spartanburg County. Some of these competitors have been in
business for a long time and have already established their customer base and name
recognition. We believe that our community bank focus, with our emphasis on service to
small businesses, individuals, and professional concerns, gives us an advantage in the
market. Nevertheless, a number of these competitors have greater financial and personnel
resources than we may have. Most of them offer services such

14

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as extensive and established branch
networks that we do not currently provide. In addition, competitors that are not
depository institutions are generally not subject to the extensive regulations that apply
to our bank. As a result of these competitive factors, we may have to pay higher rates of
interest to attract deposits.

# Employees

As
of March 1, 2004, we had 43 employees, of which 36 were full time. These employees provide
the majority of their services to our bank.

# Item 2.  Description of
Property

Since
February 5, 2001, the principal place of business of both the company and the bank has
been located at 215 N. Pine Street, Spartanburg, South Carolina 29302, one block north of
the intersection of Main Street and Pine Street in downtown Spartanburg. We own the
approximately 2.0 acre site and the 15,000 square foot building with four drive-through
banking stations and an automated teller machine. We had previously operated our
headquarters and a full-service branch in a temporary facility across the street from our
new main office facility at 451 E. St. John Street, Spartanburg, South Carolina 29302.

We
opened a 3,000 square foot branch office on July 14, 2000 on the west side of Spartanburg
on a one-acre outparcel of the Oak Grove Shopping Center at 2680 Reidville Road,
Spartanburg, South Carolina 29301. The branch has four drive-through banking stations and
an automated teller machine. We have a 20 year lease on the land and constructed the
building at this location for approximately $611,000. Furniture, fixtures and equipment
for the branch cost approximately $217,000.

We
opened a 3,000 square foot branch office on August 25, 2001 at 3090 Boiling Springs Road
in northern Spartanburg County in Boiling Springs, South Carolina 29316 on a plot of land
which was purchased for approximately $370,000. The facility was constructed at a cost of
approximately $500,000. The branch has four drive-through banking stations and an
automated teller machine. Furniture, fixtures and equipment for the branch cost
approximately $198,000.

We
opened a loan production office on March 15, 2004 at 1204-A E. Washington Street in
Greenville County. We lease 1,387 square feet of space in an existing office building
under a two-year term expiring on February 28, 2006.

We
intend to continue to follow our strategy of growth and expansion and may contract to open
offices at additional sites in the next several years of operation.

# Item 3.  Legal
Proceedings.

There
are no material legal proceedings.

# 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.

Our
stock is quoted under the symbol FNSC on the OTC Bulletin Board. Trading and
quotations of the common stock have been limited and sporadic. The ranges of prices known
to management at which shares of stock have been traded during 2003 are $14.25 to $19.00
(not adjusted for the 3 for 2 stock split payable March 1, 2004). As of March 1, 2004,
there were 392 shareholders of record.

15

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All
of our outstanding shares of common stock are entitled to share equally in dividends from
funds legally available therefore, when, as and if declared by the board of directors.
Since our inception, we have not paid cash dividends on our common stock. Our ability to
pay cash dividends is dependent on receiving cash in the form of dividends from our bank.
However, certain restrictions exist regarding the ability of our bank to transfer funds to
us in the form of cash dividends. All dividends are subject to prior approval of the
Office of the Comptroller of the Currency and are payable only from the undivided profits
of our bank. We currently intend to retain earnings to support operations and finance
expansion and therefore, we do not anticipate paying cash dividends in the foreseeable
future.

The
following is a summary of the bid prices for our common stock reported by the OTC Bulletin
Board for the periods indicated. The prices shown reflect historical activity and have not
been adjusted to reflect the 3 for 2 stock split payable March 1, 2004.

| |  | 2003 | 2002          
| |  | ---- | --------------
|
|
| |  |      | First Quarter 
| |  |      | Second Quarter
| |  |      | Third Quarter 
| |  |      | Fourth Quarter

The
prices listed above are quotations, which reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.

# Item 6.  
Managements Discussion and Analysis of Results of Operation

In
response to this Item, the information contained on pages 4 through 17 of our Annual
Report to Shareholders for the year ended December 31, 2003 is incorporated herein by
reference.

# Item 7.  Financial
Statements

In
response to this Item, the information contained on pages 18 through 42 of our Annual
Report to Shareholders for the year ended December 31, 2002 is incorporated herein by
reference.

