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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-KSB

|(Mark One)
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Commission file no. 000-30523

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

|South Carolina                                                   |  | 58-2466370                            
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|(State or Other Jurisdiction   of Incorporation or Organization) |  | (I.R.S. Employer   Identification No.)
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|215 N. Pine St.   Spartanburg, S.C.                              |  | 29302                                 
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|(Address of Principal Executive Offices)                         |  | (Zip Code)                            
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|864-948-9001                                                    
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|Issuers Telephone Number, Including Area   Code                

Securities registered pursuant to Section 12(b) of the Act:  None. Securities registered pursuant to Section 12(g) of the Act: Common Stock.

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act
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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.

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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.
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Indicted by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

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The issuers revenues (net interest income plus noninterest income) for its most recent fiscal year were $11,366,000.  As of March 1, 2006, 3,153,223 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, 2006 was $38,364,720. This calculation is computed by reference to the closing price of our common stock as reported on the NASDAQ National Market on March 1, 2006, of $20.00 per share.

Transitional Small Business Disclosure Format.  (Check one):

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DOCUMENTS INCORPORATED BY REFERENCE

|Companys 2005 Annual Report                                       |  | Part II, Items 6 and 7     
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|Companys Proxy Statement for the 2006 Annual Shareholders Meeting |  | Part III, Items 9-12 and 14

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Part I.

Item 1.     Description of Business

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to, without limitation, our future economic performance, plans and objectives for future operations, and projections of revenues and other financial items that are based on our beliefs, as well as assumptions made by and information currently available to us.  The words may, will, anticipate, should, would, believe, contemplate, could, project, predict, expect, estimate, continue, and intend, as well as other similar words and expressions of the future, are intended to identify forward-looking statements.  Our actual results, performance, or
achievements may differ materially from the results expressed or implied by our forward-looking statements.

The cautionary statements in the Risk Factors section and elsewhere in this report also identify important factors and possible events that involve risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.  All forward-looking statements in this report are based on information available to us on the date of this report.  We do not intend to, and assume no responsibility for, updating any forward-looking statements that may be made by us or on our behalf in this report or otherwise.

General

We are a South Carolina corporation organized in 1999 and serve as the holding company for First National Bank of the South, a national banking association.  We operate under a traditional community banking model, with a particular focus on commercial real estate and small business lending.  We commenced banking operations in March 2000 in Spartanburg, South Carolina, where we operate three full-service branches under the name First National Bank of Spartanburg.  In August 2002, we began to offer trust and investment management services through Colonial Trust Company, a South Carolina private trust company established in 1913.  We also operate a loan production office in Greenville County, which also houses our small business lending division that operates under the name First National Business Capital.

In October 2005, we successfully converted our Mount Pleasant loan production office, opened in October 2004, to our fourth full-service branch, our first in the Charleston area.  In January of 2006, we expanded into our states capital with the opening of our loan production office in Columbia, South Carolina.  In February of 2006, we opened our loan production office on Daniel Island to expand our presence in the Charleston area.  In March of 2006, we received regulatory approval to convert our Greenville loan production office to our fifth full-service branch, our first in the Greenville market, and market headquarters.

Banking Services

We are primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC and providing commercial, consumer, and mortgage loans to the general public.  We also originate small business loans under the SBAs various loan programs.

Our Market Areas

Our primary market is Spartanburg County, which is located in the upstate region of South Carolina between Atlanta and Charlotte on the I-85 business corridor.  According to the South Carolina Budget and Control Board, as of July 1, 2004, Spartanburg Countys estimated population totaled 264,230 residents.  The South Carolina Department of Commerce notes that Spartanburg County attracted over $118.8 million in capital investment in 2004.  The Spartanburg Area Chamber of Commerce reports that since 2001 downtown Spartanburg has attracted more than $170 million in investments and 1,200 new jobs. As of 2005, estimated median family income for the Spartanburg metropolitan statistical area was $53,650, as compared to $52,250 for South Carolina, according to the U.S. Department of Housing and Urban Development.  Spartanburg was named the top U.S. market for European business expansion
by Expansion Management magazine in 2003.  According to the Spartanburg Area Chamber of Commerce, more than 90 international firms, representing 15 nations, do business in the Spartanburg County business community, including Michelin, BMW, and Invista.  BMWs North American assembly plant in Spartanburg began production in September 1995 and is now the sole producer of both the Z4 and the X5 Sports Activity Vehicle.  Spartanburg is also home to many domestic corporations, including Milliken, Cryovac, Dennys, QS/1, and Advance America.  We believe that this dynamic economic environment will continue to support the community and our business in the future.

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We advertise heavily in the Spartanburg market and, through our three full-service offices in Spartanburg, have positioned ourselves as the leading local community bank in that market.  As of June 30, 2005, we were the fourth largest bank in Spartanburg County, with $244.6 million in total deposits, or 8.66% of the approximately $2.82 billion of deposits in the market.  The following table includes information from the FDIC website regarding our market share in Spartanburg County relative to top competitor banks as of June 30, 2005:

|Rank |  |  | Bank                              |  |  | Branches |  |   | Total   Deposits |  |  | Market   Share |  
|---- |  |  | --------------------------------- |  |  | -------- |  | - | ---------------- |  |  | -------------- | -
|     |  |  |                                   |  |  |          |  |   |                  |  |  |                |  
|1    |  |  | Wachovia                          |  |  | 7        |  | $ | 484.9   million  |  |  | 17.17          | %
|2    |  |  | Bank of America                   |  |  | 8        |  |   | 409.8   million  |  |  | 14.51          | %
|3    |  |  | BB&T                              |  |  | 9        |  |   | 389.6   million  |  |  | 13.80          | %
|4    |  |  | First National Bank               |  |  | 3        |  |   | 244.6 million    |  |  | 8.66           | %
|5    |  |  | Suntrust Bank                     |  |  | 11       |  |   | 236.9   million  |  |  | 8.39           | %
|6    |  |  | First Citizens B&T                |  |  | 10       |  |   | 228.9   million  |  |  | 8.11           | %
|7    |  |  | Arthur State Bank                 |  |  | 7        |  |   | 178.7   million  |  |  | 6.33           | %
|8    |  |  | National Bank of South   Carolina |  |  | 4        |  |   | 169.7   million  |  |  | 6.01           | %

Our full-service branch in Mount Pleasant and our loan production office on Daniel Island serve the fast-growing Charleston market.  As of July 1, 2004, Charleston Countys estimated population totaled 326,762 residents, according to the South Carolina Budget and Control Board.  As of 2003, the population of Charlestons metropolitan statistical area was 571,631 per the U.S. Census Bureau.  The Charleston area achieved an employment growth rate of 13.5% from 1999 through 2004, outpacing national employment growth of 4.3% during that same period, according to the Charleston Regional Development Alliance.  In addition, the South Carolina Department of Commerce reports that Charleston County attracted over $593.0 million in announced capital investment in 2004.  For 2005, the estimated median family income for the Charleston/North Charleston metropolitan statistical area
was $55,550, as compared to $52,250 for South Carolina, according to the U.S. Department of Housing and Urban Development.  The Charleston Regional Development Alliance reports that since 1995, new and expanding companies invested more than $5 billion in the region.  In its May 2005 issue, Inc. magazine ranked Charleston as one of The Top U.S. Cities for Doing Business.  The Charleston regional economy has attracted approximately 70 firms with internationally-owned operations, according to the Charleston Regional Development Alliance.  These firms include Bosch, Berchtold, Maersk Sealand, Rhodia, and Holset Engineering.  Domestic firms also maintain significant operations in the Charleston area, including MeadWestvaco, Nucor Steel, Alcoa, Arborgen, Blackbaud, and Piggly Wiggly.  In addition, as of 2004, the U.S. Navy and the Charleston Air Force Base collectively employed over 21,000 full-time employees, according to the Charleston Metro Chamber of
Commerce.

Conde Nast Traveler magazine has ranked Charleston as one of the countrys top 10 domestic travel destinations for the past 12 years.  According to the Charleston Metro Chamber of Commerce, in 2004, there were over 4.7 million visitors to the Charleston region with an aggregate regional economic impact of $5.7 billion.  In addition, the total direct and indirect jobs in the Charleston region related to tourism was approximately 105,000 in 2004, resulting in aggregate earnings for local residents exceeding $1.45 billion.

As of June 30, 2005, FDIC-insured institutions in Charleston County had approximately $5.82 billion in deposits in the Charleston market, an increase of 17.1% over the $4.97 billion as of June 30, 2004.

Our Expansion Strategy

While we continue to build our franchise in the Spartanburg and Charleston markets, we plan to expand into other fast-growing, larger metropolitan markets throughout South Carolina, such as Greenville and Columbia and, potentially, other contiguous markets.  In considering the markets in which to expand, we intend to analyze the population, growth rate, deposit growth rate, and other factors related to the target market.  We also plan to identify experienced executives in our target markets with local expertise who share our philosophies regarding community banking, strong credit policies, and customer service.  After retaining these key executives, we would expect to open a loan production office in the new market.  Once we have built a sufficient loan and customer base at the loan production office, we would convert the loan production office to a full-service branch to further serve
the market.  We are following this approach with our expansion into the Greenville market through our Greenville loan production office, which we have received regulatory approval to convert to a full-service branch office and market headquarters.  We believe our expansion philosophy enables us to test our markets and operate more efficiently upon the opening of a full-service branch.

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In addition to opening new offices in target markets, we may also expand through selective acquisitions.

Our Operating Philosophy and Culture

We operate under a traditional community banking model, offering both personalized customer service and a broad array of financial products.  We seek to be the premier community bank in each of the markets we serve.  We have created a full-service community bank with a robust product and service offering available for our customers.  To meet our customers needs, we also offer trust and investment management services through a strategic alliance with Colonial Trust Company, a South Carolina private trust company established in 1913.  We also operate a small business lending division based in Greenville County under the name First National Business Capital that provides small business lending services under the SBAs loan programs to customers primarily in the Carolinas and Georgia.

We have developed an operations infrastructure designed to support our growth and expansion plans without sacrificing credit quality.  In addition to our use of traditional credit measures, we rely upon our professional and personal relationships and experience in our markets to evaluate subjective aspects of the market that we believe are more difficult to quantify. Our continued focus on asset quality has resulted in our achieving a ratio of nonperforming assets to total assets as of December 31, 2005 of 0.11%.

Lending Activities

General.  We offer a variety of lending services, including real estate, commercial, and consumer loans, including home equity lines of credit, primarily to individuals and small- to mid-size businesses that are located, or conduct a substantial portion of their business in the Spartanburg or Charleston markets.  As of December 31, 2005, we had total loans of $251.4 million, representing 76.5% of our total assets.  We emphasize a strong credit culture based on traditional credit measures and our knowledge of our markets through experienced relationship managers.  We have designed our credit grading system to reduce the risk in our loan portfolio and to assist us in setting performance benchmarks in the areas of nonperforming assets, charge-offs, past dues, and loan documentation.  In addition to having developed a strong in-house credit review function, we engage outside
firms to evaluate our loan portfolio.  As of December 31, 2005, there were no loans accruing interest that were 90 days or more past due, we had no restructured loans, and our ratio of nonperforming assets to total assets was 0.11%.

Our underwriting standards vary for each type of loan. While we generally underwrite the loans in our portfolio in accordance with our internal underwriting guidelines and regulatory supervisory guidelines, in certain circumstances we have made loans that exceed either our internal underwriting guidelines, supervisory guidelines, or both.  We are permitted to hold loans that exceed supervisory guidelines up to 100% of our capital.  We have made loans that exceed our internal guidelines to a limited number of our customers who have significant liquid assets, net worth, and amounts on deposit with the bank.  As of December 31, 2005, $13.6 million, or approximately 5.4% of our loans and 61.9% of our capital, had loan-to-value ratios that exceeded regulatory supervisory guidelines.

We have focused our lending activities primarily on small business owners, commercial real estate developers, and the professional market.  We also strive to maintain a diversified loan portfolio and limit the amount of our loans to any single customer.  As of December 31, 2005, our 10 largest customer loan relationships represented approximately $42.1 million, or 16.7% of the loan portfolio.

Real Estate Mortgage Loans.  Loans secured by real estate mortgages are the principal component of our loan portfolio.  To increase the likelihood of the ultimate repayment of the loan, we obtain a security interest in real estate whenever possible, in addition to other available collateral.  As of December 31, 2005 loans secured by first or second mortgages on real estate made up approximately $224.6 million, or 89.3% of our loan portfolio.

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Within the broader category of real estate mortgage loans, the following table describes the loan categories of one-to-four family residential real estate loans, multi-family residential real estate loans, home equity loans, commercial real estate loans, and land loans as of December 31, 2005 (dollars in thousands):

|Type of Real Estate Loan |  | Amount |        
|------------------------ |  | ------ | -------
|                         |  |        |        
|One-to-four residential  |  | $      | 56,966 
|Multi-family residential |  |        | 4,823  
|HELOC                    |  |        | 14,934 
|Commercial real estate   |  |        | 109,686
|Land                     |  |        | 37,821 
|                         |  |        |        
|Total                    |  | $      | 224,230
|                         |  |        |        

|                      
|----------------------
|(1)Includes SBA loans.

Most of our real estate loans are secured by residential or commercial property.  Real estate loans are subject to the same general risks as other loans and are particularly sensitive to fluctuations in the value of real estate.  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.