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

On
February 20, 2002, we replaced the firm of Crisp Hughes Evans, LLP with Elliott Davis, LLC
as our independent auditors. The decision to replace Crisp Hughes Evans, LLP was
recommended by our audit committee and authorized by our board of directors.

The
reports of Crisp Hughes Evans, LLP on the Companys financial statements for the
fiscal years ending December 31, 2001 and 2000 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope,
or accounting principles.

In
connection with the audits of the Companys financial statements for the fiscal year
ended December 31, 2001 and December 31, 2000, and during any subsequent interim period
preceding the dismissal of Crisp Hughes Evans, LLP, there were no disagreements with Crisp
Hughes Evans, LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Crisp Hughes Evans, LLP, would have caused Crisp Hughes Evans, LLP to make
reference to the matter in their report.

During
the fiscal years ended December 31, 2001 and December 31, 2000, and during any subsequent
interim period preceding the replacement of Crisp Hughes Evans, LLP, there were no
reportable events to describe as specified in Item 304(a)(1)(iv)(B) of
Regulation S-B.

16

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We
requested Crisp Hughes Evans, LLP to furnish a letter addressed to the Commission stating
whether it agrees with the above statements. A copy of that letter, dated February 22,
2002, is filed as Exhibit 16.1 to the Report on Form 8-K filed with the SEC on February
26, 2002.

On
February 21, 2002, we engaged Elliott Davis, LLC as our independent auditors for the
fiscal year ended December 31, 2002, to audit the Companys financial statements.
During the fiscal year ended December 31, 2001, and the subsequent interim period
preceding the engagement of Elliott Davis, LLC, we did not consult Elliott Davis, LLC on
any matter requiring disclosure under Item 304(a)(2) of Regulation S-B.

# Item 8A.  Controls and
Procedures

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of December 31, 2003. There have been
no changes in the disclosure controls and procedures during the fourth quarter ending
December 31, 2003.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

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

In
response to this Item, additional information is contained on page 12 of our Proxy
Statement for the Annual Meeting of Shareholders to be held on April 20, 2004 incorporated
herein by reference.

We
have adopted a Code of Ethics that applies to our directors, executive officers (including
our principal executive officer and principal financial officer) and employees in
accordance with the Sarbanes-Oxley Corporate Responsibility Act of 2002. The Code of
Ethics is available without charge to shareholders upon request. Shareholders should
contact Ms. Kitty B. Payne at our corporate offices to obtain a copy.

# Item 10.  Executive
Compensation

In
response to this Item, the information contained on page 7 of our Proxy Statement for the
Annual Meeting of Shareholders to be held on April 20, 2004 is incorporated herein by
reference.

# Item 11.  Executive
Security Ownership of Certain Beneficial Owners and Management

In
response to this Item, additional information is contained on page 9 of our Proxy
Statement for the Annual Meeting of Shareholders to be held on April 20, 2004 incorporated
herein by reference.

17

---

The
following table sets forth equity compensation plan information at December 31, 2003. This
table is adjusted for the 3 for 2 stock split payable March 1, 2004.

# Equity Compensation Plan Information

|                        |  |  | Number of securities
|----------------------- |  |  | --------------------
|
|
|
|
|
|
|
|Equity compensation     |  |  |                     
|plans approved by       |  | 
|security holders (1)    |  |  |                     
|                        |  | 
|Equity compensation     |  | 
|plans not approved      |  |  |                     
|by security holders (2) |  | 
|                        |  | 
|Total                   |  |  |                     

|(1) | We have the right to increase the number of shares of common stock available
          under the 2000 First National Bancshares, Inc. Stock Incentive Plan each time we
          issue additional shares so that it continues to equal 15% of our total
          outstanding shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Each of our organizers has received, for no additional consideration, a warrant
          to purchase two shares of common stock for $10.00 per share ($6.67 per share
          after the adjustment for the 3 for 2 stock split payable March 1, 2004) for
          every three shares purchased during our initial public offering. The warrants
          are represented by separate warrant agreements. One-fifth of the warrants vest
          on each of the first five anniversaries of the completion of the offering, and
          they are exercisable in whole or in part during the ten year period following
          that date. The warrants may not be assigned, transferred, pledged, or
          hypothecated in any way. The shares issued pursuant to the exercise of such
          warrants are transferable, subject to compliance with applicable securities
          laws. If the Office of the Comptroller of the Currency or the FDIC issues a
          capital directive or other order requiring the bank to obtain additional
          capital, the warrants will be forfeited if not immediately exercised.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 12.  Certain
Relationships and Related Transactions

In
response to this Item, the information contained on page 12 of our Proxy Statement for the
Annual Meeting of Shareholders to be held on April 20, 2004 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:
|--- | ---------------------------------------------------------

|3.1. | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the
          Registration Statement on Form SB-2, File No. 333-70589).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------

|3.2. | Bylaws (incorporated by reference to Exhibit 3.2 of the Registration Statement
          on Form SB-2, File No. 333-70589).
|---- | ---------------------------------------------------------------------------------------------------------------------------

18

---

|4.1. | See Exhibits 3.1 and 3.2 for provisions in First National Bancsharess
          Articles of Incorporation and Bylaws defining the rights of holders of the
          common stock (incorporated by reference to Exhibit 4.1 of the Registration
          Statement on Form SB-2, File No. 333-70589).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2. | Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of
          the Registration Statement on Form SB-2, File No. 333-70589).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1. | Employment Agreement dated July 20, 1999 between First National Bancshares and
          Jerry Calvert (incorporated by reference to Exhibit 10.1 of the Registration
          Statement on Form SB-2, File No. 333-70589).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2. | Form of Stock Warrant Agreement (incorporated by reference to Exhibit 10.2 of
          the Registration Statement on Form SB-2, File No. 333-70589).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|10.3. | First National Bancshares, Inc. 2000 Stock Incentive Plan.
|----- | ----------------------------------------------------------

|10.4 | Lease Agreement dated July 12, 1999 between First National Bancshares, Inc. and Oak Grove
Associates, LLC (incorporated by reference to Exhibit 10.5 of the Registration Statement
on Form SB-2, File No. 333-70589).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13 | Company 2003 Annual Report.
|-- | ---------------------------

|21 | Subsidiaries of the Company.
|-- | ----------------------------

|23.1 | Opinion of Dixon Hughes PLLC (formerly known as Crisp Hughes Evans, LLP).
|---- | -------------------------------------------------------------------------

|31.1 | Rule 13a-14a/15d-14a Certification.
|---- | -----------------------------------

|31.2 | Rule 13a-14a/15d-14a Certification.
|---- | -----------------------------------

|32 | Section 1350 Certifications. This exhibit is not filed for purposes of Section
18 of the Securities Exchange Act of 1934 but is instead furnished as provided by
applicable rules of the Securities and Exchange Commission.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
exhibits listed above will be furnished to any security holder upon written request to Ms.
Kitty B. Payne, Chief Financial Officer, First National Bancshares, Inc., Post Office Box
3508, Spartanburg, South Carolina 29304. The Registrant will charge a fee of $.25 per page
for photocopying such exhibit.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)          Reports on Form 8-K

We
filed a Form 8-K on October 10, 2003 to disclose the contents of a press release that we
issued announcing our financial results for the third quarter ended September 30, 2003.

We
filed a Form 8-K on December 23, 2003 to disclose that we issued $3.0 million in floating
rate trust preferred securities through The Bankers Bank and Bankers Banc Capital
Corporation as placement agents.

# Item 14.  Principal
Accountant Fees and Services

In
response to this Item, the information contained on page 12 of our proxy statement for the
Annual Meeting of Shareholders to be held on April 20, 2004 is incorporated herein by
reference.

19

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# 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.

| |  | FIRST NATIONAL BANCSHARES, INC.
| |  | -------------------------------

|Date:  March 30, 2004 |  | By:  /s/ Jerry L. Calvert
       Jerry L. Calvert
       President and Chief Executive Officer
|--------------------- |  | ----------------------------------------------------------------------------------------------

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Jerry L. Calvert and Norman F. Pulliam as the 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 such 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 such attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following in the capacities and on the dates indicated.