As of December 31, 2005, our individual commercial real estate loans ranged in size from $9,000 to $3.2 million.  The average commercial real estate loan size was approximately $314,000.  Other than the SBA loans discussed below, these loans generally have terms of five years or less, although payments may be structured on a longer amortization basis.  We evaluate each borrower on an individual basis and attempt to determine the business risks and credit profile of each borrower.  We attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans on owner-occupied properties where the loan-to-value ratio, established by independent appraisals, does not exceed 80%.  We prepare a credit analysis in addition to a cash flow analysis to support the loan.  In order to ensure secondary sources of payment and liquidity to support a loan request, we
typically review all of the personal financial statements of the principal owners and require their personal guarantees.  These commercial real estate loans include various types of business purpose loans secured by commercial real estate.

As of December 31, 2005, our individual residential real estate loans ranged in size from $2,000 to $1.4 million, with an average loan size of approximately $112,000.  Generally, we limit the loan-to-value ratio on our residential real estate loans to 80%.  We offer fixed and adjustable rate residential real estate loans with amortizations up to 20 years.  To limit our risk, we offer fixed rate and variable rate loans for terms greater than 20 years through a third party, rather than originating and retaining these loans ourselves.  Generally, we do not originate traditional long term residential mortgages for our portfolio, but we do issue traditional first and second mortgage residential real estate loans and home equity lines of credit.

As of December 31, 2005, our individual home equity lines of credit ranged in size from $1,000 to $380,000, with an average balance of approximately $50,000.  Our underwriting criteria for, and the risks associated with, home equity loans and lines of credit are generally the same as those for first mortgage loans.  Home equity lines of credit typically have terms of 15 years or less.  We generally limit the extension of credit to 90% of the available equity of each property, although we may extend up to 100% of the available equity.  Included in the residential real estate loans was $21.6 million, or 59.2% of our residential loan portfolio, in first and second mortgages on individuals homes, and $14.9 million, or 40.8% of our residential loan portfolio, in home equity loans.

Small Business Loans.We offer small business loans through our small business lending division, First National Business Capital, that typically have terms of 25 years and are made with floating rates.    These loans utilize government enhancements such as the SBAs 7(a) program and 504 programs and are partially guaranteed, which helps to reduce their risk.    These loans are generally secured by first or second mortgages on commercial real estate.  Government guarantees of SBA loans are generally 75% of the loan.  We usually sell the portion of loans that are secured by the SBA guarantee in the secondary market to provide additional liquidity and to provide a source of nonninterest income. We typically retain servicing for these loans as at an agreed upon servicing rate for the life of the loan.  In order to secure secondary sources of
payment and liquidity, we typically require the personal guarantees of the principal owners.

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Real Estate Construction and Land Development Loans. We offer adjustable and fixed rate residential and commercial construction loans to builders and developers.  As of December 31, 2005, our commercial construction and development real estate loans ranged in size from approximately $22,000 to $1.9 million, with an average loan size of approximately $382,000.  As of December 31, 2005, our individual residential construction and development real estate loans ranged in size from approximately $46,000 to $164,000, with an average loan size of approximately $97,000.  The duration of our construction and development loans generally is limited to 12 months, although payments may be structured on a longer amortization basis.  We attempt to reduce the risk associated with construction and development loans by obtaining personal guarantees and by keeping the loan-to-value ratio of
the completed project at or below 80%.  Construction and development loans generally carry a higher degree of risk than long-term financing of existing properties because repayment depends on the ultimate completion of the project or home and usually on the sale of the property or permanent financing.  Specific risks include:

| |  | cost   overruns;                                                  
| | - | ------------------------------------------------------------------
| |  | mismanaged   construction;                                        
| |  | inferior or   improper construction techniques;                   
| |  | economic   changes or downturns during construction;              
| |  | rising   interest rates that may prevent sale of the property; and
| |  | failure to   sell completed projects in a timely manner.          

As of December 31, 2005, total construction and development loans amounted to $51.2 million, or 20.4% of our total loan portfolio.  Included in the $51.2 million was $9.1 million in construction loans, or 17.8% of our construction and development loan portfolio, that were made to commercial construction developers.

Commercial Business Loans.Most of our commercial business loans are secured by first or second mortgages on real estate, as described above.  We also make some commercial business loans that are not secured by real estate.  We make loans for commercial purposes in various lines of business, including retail, service industry, and professional services.  As of December 31, 2005, our individual commercial business loans ranged in size from approximately $3,000 to $3.0 million, with an average loan size of approximately $110,000.  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 our market areas.  Commercial loans are generally considered to have greater risk than first or
second mortgages on real estate because commercial loans may be unsecured, or if they are secured, the value of the collateral may be difficult to assess and more likely to decrease than real estate.  As of December 31, 2005, commercial business loans amounted to $20.9 million, or 8.3% of our total loan portfolio.

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.  Consumer loans are underwritten based on the borrowers income, current debt level, past credit history, and the availability and value of collateral.  Consumer rates are both fixed and variable, with negotiable terms.  Our installment loans typically amortize over periods up to 60 months.  However, we will offer consumer loans with a single maturity date when a specific source of repayment is available.  We typically require monthly payments of interest and a portion of the principal on our revolving loan products.  Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because consumer loans may be unsecured, or if they are
secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.  As of December 31, 2005, consumer loans amounted to $6.3 million, or 2.5% of our loan portfolio.

Loan Approval.Certain credit risks are inherent in making loans.  These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers.  We attempt to mitigate repayment risks by adhering to internal credit policies and procedures.  These policies and procedures include officer and customer lending limits, a multi-layered approval process for larger loans, documentation examination, and follow-up procedures for any exceptions to credit policies.  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 will be reviewed by the internal management loan committee
comprised of voting members Mr. Calvert, Mr. Zabriskie, Mr. Murdoch, and Ms. Payne.  Individual loan authorities for secured loans range from $25,000 for our retail lenders, to $500,000 for our senior lenders, and up to $750,000 for our chief executive officer.  Any three concurring members of our management loan committee can approve loans up to $2.0 million.  If the loans exceed $2.0 million, then a board of directors loan committee comprised of Mr. Calvert and seven other directors may approve loans up $3.5 million.  The Board of Directors, with any seven concurring members, can approve loans up to 15% of the banks capital and unimpaired surplus or our legal lending limit of $4.0 million as of December 31, 2005.

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Credit Administration and Loan Review.We emphasize a strong credit culture based on traditional credit measures and our knowledge of our markets through experienced relationship managers.  We maintain a continuous internal loan review system and engage an independent consultant on an annual basis to review loan files on a test basis to confirm our loan grading.  Each loan officer is responsible for every loan he or she makes, regardless of whether other individuals or committees joined in the approval.  This responsibility continues until the loan is repaid or until the loan is officially assigned to another officer.  The compensation of our lending officers is dependent in part on the asset quality of their loan portfolios.  We have adopted an incentive plan under which our loan officers are eligible to receive cash bonuses for achieving monthly and annual goals
relating to, among other things, loan production and maintenance of minimum quality levels for the officers loan portfolio.

Our dedication to strong credit quality is reinforced by our internal credit review process and performance benchmarks in the areas of nonperforming assets, charge-offs, past dues, and loan documentation.  As we continue to grow, we intend to add additional employees to assist with credit administration and loan review.  In addition to our strong in-house credit review function, we currently engage an outside firm to evaluate our loan portfolio on a quarterly basis for credit quality, a second outside firm for compliance issues on an annual basis, and a third outside firm to provide advice and recommendations and respond to specific inquiries at any time.

Lending Limits.Our lending activities are subject to a variety of lending limits imposed by federal law.  In general, the bank is subject to a legal limit on loans to a single borrower equal to 15% of the banks capital and unimpaired surplus.  This limit will increase or decrease as the banks capital increases or decreases.  Based upon the capitalization of the bank as of December 31, 2005, our legal lending limit was approximately $4.0 million.  We sell participations in our larger loans to other financial institutions, which allows us to manage the risk involved in these loans and to meet the lending needs of our customers requiring extensions of credit in excess of this limit.

Deposit Services

One of our principal sources of funds is core deposits (deposits other than time deposits of $100,000 or more).  As of December 31, 2005, approximately 85.1% of our total deposits were obtained from within the Spartanburg market.  We also rely on time deposits of $100,000 or more to support our growth, and we derive most of these deposits from outside our primary market areas.  We generally obtain out-of-market time deposits of $100,000 or more through brokers with whom we maintain ongoing relationships.  We do not obtain time deposits of $100,000 or more through the internet.  As of December 31, 2005, 44.0% of our total time deposits were deposits of $100,000 or more.

We offer a full range of deposit services, including checking accounts, commercial accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to long-term certificates of deposit.  We regularly review our deposit rates to ensure that we remain competitive in our markets.  We have also recently hired a new officer to focus on deposit production for our bank.

We received regulatory approval to convert our loan production office in Greenville, South Carolina to a full-service branch and market headquarters that will enable us to generate deposits in the Greenville market.  We expect capital expenditures over the next twelve months associated with this conversion to be approximately $1.6 million.

Trust and Investment Management Services

Since August 15, 2002, we have offered trust and investment management services through an alliance with Colonial Trust Company, a South Carolina private trust company established in 1913 with offices in Greenville and Spartanburg.  This arrangement allows our consumer and commercial customers access to a wide variety of services provided by Colonial Trust Company, including trust services, professional portfolio management, estate administration, individual financial and retirement planning, and corporate retirement planning services.  We receive a residual fee from Colonial Trust Company based on a percentage of the aggregate assets under management generated by referrals from the bank.

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Other Banking Services

We offer other bank services including safe deposit boxes, travelers checks, direct deposit, United States savings bonds, and banking by mail.  We earn fees for most of these services, including debit and credit card transactions, sales of checks, and wire transfers.  We provide ATM transactions to our customers at no charge; however, we receive ATM transaction fees from transactions performed at our branches by persons who are not customers of the bank.  We are associated with the Cirrus and Pulse ATM networks, which are available to our customers throughout the country.  Since we outsource our ATM services, we are charged related transaction fees from our ATM service provider.  We have contracted with an outside vendor to provide our core data processing services and our ATM processing.  Given our current size, we believe that outsourcing these services reduces our
overhead by matching the expense in each period to the transaction volume that occurs during the period, as a significant portion of the fee charged is directly related to the number of loan and deposit accounts and the related number of transactions we have during the period.

First National Online, our internet website www.firstnational-online.com, provides our customers access to internet banking services, including electronic bill payment services and cash management services including account-to-account transfers. The internet banking services are provided through a contractual arrangement with an outside vendor.

We offer our customers insurance services, including life, long term care, and annuities through vendors associated with the South Carolina Bankers Association. Additionally, we provide equipment leasing arrangements through an outside vendor.

SUPERVISION AND REGULATION

Both the company and the bank are subject to extensive state and federal banking laws and regulations that 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.

Beginning with the enactment of the Financial Institutions Reform Recovery and Enforcement Act in 1989 and followed by the FDIC Improvement Act in 1991 and the Gramm-Leach-Bliley Act in 1999, numerous additional regulatory requirements have been placed on the banking industry in the past several years and additional changes have been proposed.  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 2002

In October 2002, the USA PATRIOT Act of 2002 was enacted in response to the terrorist attacks in New York, Pennsylvania, and Washington D.C. that 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 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 who may be involved in terrorism or money laundering.

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 became effective October 28, 2004, gives a substitute check, 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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| |  | allowing check   truncation without making it mandatory;                                                                                                                                                                               
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | demanding   that every financial institution communicate to accountholders in writing a   description of its substitute check processing program and their rights under   the law;                                                     
| |  | legalizing   substitutions for and replacements of paper checks without agreement from   consumers;                                                                                                                                    
| |  | retaining in   place the previously mandated electronic collection and return of checks   between financial institutions only when individual agreements are in place;                                                                 
| |  | requiring   that when accountholders request verification, financial institutions produce   the original check (or a copy that accurately represents the original) and   demonstrate that the account debit was accurate and valid; and
| |  | requiring   recrediting of funds to an individuals account on the next business day   after a consumer proves that the financial institution has erred.                                                                               

This new legislation has affected bank capital spending as many financial institutions are implementing technological or operational changes are necessary to stay competitive and take advantage of the new opportunities presented by Check 21.

First National Bancshares, Inc.

We own 100% of the outstanding capital stock of the bank and, therefore, we are considered to be a bank holding company under the Federal Bank Holding Company Act of 1956 and the South Carolina Banking and Branching Efficiency Act.

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

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

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

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

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

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:

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

The Federal Reserve Board imposes certain capital requirements on 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 First National Bank of the South - Capital Regulations.  Subject to our capital requirements and certain other restrictions, we are 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 the company.  Our ability to pay dividends will be subject to regulatory restrictions as described below in First National Bank of the South  Dividends.  We are also able to raise capital for contribution to the 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, we are expected to act as a source of financial strength to the bank and to commit resources to support the bank in circumstances in which we 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 depository institution subsidiary of the bank holding company.  Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiaries if the agency determines that divestiture
may aid the depository institutions financial condition.

The Gramm-Leach-Bliley Act.  The Gramm-Leach-Bliley Act was signed into law on November 12, 1999.  Among other things, the Act repealed 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.  We have not elected to become a financial holding company.

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.  We are not required to obtain the approval of the Board prior to acquiring the capital stock of a national bank, but we must notify them at least 15 days prior to doing so.  We must receive the Boards approval prior to engaging in the acquisition of a South Carolina state chartered bank or another South Carolina bank holding company.

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First National Bank of the South

The bank operates as a national banking association incorporated under the laws of the United States and subject to examination by the Office of the Comptroller of the Currency.  The bank operates as First National Bank of Spartanburg in Spartanburg County.  The banks small business lending division operates under the name First National Business Capital.  Deposits in the bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum amount, which is generally $100,000 per depositor for demand deposit accounts and $250,000 for retirement accounts subject to the aggregation rule.