|Signature | Title | Date
|--------- | ----- | ----

|/s/ C. Dan Adams
C. Dan Adams | Director | March 30, 2004
|----------------------------- | -------- | --------------

|/s/ Mellnee G. Buchheit
Mellnee G. Buchheit | Director | March 30, 2004
|------------------------------------------- | -------- | --------------

|/s/ Jerry L. Calvert
Jerry L. Calvert | DirectorPresident, Chief Executive Officer | March 30, 2004
|------------------------------------- | ------------------------------------------ | --------------

|/s/ Martha Cloud Chapman
Martha Cloud Chapman | Director | March 30, 2004
|--------------------------------------------- | -------- | --------------

|/s/ W. Russel Floyd, Jr.
W. Russel Floyd, Jr. | Director | March 30, 2004
|--------------------------------------------- | -------- | --------------

|/s/ C. Tyrone Gilmore, Sr.
 C. Tyrone Gilmore, Sr. | Director | March 30, 2004
|-------------------------------------------------- | -------- | --------------

|/s/ Gaines W. Hammond, Jr., MD
Gaines W. Hammond, Jr., MD | Director | March 30, 2004
|--------------------------------------------------------- | -------- | --------------

20

---

|/s/ Benjamin R. Hines
Benjamin R. Hines | Director | March 30, 2004
|--------------------------------------- | -------- | --------------

|/s/ William A. Hudson
 William A. Hudson | Director | March 30, 2004
|---------------------------------------- | -------- | --------------

|/s/ Kitty B. Payne
Kitty B. Payne | Chief Financial Officer, Principal Financial and Accounting
Officer | March 30, 2004
|--------------------------------- | ------------------------------------------------------------------- | --------------

|/s/ Norman F. Pulliam
Norman F. Pulliam | Director, Chairmanof the Board | March 30, 2004
|--------------------------------------- | ------------------------------ | --------------

|/s/ Peter E. Weisman
 Peter E. Weisman | Director | March 30, 2004
|-------------------------------------- | -------- | --------------

|/s/ Donald B. Wildman
Donald B. Wildman | Director | March 30, 2004
|--------------------------------------- | -------- | --------------

|/s/ Coleman L. Young, Jr.
Coleman L. Young, Jr. | Director | March 30, 2004
|----------------------------------------------- | -------- | --------------

21

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# INDEX TO EXHIBITS

Exhibit Number
          Description

|3.1. | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the
          Registration Statement on Form SB-2, File No. 333-70589).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------

|3.2. | Bylaws (incorporated by reference to Exhibit 3.2 of the Registration Statement
          on Form SB-2, File No. 333-70589).
|---- | ---------------------------------------------------------------------------------------------------------------------------

|4.1. | See Exhibits 3.1 and 3.2 for provisions in First National Bancsharess
          Articles of Incorporation and Bylaws defining the rights of holders of the
          common stock (incorporated by reference to Exhibit 4.1 of the Registration
          Statement on Form SB-2, File No. 333-70589).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2. | Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of
          the Registration Statement on Form SB-2, File No. 333-70589).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1. | Employment Agreement dated July 20, 1999 between First National Bancshares and
          Jerry Calvert (incorporated by reference to Exhibit 10.1 of the Registration
          Statement on Form SB-2, File No. 333-70589).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2. | Form of Stock Warrant Agreement (incorporated by reference to Exhibit 10.2 of
          the Registration Statement on Form SB-2, File No. 333-70589).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|10.3. | First National Bancshares, Inc. 2000 Stock Incentive Plan.
|----- | ----------------------------------------------------------

|10.4 | Lease Agreement dated July 12, 1999 between First National Bancshares, Inc. and Oak Grove
Associates, LLC (incorporated by reference to Exhibit 10.5 of the Registration Statement
on Form SB-2, File No. 333-70589).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13 | Company 2003 Annual Report.
|-- | ---------------------------

|21 | Subsidiaries of the Company.
|-- | ----------------------------

|23.1 | Opinion of Dixon Hughes PLLC (formerly known as Crisp Hughes Evans, LLP).
|---- | -------------------------------------------------------------------------

|31.1 | Rule 13a-14a/15d-14a Certification.
|---- | -----------------------------------

|31.2 | Rule 13a-14a/15d-14a Certification.
|---- | -----------------------------------

|32 | Section 1350 Certifications. This exhibit is not filed for purposes of Section
18 of the Securities Exchange Act of 1934 but is instead furnished as provided by
applicable rules of the Securities and Exchange Commission.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22