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

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

The Office of the Comptroller of the Currency requires the bank to maintain specified capital ratios and imposes limitations on the banks aggregate investment in real estate, bank premises and furniture and fixtures.  The Office of the Comptroller of the Currency also requires the bank to prepare annual reports on the banks financial condition and to conduct an annual audit of its 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 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:

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

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

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Deposit Insurance.The FDIC has adopted a risk-based assessment system for determining an insured depository institutions insurance assessment rate.  The system takes into account the risks attributable to different categories and concentrations of assets and liabilities.  An institution is placed into one of three capital categories:  (1) well capitalized; (2) adequately capitalized or (3) undercapitalized.  The FDIC also assigns an institution to one of three supervisory subgroups, based on the FDICs determination of the institutions financial condition and the risk posed to the deposit insurance funds.  Assessments range from 0 to 27 cents per $100 of deposits, depending on the institutions capital group and supervisory subgroup.  In addition, the FDIC imposes assessments to help pay off the $780 million in annual interest
payments on the $8 billion Financing Corporation bonds issued in the late 1980s as part of the government rescue of the thrift industry.  Our FDIC assessment rate is currently 1A or .000032 per million of insured deposits, but may change in the future.  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.

The bank also is 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:

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

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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 is 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.

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.

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

| |  | the federal   Truth-In-Lending Act, governing disclosures of credit terms to consumer   borrowers;                                                                                                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Home   Mortgage Disclosure Act of 1975, requiring financial institutions to provide   information to enable the public and public officials to determine whether a   financial institution is fulfilling its obligation to help meet the housing   needs of the community it serves;
| |  | the Equal   Credit Opportunity Act, prohibiting discrimination on the basis of race,   creed or other prohibited factors in extending credit;                                                                                                                                           
| |  | the Fair   Credit Reporting Act of 1978, governing the use and provision of information   to credit reporting agencies;                                                                                                                                                                 
| |  | the Fair   Debt Collection Act, governing the manner in which consumer debts may be   collected by collection agencies; and                                                                                                                                                             
| |  | the rules   and regulations of the various federal agencies charged with the   responsibility of implementing such federal laws.                                                                                                                                                        

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The deposit operations of the bank also are subject to:

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

Capital Regulations.The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and account for off-balance sheet items.  The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios in excess of the minimums.  We have not received any notice indicating that either First National Bancshares, Inc. or First National Bank of the South 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 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 also have implemented a leverage ratio, which is equal to Tier 1 capital as a percentage of average total assets less intangibles, to be used as a supplement to the risk-based guidelines.  The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base.  The minimum required leverage ratio for top-rated institutions is 3%, but most institutions are required to maintain an additional cushion of at least 100 to 200 basis points.

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

Under the FDIC Improvement Act regulations, the applicable agency can treat an institution as if it were in the next lower category if the agency determines (after notice and an opportunity for hearing) that the institution is in an unsafe or unsound condition or is engaging in an unsafe or unsound practice.  The degree of regulatory scrutiny of a financial institution increases, and the permissible activities of the institution decrease, 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:

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

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

Competition

The banking business is highly competitive, and we experience competition in our markets from many other financial institutions.  Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking facilities, and, in the case of loans to commercial borrowers, relative lending limits.  We compete with commercial banks, credit unions, savings and loan associations, mortgage
banking firms, consumer finance companies, securities brokerage firms, insurance
companies, money market funds, and other mutual funds, as well as other
super-regional, national, and international financial institutions that operate
offices in the Spartanburg and Charleston markets and elsewhere.

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As of June 30, 2005, there were 13 other financial institutions in Spartanburg County and 16 other financial institutions in Charleston County.  We compete with institutions in these markets both in attracting deposits and in making loans.  In addition, we have to attract our customer base from other existing financial institutions and from new residents.  Many of our competitors are well established, larger financial institutions with substantially greater resources and lending limits, such as BB&T, Bank of America, Wachovia, and Carolina First Bank.  These institutions offer some services, such as extensive and established branch networks, that we do not provide.  Other local or regional financial institutions, such as First Citizens Bank of South Carolina and Arthur State Bank in Spartanburg, and The Bank of South Carolina and Community FirstBank in Charleston, have
considerable business relationships and ties in their respective communities that assist them in competing for attracting customers.

We also compete with credit unions, in particular, in attracting deposits from retail customers.  Additionally, many of our non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally-insured banks.

We believe our emphasis on decision-making by our market executives and our managements and directors ties to the communities in which we operate provide us with a competitive advantage.

Employees

As of March 1, 2006, we had 77 employees, of which 69 were full time.  These employees provide the majority of their services to our bank.

RISK FACTORS

Our business, financial condition, and results of operations could be harmed by any of the following risks, or other risks that have not been identified or which we believe are immaterial or unlikely.

Our decisions regarding credit risk may materially and adversely affect our business.

Making loans and other extensions of credit is an essential element of our business.  Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed our loan loss reserves.  The risk of nonpayment is affected by a number of factors, including:

| |  | the duration   of the credit;                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | credit risks   of a particular customer;                                                                              
| |  | changes in   economic and industry conditions; and                                                                    
| |  | in the case   of a collateralized loan, risks resulting from uncertainties about the future   value of the collateral.

While we generally underwrite the loans in our portfolio in accordance with our own internal underwriting guidelines and regulatory supervisory limits, in certain circumstances we have made loans that exceed either our internal underwriting guidelines, supervisory limits, or both.  As of December 31, 2005, approximately $13.6 million, or approximately 5.4%, of our loans had loan-to-value ratios that exceeded regulatory supervisory limits.  We generally consider making such loans only after taking into account the financial strength of the borrower.  The number of loans in our portfolio with loan-to-value ratios in excess of supervisory limits, our internal guidelines, or both could increase the risk of delinquencies or defaults in our portfolio.  Any such delinquencies or defaults could have an adverse effect on our results of operations and financial condition.

The success of our growth strategy depends on our ability to identify and retain individuals with experience and relationships in the markets in which we intend to expand.

We intend to expand our banking network over the next several years, not just in our core market areas of Spartanburg and Charleston, but also in other fast-growing markets throughout South Carolina, such as Columbia and Greenville, and in contiguous markets.  We believe that to expand into new markets successfully, we must identify and retain experienced key management members with local expertise and relationships in these markets.

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We expect that competition for qualified management in the markets in which we expand will be intense and that there will be a limited number of qualified persons with knowledge of and experience in the community banking industry in these markets.  Even if we identify individuals that we believe could assist us in establishing a presence in a new market, we may be unable to recruit these individuals away from more established banks.  In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy.  Our inability to identify, recruit, and retain talented personnel to manage new offices effectively and in a timely manner would limit our growth and could materially adversely affect our business, financial condition, and results of operations.  We may fail to open any additional offices and, if we open these offices, they may not be
profitable.

The lack of seasoning of our loan portfolio makes it difficult to assess the adequacy of our loan loss reserves accurately.

We attempt to maintain an appropriate allowance for loan losses to provide for potential losses in our loan portfolio.  We periodically determine the amount of the allowance based on consideration of several factors, including:

| | an ongoing   review of the quality, mix, and size of our overall loan portfolio; 
|- | ---------------------------------------------------------------------------------
| | our   historical loan loss experience;                                           
| | evaluation   of economic conditions;                                             
| | regular   reviews of loan delinquencies and loan portfolio quality; and          
| | the amount   and quality of collateral, including guarantees, securing the loans.

However, there is no precise method of predicting credit losses, since any estimate of loan losses is necessarily subjective and the accuracy depends on the outcome of future events.  In addition, due to our rapid growth over the past several years and our limited operating history, a large portion of the loans in our loan portfolio was originated recently.  In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as seasoning.  As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio.  Because our loan portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels.  If charge-offs in
future periods increase, we may be required to increase our provision for loan losses, which would decrease our net income and possibly our capital.

Changes in interest rates may reduce our profitability.

Our profitability depends in large part on our net interest income, which is the difference between interest income from interest-earning assets, such as loans and mortgage-backed securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings.  We believe that we are asset sensitive, which means that our net interest income will generally rise in higher interest rate environments and decline in lower interest rate environments.  Our net interest income will be adversely affected if the market interest rate changes such that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. Many factors cause changes in interest rates, including governmental monetary policies and domestic and international economic and political conditions.  While we intend to manage the effects of changes in interest rates
by adjusting the terms, maturities, and pricing of our assets and liabilities, our efforts may not be effective, which could adversely affect our financial condition and results of operations.

Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect our net interest income and, in turn, our profitability. In addition, loan volumes are affected by market interest rates on loans. Rising interest rates generally are associated with a lower volume of loan originations while lower interest rates are usually associated with higher loan originations. Conversely, in rising interest rate environments, loan repayment rates will decline and in falling interest rate environments, loan repayment rates will increase. Interest rates also affect how much money we can lend. When interest rates rise, the
cost of borrowing increases. Accordingly, changes in market interest rates could materially and adversely affect our net interest income, asset quality, and loan origination volume.

17

---



An economic downturn, especially one affecting the Spartanburg or Charleston areas, could reduce our customer base, our level of deposits, and demand for financial products such as loans.

Our success significantly depends upon the general economic conditions in our markets of Spartanburg and Charleston.  If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed.  An economic downturn would likely contribute to the deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would hurt our business.  Interest received on loans represented approximately 89.2% of our interest income for the year ended December 31, 2005.  If an economic downturn occurs in the economy as a whole, or in the Spartanburg, Charleston, or Greenville areas, borrowers may be less likely to repay their loans as scheduled.

Moreover, the value and liquidity of real estate or other collateral that may secure our loans could be adversely affected by an economic downturn.  Real estate values in our market areas have risen substantially over the last several years.  If the value of real estate decreases or does not continue to rise, our business could be adversely affected.  Unlike many larger institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies or markets.  An economic downturn could, therefore, result in losses that materially and adversely affect our business.

Our recent operating results may not be indicative of our future operating results.

We may not be able to sustain our historical rate of growth.  Because of our relatively small size and short operating history, it will be difficult for us to replicate our historical earnings growth as we continue to expand.  Consequently, our historical results of operations will not necessarily be indicative of our future operations.  Various factors, such as economic conditions, regulatory and legislative considerations, and competition, may also impede our ability to expand our market presence.  If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected because a high percentage of our operating costs are fixed expenses.

We depend on key individuals, and the loss of one or more of these key individuals could curtail our growth and adversely affect our prospects.

Jerry L. Calvert, our president and chief executive officer, has substantial experience with our operations and has contributed significantly to our growth since our founding.  If we lose Mr. Calverts services, he would be difficult to replace and our business and development could be materially and adversely affected.  Our success also depends in part on our continued ability to attract and retain experienced loan originators, as well as other management personnel, including Kitty B. Payne, Robert W. Murdoch, Jr., and David H. Zabriskie. The loss of the services of several of such key personnel could adversely affect our growth strategy and prospects to the extent we are unable to replace such personnel.

We are subject to extensive regulation that could limit or restrict our activities.

We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by the Office of the Comptroller of the Currency, or OCC, the FDIC, and the Federal Reserve Board.  Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices.  We must also meet regulatory capital requirements.  If we fail to meet these capital and other regulatory requirements, our financial condition, liquidity, and results of operations would be materially and adversely affected.  Our failure to remain well capitalized and well managed for regulatory purposes could affect customer confidence, our ability to grow, our cost of funds and FDIC insurance, our
ability to pay dividends on common stock, and our ability to make acquisitions.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability.  For example, new legislation or regulation could limit the manner in which we may conduct our business, including our ability to obtain financing, attract deposits, and make loans.  Many of these regulations are intended to protect depositors, the public, and the FDIC, not shareholders.  In addition, the burden imposed by these regulations may place us at a competitive disadvantage compared to competitors who are less regulated.  The laws, regulations, interpretations, and enforcement policies that apply to us have been subject to significant change in recent years, sometimes retroactively applied, and may change significantly in the future.  Our cost of compliance could adversely affect our ability to operate
profitably.  See Supervision and Regulation.

18

---



We face strong competition for customers, which could prevent us from obtaining customers and may cause us to pay higher interest rates to attract deposits.

The banking business is highly competitive, and we experience competition in our markets from many other financial institutions.  We compete with commercial banks, savings and loan associations, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national, and international financial institutions that operate offices in our primary market areas and elsewhere.  Competitors that are not depository institutions are generally not subject to the extensive regulations that apply to us.

We compete with these institutions both in attracting deposits and in making loans.  In addition, we have to attract our customer base from other existing financial institutions and from new residents.  Many of our competitors are well-established, larger financial institutions, such as BB&T, Bank of America, and Wachovia.  These institutions offer some services, such as extensive and established branch networks, that we do not provide.  In new markets that we enter, we will also compete against well-established community banks that have developed relationships within the community.  There is a risk that we will not be able to compete successfully with other financial institutions in our markets, and that we may have to pay higher interest rates to attract deposits, resulting in reduced profitability.

Our growth may require us to raise additional capital that may not be available when it is needed, or at all.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations.  We anticipate that our capital resources following this offering will satisfy our capital requirements for the foreseeable future.  We may at some point, however, need to raise additional capital to support our continued growth.  Our ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control, and on our financial performance.  Accordingly, we may be unable to raise additional capital, if and when needed, on terms acceptable to us, or at all.  If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.  In addition, if we issue additional equity capital, your interest would be
diluted.

Efforts to comply with the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us.

The
Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by
the Securities and Exchange Commission that are now applicable to us, have
increased the scope, complexity, and cost of corporate governance, reporting,
and disclosure practices.  We have experienced, and we expect to continue
to experience, greater compliance costs, including costs related to internal
controls, as a result of the Sarbanes-Oxley Act.  We expect these new rules
and regulations to continue to increase our accounting, legal, and other costs,
and to make some activities more difficult, time consuming, and costly.  In
the event that we are unable to maintain or achieve compliance with the
Sarbanes-Oxley Act and related rules, we may be adversely affected. 
The SEC has extended the compliance deadline applicable to us until the first
Annual Report filed for fiscal years ending on or after July 15, 2007. As a
result, we must now include the internal control report with the Annual Report
on Form 10-K for the fiscal year ended December 31, 2007.

We are evaluating our internal control systems in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.  If we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner, or if we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal control over financial reporting, the trading price of our common stock could decline, our ability to obtain any necessary equity or debt financing could suffer, and our common stock could ultimately be delisted from the NASDAQ National Market.  In this event, the liquidity of our common stock would be severely limited and the market price of our
common stock would likely decline significantly.

In addition, the new rules adopted as a result of the Sarbanes-Oxley Act could make it more difficult or more costly for us to obtain certain types of insurance, including directors and officers liability insurance, which could make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

19

---



We will face risks with respect to expansion.

We plan to expand into new markets or lines of business or offer new products or services.  These activities would involve a number of risks, including:

| | taking   additional time and creating expense associated with evaluating new markets   for expansion, hiring experienced local management, and opening new offices,   as there may be a substantial time lag between these activities before we   generate sufficient assets and deposits to support the costs of the   expansion;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | taking a   significant amount of time negotiating a transaction or working on expansion   plans, resulting in managements attention being diverted from the operation   of our existing business; and                                                                                                                            
| | creating an   adverse short-term effect on our results of operations.                                                                                                                                                                                                                                                             

We may not be successful in overcoming these risks or other problems encountered in connection with expansion activities.  Our inability to overcome these risks could have a material adverse effect on our ability to achieve our business strategy and on our financial condition and results of operations.

We will face risks with respect to future acquisitions or mergers.

Although we do not have any current plans to do so, we may also seek to acquire other financial institutions or parts of those institutions.  Risks of these activities may include the following:

| | difficulties   and expense associated with identifying and evaluating potential acquisitions   and merger partners;                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | inaccuracies   in estimates and judgments to evaluate credit, operations, management, and   market risks with respect to the target institution or assets;
| | dilutive   effects of an acquisition on our existing shareholders;                                                                                        
| | difficulties   and expense in integrating the operations and personnel of the combined   businesses;                                                      
| | loss of key   employees and customers as a result of an acquisition that is poorly   received; and                                                        
| | the   incurrence and possible impairment of goodwill associated with an acquisition   and possible adverse short-term effects on our result of operations.

We expect to compete with other financial institutions regarding any potential acquisitions.  We may be unable to identify attractive acquisition candidates or to complete acquisitions on terms favorable to us, or at all.  We may not be able to integrate any banks we acquire successfully.  We may not be successful in overcoming these risks or any other problems encountered in connection with potential acquisitions.  We have never acquired another institution before and therefore lack experience in handling any of these risks.  Our inability to overcome these risks could have a material adverse effect on our ability to achieve our business strategy and on our financial condition and results of operations.

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 North Pine Street in 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 plan to expand this facility in the next 12 months by adding 10,500 square feet of finished space to support the banks operations and future growth.

We own a 3,500 square foot branch office on a leased parcel on the west side of Spartanburg.  We own a 3,000 square foot branch office on Boiling Springs Road in northern Spartanburg County.

We lease a 1,700 square foot branch office on Johnnie Dodds Boulevard in Mount Pleasant, South Carolina located in Charleston County.

20

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We lease a loan production office in Greenville which also houses the small business lending division, First National Business Capital. Out leased loan production offices in Columbia, South Carolina and on Daniel Island in the Charleston market opened in the first quarter of 2006.

In February of 2006, we entered into an agreement to purchase land located in Greenville, South Carolina on Pelham Rd. and Milestone Way.  We received regulatory approval from the Office of the Comptroller of the Currency in March 2006 to convert our Greenville loan production office to a full-service branch and market headquarters at this location.

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.

Part II.

Item 5.     Market for Common Equity and Related Stockholder Matters

Our common stock was approved for listing on The NASDAQ National Market in November 2005 under the symbol FNSC.  Prior to such listing, our common stock was quoted on the OTC Bulletin Board under the symbol FNSC.OB.  As of March 1, 2006 there were 642 shareholders of record.

The following table shows the high and low sales prices published by NASDAQ beginning with the fourth quarter of 2005.  For the prior periods indicated, the table shows the reported high and low bid information on the OTC Bulletin Board.  The OTC Bulletin Board prices are quotations, which reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.  The prices shown reflect historical activity and have been adjusted for the 3 for 2 stock splits distributed on January 18, 2006 and March 1, 2004.

|               |  | 2005 |       | 2004 |  
|-------------- |  | ---- | ----- | ---- | -
|               |  |      |       |      |  
|               |  | High |       | Low  |  
|               |  |      |       |      |  
|First Quarter  |  | $    | 18.67 |      | $
|Second Quarter |  |      | 20.00 |      |  
|Third Quarter  |  |      | 20.00 |      |  
|Fourth Quarter |  |      | 20.67 |      |  

Our ability to pay cash dividends is dependent upon receiving cash in the form of dividends from our bank.  However, certain restrictions exist regarding the ability of the bank to transfer funds to the company in the form of cash dividends.  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.

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.  To date, we have not paid cash dividends on our common stock.  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.

21

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

In response to this Item, the information contained on pages 3 through 17 of our Annual Report to Shareholders for the year ended December 31, 2005 is incorporated herein by reference.

Item 7.     Financial Statements

In response to this Item, the information contained on pages 19 through 38 of our Annual Report to Shareholders for the year ended December 31, 2005 is incorporated herein by reference.

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, 2005.  There have been no significant changes in our internal controls over financial reporting during the fourth fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 8b.     Other Information

None.

Part III.

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

In response to this Item, the information contained on page 12 of our Proxy Statement for the 2005 Annual Meeting of Shareholders to be held on April 18, 2006 is incorporated herein by reference.

Item 10.     Executive Compensation

In response to this Item, the information contained on pages 6 through 8 of our Proxy Statement for the Annual Meeting of Shareholders to be held on April 18, 2006 is incorporated herein by reference.

Item 11.     Security Ownership of Certain Beneficial Owners and Management

In response to this Item, the information contained on page 8 of our Proxy Statement for the Annual Meeting of Shareholders to be held on April 18, 2006 is incorporated herein by reference.

22

---



The following table sets forth equity compensation plan information at December 31, 2005.

Equity Compensation Plan Information

|Plan Category                                                       | Number of   securities    to be issued    upon exercise of    outstanding options,   warrants and rights (a) | Weighted-average      exercise price of    outstanding options, warrants and rights (b) | Number of   securities   remaining available for    future issuance under    equity compensation    plans (c)    (excluding securities    reflected in column(a))
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                    |                                                                                                              |                                                                                         |                                                                                                                                                                  
|Equity compensation   plans approved by   security holders          | 276,750                                                                                                      | $6.32                                                                                   | 122,400                                                                                                                                                          
|Equity compensation    plans not approved   by security holders (1) | 705,000                                                                                                      | $4.44                                                                                   |                                                                                                                                                                 
|Total                                                               | 981,750                                                                                                      | $4.96                                                                                   | 122,400                                                                                                                                                          

|   
|---
|(1)

Item 12.     Certain Relationships and Related Transactions

In response to this Item, the information contained on pages 11 and 12 of our Proxy Statement for the Annual Meeting of Shareholders to be held on April 18, 2006 is incorporated herein by reference.

23

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Item 13.     Exhibits

The following documents are filed as part of this report:

|3.1. | Articles of   Incorporation(1)                                                                                                                      
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                     
|3.2. | Bylaws(1)                                                                                                                                           
|     |                                                                                                                                                     
|4.1. | Form of   Certificate of Common Stock(1)                                                                                                            
|     |                                                                                                                                                     
|10.1 | Employment   Agreement dated September 10, 2004 between First National Bancshares, Inc.,   First National Bank of the South and Jerry Calvert.(2)*  
|     |                                                                                                                                                     
|10.2 | Form of   Stock Warrant Agreement, as amended(3)*                                                                                                   
|     |                                                                                                                                                     
|10.3 | 2000 First   National Bancshares, Inc. Stock Incentive Plan and form of Agreement(4)*                                                               
|     |                                                                                                                                                     
|10.4 | Employment   Agreement dated January 31, 2005 between First National Bancshares, Inc.,   First National Bank of the South and Kitty B. Payne(5)*    
|     |                                                                                                                                                     
|10.6 | Employment   Agreement dated January 31, 2005 between First National Bancshares, Inc.,   First National Bank of the South and David H. Zabriskie(5)*
|     |                                                                                                                                                     
|10.7 | Employment   Agreement dated January 31, 2005 between First National Bancshares, Inc.,   First National Bank of the South and Robert Murdoch(5)*    
|     |                                                                                                                                                     
|10.8 | Amendment   No. 1 to the Stock Incentive Plan(3)*                                                                                                   
|     |                                                                                                                                                     
|13   | Company 2005   Annual Report                                                                                                                        
|     |                                                                                                                                                     
|21   | Subsidiaries                                                                                                                                        
|     |                                                                                                                                                     
|24   | Power of   Attorney (included on signature page)                                                                                                    
|     |                                                                                                                                                     
|31.1 | Rule   13a-14(a) Certification of the Chief Executive Officer.                                                                                      
|     |                                                                                                                                                     
|31.2 | Rule   13a-14(a) Certification of the Chief Financial Officer.                                                                                      
|     |                                                                                                                                                     
|32   | Section 1350   Certifications.                                                                                                                      

|   
|---
|(1)
|(2)
|(3)
|(4)
|(5)

*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-KSB.

The Exhibits listed above will be furnished to any security holder free of charge upon written request to Ms. Kitty B. Payne, Chief Financial officer, First National Bancshares, Inc., Post Office Box 3508, Spartanburg, South Carolina, 29304.

Item 14.     Independent Registered Public Accounting Firm Fees and Services

In response to this Item, the information contained on page 11 of our Proxy Statement for the Annual Meeting of Shareholders to be held on April 18, 2006 is incorporated herein by reference.

24

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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, 2006 | By:                              
|                        |                                  
|                        |                                  

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jerry L. Calvert and Gaines W. Hammond, Jr., M.D. 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 Form 10-KSB, 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 report has been signed by the following in the capacities and on the dates indicated.

|Signature                        |  | Title                     |  | Date            
|-------------------------------- |  | ------------------------- |  | ----------------
|                                 |  |                           |  |                 
|/s/ C. Dan   Adams               |  | Director                  |  | March 30,   2006
|                                 |  |                           |  |                 
|C. Dan Adams                     |  |                           |  |                 
|                                 |  |                           |  |                 
|/s/ Mellnee   G. Buchheit        |  | Director                  |  | March 30,   2006
|                                 |  |                           |  |                 
|Mellnee G.   Buchheit            |  |                           |  |                 
|                                 |  |                           |  |                 
|/s/ Jerry L.   Calvert           |  | Director,   Vice Chairman |  | March 30,   2006
|                                 |  | President,                |  |                 
|Jerry L.   Calvert               |  | Chief   Executive Officer |  |                 
|                                 |  |                           |  |                 
|/s/ Martha   Cloud Chapman       |  | Director                  |  | March 30,   2006
|                                 |  |                           |  |                 
|Martha Cloud   Chapman           |  |                           |  |                 
|                                 |  |                           |  |                 
|/s/ W.   Russel Floyd, Jr.       |  | Director                  |  | March 30,   2006
|                                 |  |                           |  |                 
|W. Russel   Floyd, Jr.           |  |                           |  |                 
|                                 |  |                           |  |                 
|/s/ C.   Tyrone Gilmore, Sr.     |  | Director                  |  | March 30,   2006
|                                 |  |                           |  |                 
|C. Tyrone   Gilmore, Sr.         |  |                           |  |                 
|                                 |  |                           |  |                 
|/s/ Gaines   W. Hammond, Jr., MD |  | Director,   Chairman of   |  | March 30,   2006
|                                 |  | the Board                 |  |                 
|Gaines W.   Hammond, Jr., M.D.   |  |                           |  |                 

25

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|/s/ Benjamin   R. Hines     |  | Director                             |  | March 30,   2006
|--------------------------- |  | ------------------------------------ |  | ----------------
|                            |  |                                      |  |                 
|Benjamin R.   Hines         |  |                                      |  |                 
|                            |  |                                      |  |                 
|/s/ William   A. Hudson     |  | Director                             |  | March 30, 2006  
|                            |  |                                      |  |                 
|William A.   Hudson         |  |                                      |  |                 
|                            |  |                                      |  |                 
|/s/ Kitty B.   Payne        |  | Chief   Financial Officer,           |  | March 30,   2006
|                            |  | Principal   Financial and Accounting |  |                 
|Kitty B.   Payne            |  | Officer                              |  |                 
|                            |  |                                      |  |                 
|/s/ Norman   F. Pulliam     |  | Director,   Chairman Emeritus        |  | March 30,   2006
|                            |  |                                      |  |                 
|Norman F.   Pulliam         |  |                                      |  |                 
|                            |  |                                      |  |                 
|/s/ Peter E.   Weisman      |  | Director                             |  | March 30,   2006
|                            |  |                                      |  |                 
|Peter E.   Weisman          |  |                                      |  |                 
|                            |  |                                      |  |                 
|/s/ Donald   B. Wildman     |  | Director                             |  | March 30,   2006
|                            |  |                                      |  |                 
|Donald B.   Wildman         |  |                                      |  |                 
|                            |  |                                      |  |                 
|/s/ Coleman   L. Young, Jr. |  | Director                             |  | March 30,   2006
|                            |  |                                      |  |                 
|Coleman L.   Young, Jr.     |  |                                      |  |                 

26

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INDEX TO EXHIBITS

|                 |  |                                                                                                                                                     
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   Number |  | Description                                                                                                                                         
|                 |  |                                                                                                                                                     
|                 |  |                                                                                                                                                     
|3.1.             |  | Articles of   Incorporation(1)                                                                                                                      
|                 |  |                                                                                                                                                     
|3.2.             |  | Bylaws(1)                                                                                                                                           
|                 |  |                                                                                                                                                     
|4.1.             |  | Form of   Certificate of Common Stock(1)                                                                                                            
|                 |  |                                                                                                                                                     
|10.1             |  | Employment   Agreement dated September 10, 2004 between First National Bancshares, Inc.,   First National Bank of the South and Jerry Calvert.(2)*  
|                 |  |                                                                                                                                                     
|10.2             |  | Form of   Stock Warrant Agreement, as amended(3)*                                                                                                   
|                 |  |                                                                                                                                                     
|10.3             |  | 2000 First   National Bancshares, Inc. Stock Incentive Plan and form of Agreement(4)*                                                               
|                 |  |                                                                                                                                                     
|10.4             |  | Employment   Agreement dated January 31, 2005 between First National Bancshares, Inc.,   First National Bank of the South and Kitty B. Payne(5)*    
|                 |  |                                                                                                                                                     
|10.6             |  | Employment   Agreement dated January 31, 2005 between First National Bancshares, Inc., First   National Bank of the South and David H. Zabriskie(5)*
|                 |  |                                                                                                                                                     
|10.7             |  | Employment   Agreement dated January 31, 2005 between First National Bancshares, Inc.,   First National Bank of the South and Robert Murdoch(5)*    
|                 |  |                                                                                                                                                     
|10.8             |  | Amendment   No. 1 to the Stock Incentive Plan(3)*                                                                                                   
|                 |  |                                                                                                                                                     
|13               |  | Company 2005   Annual Report                                                                                                                        
|                 |  |                                                                                                                                                     
|21               |  | Subsidiaries                                                                                                                                        
|                 |  |                                                                                                                                                     
|24               |  | Power of   Attorney (included on signature page)                                                                                                    
|                 |  |                                                                                                                                                     
|31.1             |  | Rule   13a-14(a) Certification of the Chief Executive Officer.                                                                                      
|                 |  |                                                                                                                                                     
|31.2             |  | Rule   13a-14(a) Certification of the Chief Financial Officer.                                                                                      
|                 |  |                                                                                                                                                     
|32               |  | Section 1350   Certifications.                                                                                                                      

|   
|---
|(1)
|(2)
|(3)
|(4)
|(5)

*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-KSB.

27

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Exhibit 13

2005 Annual Report of the Company

---



Exhibit 21

Subsidiaries of the Company

First National Bank of the South FNSC Capital Trust I FNSC Capital Trust II FNSC Capital Trust III

---



Exhibit 31.1

Rule 13a-14(a) Certification of the Chief Executive Officer

I, Jerry L. Calvert, president and chief executive officer, certify that:

|1. | I have   reviewed this annual report on Form 10-KSB of First National Bancshares, Inc.                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Based on my   knowledge, this annual report does not contain any untrue statement of a   material fact or omit to state a material fact necessary to make the   statements made, in light of the circumstances under which such statements   were made, not misleading with respect to the period covered by this report;                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|3. | Based on my   knowledge, the financial statements, and other financial information included   in this report, fairly present in all material respects the financial   condition, results of operations and cash flows of the small business issuer   as of, and for, the periods presented in this report;                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|4. | The small   business issuers other certifying officers and I are responsible for   establishing and maintaining disclosure controls and procedures (as defined   in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer   and have:                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | a)  Designed such disclosure controls and   procedures, or caused such disclosure controls and procedures to be designed   under our supervision, to ensure that material information relating to the   small business issuer, including its consolidated subsidiaries, is made known   to us by others within those entities, particularly during the period in   which this report is being prepared;
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | b)  Evaluated the effectiveness of the small   business issuers disclosure controls and procedures and presented in this   report our conclusions about the effectiveness of the disclosure controls and   procedures as of the end of the period covered by this report based on such   evaluation; and                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | c)  Disclosed in this report any change in the   small business issuers internal control over financial reporting that occurred   during the small business issuers fourth fiscal quarter that has materially   affected, or is reasonably likely to materially affect, the small business   issuers internal control over financial reporting; and                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|5. | The small   business issuers other certifying officers and I have disclosed, based on   our most recent evaluation of internal control over financial reporting, to   the small business issuers auditors and the audit committee of the small   business issuers board of directors (or persons performing the equivalent   functions):                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | a)  All significant deficiencies and material   weaknesses in the design or operation of internal controls over financial   reporting which are reasonably likely to adversely affect the small business   issuers ability to record, process, summarize and report financial   information; and                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | b)  Any fraud, whether or not material, that   involves management or other employees who have a significant role in the   small business issuers internal control over financial reporting.                                                                                                                                                                                                          



|Date:  March   30, 2006 | By: | /s/  Jerry   L. Calvert                
|----------------------- | --- | ---------------------------------------
|                        |     |                                        
|                        |     | Jerry L.   Calvert                     
|                        |     | President   and Chief Executive Officer

---



Exhibit 31.2

Rule 13a-14(a) Certification of the Chief Financial Officer

I, Kitty B. Payne, chief financial officer, certify that:

|1. | I have   reviewed this annual report on Form 10-KSB of First National Bancshares, Inc.                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Based on my   knowledge, this annual report does not contain any untrue statement of a   material fact or omit to state a material fact necessary to make the   statements made, in light of the circumstances under which such statements   were made, not misleading with respect to the period covered by this report;                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|3. | Based on my   knowledge, the financial statements, and other financial information included   in this report, fairly present in all material respects the financial   condition, results of operations and cash flows of the small business issuer   as of, and for, the periods presented in this report;                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|4. | The small   business issuers other certifying officers and I are responsible for   establishing and maintaining disclosure controls and procedures (as defined   in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer   and have:                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | a)  Designed such disclosure controls and   procedures, or caused such disclosure controls and procedures to be designed   under our supervision, to ensure that material information relating to the   small business issuer, including its consolidated subsidiaries, is made known   to us by others within those entities, particularly during the period in   which this report is being prepared;
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | b)  Evaluated the effectiveness of the small   business issuers disclosure controls and procedures and presented in this   report our conclusions about the effectiveness of the disclosure controls and   procedures as of the end of the period covered by this report based on such   evaluation; and                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | c)  Disclosed in this report any change in the   small business issuers internal control over financial reporting that   occurred during the small business issuers fourth fiscal quarter that has   materially affected, or is reasonably likely to materially affect, the small   business issuers internal control over financial reporting; and                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|5. | The small   business issuers other certifying officers and I have disclosed, based on   our most recent evaluation of internal control over financial reporting, to   the small business issuers auditors and the audit committee of the small   business issuers board of directors (or persons performing the equivalent   functions):                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | a)  All significant deficiencies and material   weaknesses in the design or operation of internal controls over financial   reporting which are reasonably likely to adversely affect the small business   issuers ability to record, process, summarize and report financial   information; and                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                        
|   | b)  Any fraud, whether or not material, that   involves management or other employees who have a significant role in the   small business issuers internal control over financial reporting.                                                                                                                                                                                                          



|Date:     March 30, 2006 | By: | /s/ Kitty B.   Payne     
|------------------------ | --- | -------------------------
|                         |     |                          
|                         |     | Kitty B.   Payne         
|                         |     | Chief   Financial Officer

---



Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Executive Officer and the Chief Financial Officer of First National Bancshares, Inc. (the Company), each certify that, to his knowledge on the date of this certification:

| | 1. | The annual   report of the Company for the period ended December 31, 2005 as filed with the   Securities and Exchange Commission on this date (the Report) fully complies   with the requirements of Section 13(a) or 15(d) of the Securities Exchange   Act of 1934; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                            
| | 2. | The   information contained in the Report fairly presents, in all material respects,   the financial condition and result of operations of the Company.                                                                                                                    



|Date:  March   30, 2006 | By: | /s/ Jerry L.   Calvert                 
|----------------------- | --- | ---------------------------------------
|                        |     |                                        
|                        |     | Jerry L.   Calvert                     
|                        |     | President   and Chief Executive Officer
|                        |     |                                        
|Date:  March   30, 2006 | By: | /s/ Kitty B.   Payne                   
|                        |     |                                        
|                        |     | Kitty B.   Payne                       
|                        |     | Chief   Financial Officer              

---



Message

---



Message

|  | SPARTANBURG                  |  |   | GREENVILLE                     |        
|- | ---------------------------- |  | - | ------------------------------ | -------
|1 | Pine Street Office           |  | 5 | Loan Production Office         |        
|  |  Corporate Headquarters     |  |   |  Greenville                   |        
|  | 215 N. Pine   St.            |  |   | 1204-A E.   Washington St.     |        
|  | Spartanburg,   SC 29302      |  |   | Greenville,   SC 29601         |        
|  | (864)   948-9001             |  |   | (864)   233-3318               |        
|  |                              |  |   |                                |        
|2 | Reidville Road Office        |  | 6 | Pelham Road Office             |        
|  | 2680   Reidville Rd.         |  |   |  Market Headquarters          | Message
|  | Spartanburg,   SC 29301      |  |   | 3401 Pelham   Road            
|  | (864)   576-7220             |  |   | Greenville,   SC 29615        
|  |                              |  |   |                                |        
|3 | Boiling Springs Office       |  |   | COLUMBIA                       |        
|  | 3090 Boiling   Springs Rd.   |  | 7 | Loan Production Office         |        
|  | Boiling   Springs, SC 29316  |  |   |  Columbia                     |        
|  | (864) 578-8600               |  |   | 725   Crosshill Road           |        
|  |                              |  |   | Columbia, SC   29205           |        
|4 | Operations Center            |  |   | (803)   787-7757               |        
|  | 105   Corporate Dr., Suite D |  |   |                                |        
|  | Spartanburg,   SC 29303      |  |   |                                |        
|  | (864)   578-3354             |  |   | CHARLESTON                     |        
|  |                              |  | 8 | Mount Pleasant Office          |        
|  |                              |  |   | 651 Johnnie   Dodds Blvd.      |        
|  |                              |  |   | Mt. Pleasant,   SC 29464       |        
|  |                              |  |   | (843)   971-6977               |        
|  |                              |  |   |                                |        
|  |                              |  | 9 | Loan Production Office         |        
|  |                              |  |   |  Daniel Island                |        
|  |                              |  |   | 206 Seven   Farms Dr., Suite B |        
|  |                              |  |   | Daniel   Island, SC 29492      |        
|  |                              |  |   | (843)   216-8991               |        
|  |                              |  |   |                                |        

Message

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Message

BOARD OF DIRECTORS from L to R:
Martha C. Chapman, William A. Hudson, C. Dan Adams, Coleman L. Young, Jr., Dr. C. Tyrone Gilmore, Sr., Benjamin R. Hines, Mellnee G. Buchheit, Gaines W.Hammond, Jr.,
M.D. (Chairman), Peter E. Weisman, Jerry L. Calvert (Vice Chairman), Donald B. Wildman, Norman F. Pulliam (Chairman Emeritus), W. Russel Floyd, Jr.

|Message                                         | SENIOR LEADERSHIP TEAM from L to R:                  
|----------------------------------------------- | -----------------------------------------------------
|                                               
|Louie W. Blanton                               
|SVP  Commercial Banking & Business Development
|                                               
|John A. Bickley                                
|SVP First National Business Capital, Greenville
|                                               
|Jerry L. Calvert                               
|President & CEO                                
|                                               
|Robert W. Murdoch, Jr.                         
|EVP Retail Banking Manager                     
|                                               
|Kitty B. Payne                                 
|EVP  Chief Financial Officer                  
|                                               
|Rudy H. Gill                                   
|Market President, Charleston                   
|                                               
|Barry D. Starling                              
|SVP & Commercial Banking Officer, Greenville   
|                                               
|David H. Zabriskie                             
|EVP  Senior Lender                            
|                                               
|                                                | Robert L. Whittemore                                 
|                                                | Market President, Columbia & Regional Lending Manager

---



MARCH 17, 2006

Dear Fellow Shareholders:

On behalf of our board of directors, we are pleased to report an outstanding year for First National. We exceeded expectations during the year, achieving in excess of $2.8 million in earnings during 2005, our most profitable year since inception.

2005 was a tremendous year of growth for First National. We exceeded $300
million in assets, completed a successful secondary stock offering and our
companys stock was listed on the NASDAQ National Market (FNSC). We
converted our Mt. Pleasant loan production office into a full service branch in
the thriving coastal market of Charleston. We also added 22 new members to our
outstanding team of employees and directors to serve our customers and support
our continuing growth ($ in thousands).

|KEY FINANCIAL ACHIEVEMENTS                                                             |  |   |         |  |   |        
|-------------------------------------------------------------------------------------- |  | - | ------- |  | - | -------
|                                                                                       |  |   |         |  |   |        
|Growth Category                                                                        |  |   | 2005    |  |   | 2004   
|                                                                                       |  |   |         |  |   |        
|Net Income                                                                             |  | $ | 2,835   |  | $ | 1,815  
|Net Income   Per Diluted Share*                                                        |  | $ | 0.83    |  | $ | 0.55   
|Total   Assets                                                                         |  | $ | 328,679 |  | $ | 236,344
|Loans                                                                                  |  | $ | 251,405 |  | $ | 188,507
|Deposits                                                                               |  | $ | 271,695 |  | $ | 191,811
|                                                                                       |  |   |         |  |   |        
|                                                                                      
|                                                                                      
|*Reflects   the 3 for 2 stock splits distributed on January 18, 2006 and March 1, 2004

Moving into 2006, we have many new and exciting opportunities ahead of us. Two recently opened loan production offices are being established in both the state capital, Columbia, and on Daniel Island in Charleston. We recently announced plans to construct a market headquarters and full service branch in the heart of Greenvilles fast-growing Eastside.Also, we will soon break ground on our new operations center, which will be built adjacent to our corporate headquarters in Spartanburg, to support our growth efforts.

We look forward to providing some exciting new services for our customers, including all-day deposit credit and a redesigned website with enhanced internet banking capabilities. The website will also include an Investor Relations link to our new Media Room, http://firstnational-online.mediaroom.com, where you can get the latest news and financial information concerning our company.

|                                                                                                                                                                                                                                                                                              |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | 
|Thank you for your   continued support and involvement. You make our consistent success possible   with your loyalty and encouragement. We look forward to a very promising and   successful 2006. Please continue to call on us for all of your banking needs   as we are here to serve you. | Message
|                                                                                                                                                                                                                                                                                              |        
|/s/ Jerry L. Calvert                                                                                                                                                                                                                                                                          |        
|                                                                                                                                                                                                                                                                                              |        
|Jerry L. Calvert                                                                                                                                                                                                                                                                              |        
|President   & CEO, Vice Chairman                                                                                                                                                                                                                                                              |        
|                                                                                                                                                                                                                                                                                              |        
|/s/ Gaines W. Hammond,   Jr.                                                                                                                                                                                                                                                                  |        
|                                                                                                                                                                                                                                                                                              |        
|Gaines W. Hammond, Jr.,   M.D.                                                                                                                                                                                                                                                                |        
|Chairman                                                                                                                                                                                                                                                                                      |        
|                                                                                                                                                                                                                                                                                              |        

---



Message

FINANCIAL HIGHLIGHTS

The information
presented below should be read in conjunction with the consolidated financial
statements, the notes thereto and Managements Discussion and
Analysis or Plan of Operation contained elsewhere in this report. 
The shares outstanding, closing stock price and per share amounts for 2004 and
2005 have been restated to reflect the 3 for 2 stock splits distributed on
January 18, 2006, and March 1, 2004 (dollars in thousands, excluding per share
amounts).

|                                        |  | As of or   for the year ended December 31, |          
|--------------------------------------- |  | ------------------------------------------ | ---------
|                                        |  |                                            |          
|                                        |  | 2005                                       |          
|                                        |  |                                            |          
|Loans, net of unearned   income         |  | $                                          | 251,405  
|Deposits                                |  | $                                          | 271,695  
|Total Assets                            |  | $                                          | 328,679  
|Shareholders Equity                    |  | $                                          | 22,029   
|                                        |  |                                            |          
|Loan Loss Allowance                     |  | $                                          | 2,719    
|Loan Loss Allowance to   Total Loans    |  |                                            | 1.08     
|Loan to Deposit Ratio                   |  |                                            | 92.53    
|Net charge-offs to average   loans      |  |                                            | 0.06     
|Non-performing assets to   total assets |  |                                            | 0.11     
|                                        |  |                                            |          
|Equity/Assets                           |  |                                            | 6.70     
|Book Value per Share                    |  | $                                          | 7.04     
|Closing Stock Price                     |  | $                                          | 19.96    
|Price/Book Value                        |  |                                            | 283      
|Weighted Avg Shares   Outstanding       |  |                                            |          
|Basic                                   |  |                                            | 2,770,265
|Diluted                                 |  |                                            | 3,468,312
|                                        |  |                                            |          
|Net Income                              |  | $                                          | 2,835    
|Net Income per Share                    |  |                                            |          
|Basic                                   |  | $                                          | 1.03     
|Diluted                                 |  | $                                          | 0.83     
|                                        |  |                                            |          
|Net Interest Income                     |  | $                                          | 9,511    
|Noninterest Income                      |  | $                                          | 1,855    
|Efficiency Ratio                        |  |                                            | 56.98    
|Net Interest Margin                     |  |                                            | 3.53     
|                                        |  |                                            |          
|Total Risk-Based Capital   Ratio        |  |                                            | 13.16    
|Tier 1 Risk-Based Capital   Ratio       |  |                                            | 11.92    
|Tier 1 Capital Leverage   Ratio         |  |                                            | 9.09     
|                                        |  |                                            |          
|Average Equity                          |  | $                                          | 15,996   
|Return on Average Equity                |  |                                            | 17.72    
|Average Assets                          |  | $                                          | 279,745  
|Return on Average Assets                |  |                                            | 1.01     

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FIRST NATIONAL BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion reviews our results of operations and assesses our financial condition.  You should read the following discussion and analysis in conjunction with our Financial Highlights and our consolidated financial statements and the related notes included elsewhere in this report.  This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934 relating to, without limitation, our future economic performance, plans and objectives for future operations, and projections of revenues and other financial items that are based on our beliefs, as well as assumptions made by and information currently available to us.  The words may, will, anticipate, should, would, believe, contemplate,
could, project, predict, expect, estimate, continue, and intend, as well as other similar words and expressions of the future, are intended to identify forward-looking statements.  Our actual results, performance, or achievements may differ materially from the results expressed or implied by our forward-looking statements.  Potential risks and uncertainties include, but are not limited to, those described under the heading Risk Factors in our 10-KSB for the year ended December 31, 2005.

General

First National Bancshares, Inc. was organized on July 14, 1999, to serve as the holding company for First National Bank of Spartanburg, which opened its first full-service bank branch in March 2000.  Our bank opened two additional full-service offices in Spartanburg County during 2000 and 2001.  In October 2002, we changed the legal name of our bank to First National Bank of the South as part of our strategy of growth and expansion.  We continue to do business in Spartanburg County as First National Bank of Spartanburg.  In October 2005, we successfully converted our loan production office in Mount Pleasant, South Carolina to our fourth full service branch, our first in the Charleston area.

In January 2006, we opened a loan production office in Columbia, South Carolina and in February 2006, we added the Daniel Island loan production office to our Charleston market operations.  Our Greenville loan production office houses the small business lending division which opened in March 2004.  This division operates as First National Business Capital and originates small business loans under the U. S. Small Business Administrations SBAs various loan programs.

We have received regulatory approval to convert our Greenville loan production office to a full-service branch and Greenville market headquarters.  We plan to begin construction of this facility during the second quarter of 2006.

Overview

Our strategy has produced consistent growth in assets, loans and deposits, with strong earnings performance.  We became cumulatively profitable during the third quarter of 2003 and have reported quarterly profits for 17 consecutive quarters since recording our first quarterly profit in the fourth quarter of 2001.

The following table sets forth selected measures of our financial performance for the periods indicated (dollars in thousands).



|                 |  | As of or   for the Years Ended December 31, |        
|---------------- |  | ------------------------------------------- | -------
|                 |  |                                             |        
|                 |  | 2005                                        |        
|                 |  |                                             |        
|Total revenue(1) |  | $                                           | 11,366 
|Net income       |  |                                             | 2,835  
|Total assets     |  |                                             | 328,679
|Total loans(2)   |  |                                             | 251,405
|Total deposits   |  |                                             | 271,695

|   
|---
|   
|(1)
|(2)

Like most financial institutions, we derive the majority of our income from interest we receive on our interest-earning assets, such as loans and investments.  Our primary source of funds for making these loans and investments is our deposits, on which we pay interest.  Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets and the expense on our interest-bearing liabilities, such as deposits and borrowings.  Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible.  We maintain this allowance by charging a provision for loan losses against our operating earnings.  We have included a detailed discussion of this process, as well as several tables describing our allowance for loan losses.

---



In addition to earning interest on our loans and investments, we earn income through other sources, such as fees and surcharges we charge our customers and income from the sale and/or servicing of financial assets such as loans and investments.  We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements.  We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and that are consistent with general practices within the banking industry in the preparation of our financial statements.  Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2005, as filed in our annual report on Form 10-KSB and included in the annual report.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities.  We consider these accounting policies to be critical accounting policies.  The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgments and estimates when preparing our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, cash flow assumptions, the determination of loss factors for estimating credit losses, the impact of current events, and other factors impacting the level of probable inherent losses. Under different conditions or using different assumptions, the actual amount of credit losses incurred by us may be different from managements estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes
and methodology for determining our allowance for loan losses.

Results of Operations

Income Statement Review

Summary

Our net income was $2.8 million, or $0.83 per diluted share, for the year ended December 31, 2005, as compared with $1.8 million, or $0.55 per diluted share, for the year ended December 31, 2004.  The 55.6% increase in net income over 2004 was primarily driven by a 46.0% increase in net interest income.

Our return on average assets of 1.01% for 2005 was a 16.1% increase over the result of 0.87% for 2004.  We were able to accomplish this result due to an increase in the net interest margin from 3.26% in 2004 to 3.53% in 2005, an increase in average loans as a percentage of average earning assets from 80.6% as of December 31, 2004, to 82.3% as of December 31, 2005, and a decrease in the efficiency ratio to 56.98% during 2005 from 59.94% in 2004.

Our return on average equity increased by 27.8% to 17.72% for 2005 from 13.87% in 2004 as we continued to leverage our existing capital.  We also obtained additional capital during the year from an offering of our common stock that closed in December 2005.

Net Interest Income

Our primary source of revenue is net interest income.  The level of net interest income is determined by the balances of interest-earning assets and interest-bearing liabilities and successful management of the net interest margin.  In addition to the growth in both interest-earning assets and interest-bearing liabilities, and the timing of repricing of these assets and liabilities, net interest income is also affected by the ratio of interest-earning assets to interest-bearing liabilities and the changes in interest rates earned on our assets and interest rates paid on our liabilities.

Our net interest income increased $3.0 million, or 46.2%, to $9.5 million in 2005, from $6.5 million in 2004.  The growth in net interest income resulted from an increase of $6.9 million in interest income, partially offset by an increase of $3.9 million in interest expense from 2004 to 2005.

The increase in net interest income was due primarily to the growth of our loan portfolio, as reflected in an increase in our average earning assets of 35.1% during 2005.  Our decision to grow the loan portfolio at the current pace has resulted in a significant portion of our assets being in higher earning loans than in lower yielding investments.

---



Our net interest income has also been positively influenced by the increase in our net interest margin following the thirteen increases in the prime rate of interest during 2004 and 2005.  Since we are asset-sensitive over a one-year time period, our net interest income on our existing earning asset base increases when the prime rate rises.

The following table sets forth, for the years ended December 31, 2005, 2004 and 2003, information related to our average balances, yields on average assets, and costs of average liabilities.  We derived average balances from the daily balances throughout the periods indicated.  We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities.Average loans are stated net of unearned income and include nonaccrual loans.  Interest income recognized on nonaccrual loans has been included in interest income (dollars in thousands).

|                                       |  | Average Balances, Income and Expenses, and Rates
For the Years Ended December 31, |        
|-------------------------------------- |  | --------------------------------------------------------------------------------- | -------
|                                       |  |                                                                                   |        
|                                       |  | Average    Balance                                                                |        
|                                       |  |                                                                                   |        
|Loans                                  |  | $                                                                                 | 222,026
|Investment   securities                |  |                                                                                   | 39,683 
|Federal   funds sold and other         |  |                                                                                   | 8,037  
|                                       |  |                                                                                   |        
|Total   interest-earning assets        |  | $                                                                                 | 269,745
|                                       |  |                                                                                   |        
|Time   deposits                        |  | $                                                                                 | 144,082
|Savings   & money market               |  |                                                                                   | 42,865 
|NOW   accounts                         |  |                                                                                   | 21,907 
|FHLB   advances                        |  |                                                                                   | 27,966 
|Junior   subordinated debentures       |  |                                                                                   | 6,186  
|Federal   funds purchased              |  |                                                                                   | 1,329  
|                                       |  |                                                                                   |        
|Total   interest-bearing liabilities   |  | $                                                                                 | 244,335
|                                       |  |                                                                                   |        
|Net   interest spread                  |  |                                                                                   |        
|Net   interest income/margin           |  |                                                                                   |        
|                                       |  |                                                                                   |        
|Non-interest-bearing   demand deposits |  | $                                                                                 | 18,009 

The net interest spread, which is the difference between the rate we earn on interest-earning assets and the rate we pay on interest-bearing liabilities, was 3.23% for the year ended December 31, 2005, compared to 3.03% for the year ended December 31, 2004.  Our consolidated net interest margin, which is net interest income divided by average interest-earning assets for the period, was 3.53% for the year ended December 31, 2005, as compared to 3.26% for the year ended December 31, 2004.

The increase in our net interest spread and our net interest margin from 2004 to 2005 was principally due to the faster increase in yields on average interest-earning assets relative to the repricing of our average interest-bearing liabilities following the thirteen increases in the prime rate during 2004 and 2005.  The relative increase in our average loans as a percentage of average earning assets from 2004 to 2005 also contributed to the increase in our net interest margin. We anticipate that growth in loans will continue to drive the growth in assets and the growth in net interest income.  Changes in interest rates paid on assets and liabilities, the rate of growth of the asset and liability base, the ratio of interest-earning assets to interest-bearing liabilities, and management of the balance sheets interest rate sensitivity all factor into changes in net interest income. Therefore,

we may not be able to continue to sustain the increases in net interest income that we have accomplished in the past.

Analysis of Changes in Net Interest Income

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume.  The change in net interest income is primarily due to the increases in volume of both loans and deposits and changes in average rates. The following table sets forth the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented (dollars in thousands).

|                                     |  | For the   Years Ended    December 31, 2005 vs. 2004 Increase (Decrease) Due to |       | For the   Years Ended 
   December 31, 2004 vs. 2003
    Increase (Decrease) Due to |  
|------------------------------------ |  | ------------------------------------------------------------------------------ | ----- | ----------------------------------------------------------------------------------- | -
|                                     |  |                                                                                |       |                                                                                     |  
|                                     |  | Volume                                                                         |       | Rate                                                                                |  
|                                     |  |                                                                                |       |                                                                                     |  
|Interest-Earning Assets              |  |                                                                                |       |                                                                                     |  
|Federal funds sold and other         |  | $                                                                              | 173   |                                                                                     | $
|Investment securities                |  |                                                                                | 173   |                                                                                     |  
|Loans(1)                             |  |                                                                                | 4,256 |                                                                                     |  
|                                     |  |                                                                                |       |                                                                                     |  
|Total   interest-earning assets      |  | $                                                                              | 4,602 |                                                                                     | $
|                                     |  |                                                                                |       |                                                                                     |  
|Interest-Bearing Liabilities         |  |                                                                                |       |                                                                                     |  
|Deposits                             |  | $                                                                              | 1,462 |                                                                                     | $
|FHLB advances                        |  |                                                                                | 473   |                                                                                     |  
|Federal funds purchased              |  |                                                                                | 24    |                                                                                     |  
|Junior subordinated   debentures     |  |                                                                                | 63    |                                                                                     |  
|                                     |  |                                                                                |       |                                                                                     |  
|Total   interest-bearing liabilities |  | $                                                                              | 2,022 |                                                                                     | $
|                                     |  |                                                                                |       |                                                                                     |  
|Net interest income                  |  | $                                                                              | 2,580 |                                                                                     | $
|                                     |  |                                                                                |       |                                                                                     |  

|   
|---
|   
|(1)



---

Provision for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged as a non-cash expense to our statement of income.  We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses, respectively as the number of loan customers increases in our growing branch network and loan production offices.  Please see the discussion below under Allowance for Loan Losses for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

Our provision for loan losses was $594,000 for the year ended December 31, 2005, and $679,000 for the year ended December 31, 2004.  The decrease in the provision is the result of managements confidence in the credit quality of the loan portfolio.  Net charge-offs as a percentage of average loans have consistently been below industry averages since the banks inception.  We continue to review and evaluate the adequacy of the allowance for loan losses given the size, mix, and quality of the current loan portfolio.

Noninterest Income

The following table sets forth information related to the various components of our noninterest income (dollars in thousands).

|                                                  |  | Years   ended December 31, |      
|------------------------------------------------- |  | -------------------------- | -----
|                                                  |  |                            |      
|                                                  |  | 2005                       |      
|                                                  |  |                            |      
|Service charges and fees on   deposit accounts    |  | $                          | 961  
|Gain on sale of guaranteed   portion of SBA loans |  |                            | 441  
|Loan service charges and   fees                   |  |                            | 163  
|Mortgage loan fees from   correspondent banks     |  |                            | 135  
|Earnings on bank-owned life   insurance contracts |  |                            | 117  
|Gain on sale of investment   securities           |  |                            |     
|Other                                             |  |                            | 38   
|                                                  |  |                            |      
|Total   noninterest income                        |  | $                          | 1,855
|                                                  |  |                            |      

Noninterest income for the year ended December 31, 2005, was $1.9 million, a net increase of 5.6% compared to noninterest income of $1.8 million during the same period in 2004.  Excluding the nonrecurring gain on the sale of investment securities of $160,000 realized in 2004, noninterest income for the year ended December 31, 2005, increased by $244,000, or 15.1%, over 2004.

This increase occurred primarily due to increases in service charges and fees on deposit accounts resulting from growth in the number of deposit accounts.  Gains recognized on the sale of the guaranteed portion of SBA loans increased 26.7% from 2004 to 2005 as a result of a full year of loan production from the small business lending division during 2005 that opened in March 2004.  Loan service charges and fees and fees from correspondent banks on the origination of mortgage loans increased 28.3% and 31.1%, respectively from 2004 to 2005.

Noninterest expenses

The following table sets forth information related to the various components of our noninterest expenses (dollars in thousands).

|                                  |  | Years   ended December 31, |      
|--------------------------------- |  | -------------------------- | -----
|                                  |  |                            |      
|                                  |  | 2005                       |      
|                                  |  |                            |      
|Salaries and employee benefits    |  | $                          | 3,744
|Occupancy   and equipment         |  |                            | 660  
|Data   processing and ATM expense |  |                            | 487  
|Public   relations                |  |                            | 378  
|Professional   fees               |  |                            | 251  
|Telephone   and supplies          |  |                            | 211  
|Other                             |  |                            | 745  
|                                  |  |                            |      
|Total noninterest expense         |  | $                          | 6,476
|                                  |  |                            |      

Noninterest expense was $6.5 million for 2005, as compared to $5.0 million in 2004, an increase of 30.0%.  The majority of the increased expenditures reflects the cost of salaries and other variable expenses that have increased to support our growth.  Although total noninterest expense increased $1.5 million over 2004, continued efficiency of banking operations resulted in this category increasing only 30.0% over 2004 while total revenue (net interest income plus noninterest income) increased by 37.2% during the same period.

The most significant item included in noninterest expense is salaries and employee benefits, which totaled $3.7 million in 2005, as compared to $2.8 million in 2004, an increase of 32.1%.  Occupancy and equipment expense increased to $660,000 in 2005 from $562,000 in 2004, or an increase of 17.4%.

Data processing and ATM expense increased by 28.8% to $487,000 for 2005, as compared to $378,000 in 2004.  A majority of the increase reflects the increased costs associated with growth in customer transaction processing due to the increasing number of loan and deposit accounts in our customer base.  We have contracted with an outside computer service company to provide our core data processing services.  A significant portion of the fee charged by the third party processor is directly related to the number of loan and deposit accounts and the related number of transactions.

---



Public relations expense increased by 22.7% to $378,000 for 2005, as compared to $308,000 in 2004, primarily due to increased community relations expenditures and continued expansion of print and television media advertising as a result of our increasing customer base and expansion into additional markets.  In addition, we began to incur listing fees for our stock on the NASDAQ National Market beginning in November 2005.  Professional fees increased from $231,000 in 2004 to $250,000 in 2005, an increase of 8.2%, which resulted primarily from a charge of approximately $20,000 for consulting services in preparation for the offering of our common stock completed in December 2005.

Included in the line item other, which increased $178,000, or 31.4%, between 2005 and 2004, are charges for insurance premiums, director fees, postage, printing and stationery expense, and various customer-related expenses, including referral fees paid on SBA loans.

A majority of the increases in these expenditures reflects the costs of additional personnel hired to support our growth, including branch staff for the Mount Pleasant office which opened in late October 2005, additional lenders in the Spartanburg and Columbia markets as well as staff in the loan and deposit operation functions to support the continued growth in all markets.  The increased costs are also associated with growth in customer transaction processing due to the increase in our customer base.

Although we recognize the importance of controlling noninterest expenses to improve profitability, we are also committed to retaining our team of well-trained officers and staff, maintaining a highly technical operations function and pursuing a professional marketing program.

Provision for Income Taxes

Income tax expense can be analyzed as a percentage of net income before income taxes.  The following table sets forth information related to our income tax expense (dollars in thousands).

|                                 |  | Years ended December 31, |      
|-------------------------------- |  | ------------------------ | -----
|                                 |  |                          |      
|                                 |  | 2005                     |      
|                                 |  |                          |      
|Provision   for income taxes     |  | $                        | 1,461
|Net income   before income taxes |  |                          | 4,296
|Effective   income tax rate      |  |                          | 34.00

The increase in the effective income tax rate from 2004 to 2005 occurred due to the relative increase in fully taxable income during the year.  Although the net nontaxable income increased during the year from sources such as municipal securities investments, which increased from 2004 to 2005, and was partially offset by a decline in earnings on bank owned life insurance contracts, fully taxable income such as interest income on loans and government agency investments and noninterest income from fees and charges experienced much greater percentage increases from 2004 to 2005.

Balance Sheet Review

General

As of December 31, 2005, we had total assets of $328.7 million or an increase of 39.1% over total assets of $236.3 million on December 31, 2004.  Total assets on December 31, 2005 and 2004, consisted of loans, net of unearned income, of $251.4 million and $188.5 million, respectively; securities available for sale of $45.2 million and $36.2 million, respectively; other assets of $8.6 million and $6.4 million, respectively; premises and equipment, net accumulated depreciation and amortization, of $5.0 million and $4.3 million, respectively; cash and due from banks of $2.7 million and $2.4 million, respectively; and federal funds sold and interest-bearing bank balances of $18.6 million and $880,000, respectively.

The interest-earning assets, consisting of loans, securities available for sale, federal funds sold and interest-bearing bank balances, grew to $315.1 million as of December 31, 2005, or an increase of 39.6% over the balance of $225.7 million as of December 31, 2004.  This increase resulted primarily from the loan originations, net of principal collections, from 2004 to 2005 of approximately $63.0 million due to our expansion into the Charleston market, which began in October of 2004, and new production from lenders hired for the Columbia and Greenville loan production offices during the fourth quarter of 2005.  We also continued to expand our loan production with the addition of several lenders in the Spartanburg market.

The increase of $2.2 million in other assets during 2005 resulted primarily from the increase in accrued interest receivable due to the thirteen increases in the prime interest rate during 2004 and 2005, as well as the growth in interest-earning assets during 2005.

Premises and equipment increased $703,000 during 2005 primarily due to the purchases of land for the Spartanburg operations center to be constructed in 2006 and leasehold improvements at the new Mount Pleasant branch, which opened in October 2005, net of $269,000 in depreciation expense for the year.

---



Our liabilities on December 31, 2005 and 2004, were $306.7 million and $222.4 million, respectively, and consisted primarily of deposits of $271.7 million and $191.8 million, respectively, and other liabilities of $8.3 million and $7.5 million, respectively.  Liabilities on December 31, 2005 and 2004, also included $26.6 million and $23.1 million in Federal Home Loan Bank advances, respectively

Shareholders equity on December 31, 2005, was $22.0 million, as compared to shareholders equity on December 31, 2004, of $13.9 million.  The increase of $8.1 million, or 58.3%, can be attributed to proceeds received from the offering of common stock that ended in December 2005, net of offering expenses and to the net income earned during 2005.

Federal Funds Sold and Interest-Bearing Bank Balances

As of December 31, 2005, our $18.6 million in short-term overnight investments in federal funds sold and interest-bearing bank balances comprised 6.0% of total interest-earning assets of $317.3 million as compared to less than 1% of total interest-earning assets at $880,000 on December 31, 2004.  Although we experienced record loan growth during 2005, a net increase in deposits from 2004 to 2005 of 115.4% over the net growth from 2003 to 2004 drove the increase in cash and due from banks, federal funds sold and interest-bearing bank balances of approximately $18.0 million from 2004 to 2005.  We intend to decrease the level of federal funds sold during 2006 to fund loan growth and finance construction of our Greenville market headquarters and our operations center at our corporate headquarters in Spartanburg.

Investments

On December 31, 2005, and 2004, our investment securities portfolio of $45.1 and $36.2 million, respectively, represented approximately 14.2% and 15.9%, respectively, of our interest-earning assets.  As of December 31, 2005 and 2004, we were invested in U.S. Government agency securities, mortgage-backed securities, and municipal securities with an amortized cost of $46.2 million and $36.4 million, respectively, for an unrealized loss of $672,000 and $257,000, respectively.

As a result of the strong growth in our loan portfolio and the historically low fixed rates during the past several years, we have maintained a lower than normal level of investments.  As rates on investment securities have risen and additional capital and deposits have been obtained, we have increased the size of the investment portfolio.

Fair values and yields on our investments (all available for sale) as of December 31, 2005, are shown in the following table based on contractual maturity dates.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.  Yields on municipal securities are presented on a tax equivalent basis (dollars in thousands).

|                                                |  | As of December 31, 2005         |       
|----------------------------------------------- |  | ------------------------------- | ------
|                                                |  |                                 |       
|                                                |  | After one but within five years |       
|                                                |  |                                 |       
|                                                |  | Amount                          |       
|                                                |  |                                 |       
|U.S.   Government/government sponsored agencies |  | $                               | 4,844 
|Mortgage-backed   securities                    |  |                                 | 5,934 
|Municipal   securities                          |  |                                 |      
|                                                |  |                                 |       
|Total                                           |  | $                               | 10,778
|                                                |  |                                 |       

The amortized cost and fair value of our investments (all available for sale) as of December 31, 2005, 2004 and 2003, are shown in the following table (dollars in thousands).

|                                                |  | December 31, 2005 |        | December 31, 2004 |   | December 31, 2003 | 
|----------------------------------------------- |  | ----------------- | ------ | ----------------- | - | ----------------- | 
|                                                |  |                   |        |                   |   |                   | 
|                                                |  | Amortized
Cost    |        | Fair    Value     |   | Amortized
Cost    | 
|                                                |  |                   |        |                   |   |                   | 
|U.S.   Government/government sponsored agencies |  | $                 | 9,500  |                   | $ | 9,169             | 
|Mortgage-backed   securities                    |  |                   | 28,070 |                   |   | 27,378            | 
|Municipal   securities                          |  |                   | 8,600  |                   |   | 8,604             | 
|                                                |  |                   |        |                   |   |                   | 
|Total                                           |  | $                 | 46,170 |                   | $ | 45,151            | 
|                                                |  |                   |        |                   |   |                   | 

We also maintain certain equity investments required by law that are included in the consolidated balance sheets as other assets.  The carrying amounts of these investments as of December 31, 2005, 2004 and 2003 consisted of the following:



|                               |  | As of December 31, |      
|------------------------------ |  | ------------------ | -----
|                               |  |                    |      
|                               |  | 2005               |      
|                               |  |                    |      
|Federal   Reserve Bank stock   |  | $                  | 448  
|Federal   Home Loan Bank stock |  |                    | 1,674

---



We increased the level of Federal Reserve Bank stock during 2005 to reflect the additional capitalization of the bank as a result of a contribution of capital by the holding company from proceeds received from the sale of our common stock completed in December 2005.  The level of Federal Home Loan Bank stock varies with the level of Federal Home Loan Bank advances and increased during 2005 to reflect the net increase in FHLB advances during the year.

No ready market exists for these stocks and they have no quoted market value. However, redemption of these stocks has historically been at par value.  Accordingly, we believe the carrying amounts are a reasonable estimate of fair value.

Loans

Since loans typically provide higher interest yields than do other types of interest-earning assets, we invest a substantial percentage of our earning assets in our loan portfolio.  Average loans for the years ended December 31, 2005 and 2004, were $222.0 million and $160.9 million, respectively.  Total loans outstanding as of December 31, 2005 and 2004, were $251.4 million and $188.5 million, respectively, before the allowance for loan losses.

We do not generally originate traditional long-term residential mortgages, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit.  We obtain a security interest in real estate whenever possible, in addition to any other available collateral.  This collateral is taken to increase the likelihood of the ultimate repayment of the loan.  Generally, we limit the loan-to-value ratio on loans we make to 80%.

The following table summarizes the composition of our loan portfolio as of December 31, 2005 and 2004, (dollars in thousands).

|                                        |  | December 31, 2005 |         | December 31, 2004 | 
|--------------------------------------- |  | ----------------- | ------- | ----------------- | 
|                                        |  |                   |         |                   | 
|                                        |  | Amount            |         | % of Total        | 
|                                        |  |                   |         |                   | 
|Commercial   and industrial             |  | $                 | 20,902  |                   | 
|Commercial   secured by real  estate    |  |                   | 152,726 |                   | 
|Real   estate  residential  mortgages  |  |                   | 71,900  |                   | 
|Installment   and other consumer  loans |  |                   | 6,273   |                   | 
|Unearned   income                       |  |                   | (396    | )                 | 
|                                        |  |                   |         |                   | 
|Total   loans, net of unearned  income  |  |                   | 251,405 |                   | 
|Lessallowance   for loan losses        |  |                   | (2,719  | )                 | 
|                                        |  |                   |         |                   | 
|Total loans, net                        |  | $                 | 248,686 |                   | 
|                                        |  |                   |         |                   | 

The increase in our commercial loans secured by real estate from 2004 to 2005 is due to the relatively higher paydowns on residential real estate loans and new commercial real estate lending in the Charleston and Greenville markets due to the expansion of our loan production offices in each of these markets.

The following table summarizes the composition of our loan portfolio as of December 31, 2003, 2002, and 2001 (dollars in thousands).

|                                       |  | 2003   |         | 2002       |  | 2001   |   
|-------------------------------------- |  | ------ | ------- | ---------- |  | ------ | --
|                                       |  |        |         |            |  |        |   
|                                       |  | Amount |         | % of Total |  | Amount |   
|                                       |  |        |         |            |  |        |   
|Commercial   and industrial            |  | $      | 24,869  |            |  | 19.07  | % 
|Commercial   secured by real estate    |  |        | 57,622  |            |  | 44.18  | % 
|Real   estate  residential mortgages  |  |        | 42,830  |            |  | 32.84  | % 
|Installment   and other consumer loans |  |        | 5,342   |            |  | 4.10   | % 
|Unearned   income                      |  |        | (242    | )          |  | (0.19  | )%
|                                       |  |        |         |            |  |        |   
|Total   loans, net of unearned income  |  |        | 130,421 |            |  | 100.00 | % 
|Less  allowance for loan losses       |  |        | (1,630  | )          |  | 1.25   | % 
|                                       |  |        |         |            |  |        |   
|Total loans, net                       |  | $      | 128,791 |            |  |        |   
|                                       |  |        |         |            |  |        |   

The principal component of our loan portfolio for all periods presented was loans secured by real estate mortgages.  As the loan portfolio grows, the current mix of loans may change over time.  Due to the short time our portfolio has existed, the current mix may not be indicative of the ongoing portfolio mix.  We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration of collateral.

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables is based on the contractual maturities of individual loans, including loans that may be subject to renewal at their contractual maturity.  Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity.  Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

---



The following table summarizes the loan maturity distribution by type and related interest rate characteristics as of December 31, 2005 (dollars in thousands).

|                                      |  | As of December 31, 2005 |        
|------------------------------------- |  | ----------------------- | -------
|                                      |  |                         |        
|                                      |  | One year or less        |        
|                                      |  |                         |        
|Commercial                            |  | $                       | 18,233 
|Real   estate  construction          |  |                         | 46,912 
|Real   estate  mortgage              |  |                         | 115,157
|Consumer   and other                  |  |                         | 2,727  
|                                      |  |                         |        
|Total   loans                         |  | $                       | 183,029
|Unearned   income, net                |  |                         |        
|                                      |  |                         |        
|Total   loans, net of unearned income |  |                         |        
|                                      |  |                         |        
|Loans   maturing after one year with: |  |                         |        
|Fixed   interest rates                |  |                         |        
|                                      |  |                         |        
|Floating   interest rates             |  |                         |        
|                                      |  |                         |        

Provision and Allowance for Loan Losses

The allowance represents an amount that we believe will be adequate to absorb probable losses on existing loans that may become uncollectible.  Our judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans, including consideration of factors such as the balance of impaired loans; the quality, mix and size of our overall loan portfolio; economic conditions that may affect the borrowers ability to repay; the amount and quality of collateral securing the loans; our historical loan loss experience; and a review of specific problem loans.  We adjust the amount of the allowance periodically based on changing circumstances as a component of the provision for loan losses.  We charge recognized losses against the allowance and add subsequent recoveries back to the allowance.

We calculate the allowance for loan losses for specific types of loans and evaluate the adequacy on an overall portfolio basis utilizing our credit grading system which we apply to each loan.  We combine our estimates of the reserves needed for each component of the portfolio, including loans analyzed on a pool basis and loans analyzed individually.  The allowance is divided into two portions:  (1) an amount for specific allocations on significant individual credits and (2) a general reserve amount.

We analyze individual loans within the portfolio and make allocations to the allowance based on each individual loans specific factors and other circumstances that affect the collectibility of the credit.  Significant individual credits classified as doubtful or substandard/special mention within our credit grading system require both individual analysis and specific allocation.

Loans in the substandard category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity.  Loans in the doubtful category exhibit the same weaknesses found in the substandard loan; however, the weaknesses are more pronounced.  These loans, however, are not yet rated as loss because certain events may occur which could salvage the debt such as injection of capital, alternative financing, or liquidation of assets.

We calculate our general reserve based on a percentage allocation for each of the categories of the following unclassified loan types:  real estate, commercial, consumer, and mortgage. We apply general loss factors to each category and may adjust these percentages given consideration of local economic conditions, exposure to concentrations that may exist in the portfolio, changes in trends of past due loans, problem loans and charge-offs, and anticipated loan growth.  The general estimate is then added to the specific allocations made to determine the amount of the total allowance for loan losses.

The following table sets forth the breakdown of the allowance for loan losses by loan category and the percentage of loans in each category to gross loans for each of the years in the five-year period ended December 31, 2005 (dollars in thousands):

|                                  |  | As of December 31, |      
|--------------------------------- |  | ------------------ | -----
|                                  |  |                    |      
|                                  |  | 2005               |      
|                                  |  |                    |      
|Commercial                        |  | $                  | 135  
|Real   estateconstruction        |  |                    | 386  
|Real   estate-mortgage            |  |                    | 2,110
|Consumer                          |  |                    | 48   
|Unallocated                       |  |                    | 40   
|                                  |  |                    |      
|Total   allowance for loan losses |  | $                  | 2,719
|                                  |  |                    |      

We believe that the allowance can be allocated by category only on an approximate basis.  The allocation of the allowance to each category is not necessarily indicative of further losses and does not restrict the use of the allowance to absorb losses in any category.

---



The provision for loan losses has been made primarily as a result of managements assessment of general loan loss risk after considering historical operating results, as well as comparable peer data.  Our evaluation is inherently subjective as it requires estimates that are susceptible to significant change.  In addition, various regulatory agencies review our allowance for loan losses through their periodic examinations, and they may require us to record additions to the allowance for loan losses based on their judgment about information available to them at the time of their examinations.  Our losses will undoubtedly vary from our estimates, and there is a possibility that charge-offs in future periods will exceed the allowance for loan losses as estimated at any point in time.  Please see Note 6-Loans in the Notes to Consolidated Financial Statements included in
this report for additional information.

The following table sets forth the changes in the allowance for loan losses for each of the years in the five-year period ended December 31, 2005 (dollars in thousands).

|                                                        |  | As of December 31, |      
|------------------------------------------------------- |  | ------------------ | -----
|                                                        |  |                    |      
|                                                        |  | 2005               |      
|                                                        |  |                    |      
|Balance,   beginning of year                            |  | $                  | 2,258
|Provision   charged to operations                       |  |                    | 594  
|Loans   charged-off                                     |  |                    |      
|Commercial, financial and agricultural                  |  |                    | (38  
|Real estate-construction                                |  |                    |     
|Installment loans to individuals                        |  |                    | (106 
|                                                        |  |                    |      
|Total charge-offs                                       |  |                    | (144 
|Recoveries   of loans previously charged-off            |  |                    | 11   
|                                                        |  |                    |      
|Balance,   end of period                                |  | $                  | 2,719
|                                                        |  |                    |      
|Allowance   to loans, year end                          |  |                    | 1.08 
|                                                        |  |                    |      
|Net   charge-offs to average loans                      |  |                    | 0.06 
|                                                        |  |                    |      
|Non-accrual   loans                                     |  | $                  | 349  
|                                                        |  |                    |      
|Past   due loans in excess of 90 days on accrual status |  | $                  |     
|                                                        |  |                    |      
|Other   real estate owned                               |  | $                  |     
|                                                        |  |                    |      

Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when management believes, after considering economic and business conditions and collection efforts, that the borrowers financial condition is such that collection of the loan is doubtful.  A payment of interest on a loan that is classified as nonaccrual is recognized as income when received.

Deposits

Our primary source of funds for loans and investments is our deposits.  National and local market trends over the past several years suggest that consumers have moved an increasing percentage of discretionary savings funds into investments such as annuities, stocks, and fixed income mutual funds.  Accordingly, it has become more difficult to attract deposits.

The following table shows the average balance amounts and the average rates paid on deposits held by us for the years ended December 31, 2005, 2004 and 2003 (dollars in thousands).

|                                  |  | 2005   |         | 2004 |  | 2003   |  
|--------------------------------- |  | ------ | ------- | ---- |  | ------ | -
|                                  |  |        |         |      |  |        |  
|                                  |  | Amount |         | Rate |  | Amount |  
|                                  |  |        |         |      |  |        |  
|Demand deposit accounts           |  | $      | 18,009  |      |  |       |  
|NOW accounts                      |  |        | 21,907  |      |  | 1.57   | %
|Money market and savings accounts |  |        | 42,865  |      |  | 2.66   | %
|Time deposits                     |  |        | 144,082 |      |  | 3.47   | %
|                                  |  |        |         |      |  |        |  
|Total deposits                    |  | $      | 226,863 |      |  | 2.86   | %
|                                  |  |        |         |      |  |        |  

Core deposits, which exclude time deposits of $100,000 or more, provide a
relatively
stable funding source for our loan portfolio and other interest-earning assets.  Our core deposits were $194.8 million, $132.9 million, and $111.7 million as of December 31, 2005, 2004 and 2003, respectively.  The maturity distribution of our time deposits of $100,000 or more as of December 31, 2005, is as follows (dollars in thousands):

|                                 |  | As of December 31,    2005 |       
|-------------------------------- |  | -------------------------- | ------
|                                 |  |                            |       
|Three   months or less           |  | $                          | 6,088 
|Over   three through six months  |  |                            | 8,799 
|Over   six through twelve months |  |                            | 20,873
|Over   twelve months             |  |                            | 41,165
|                                 |  |                            |       
|Total                            |  | $                          | 76,925
|                                 |  |                            |       

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The increase in time deposits of $100,000 or more for the year ended December 31, 2005, as compared to the balance as of December 31, 2004, primarily resulted from the utilization of deposits that were obtained from municipal depositors and brokered certificates of deposit from outside of our primary market.

Other Interest-Bearing Liabilities

The following tables outline our various sources of borrowed funds during the years ended December 31, 2005, 2004 and 2003, the amounts outstanding as of the end of each period, at the maximum point for each component during the periods and the average balance for each period, and the average interest rate that we paid for each borrowing source.  The maximum balance represents the highest indebtedness for each component of borrowed funds at any time during each of the periods shown.  See Note 9- Lines of Credit, Note 10- FHLB Advances, and Note 13-Junior Subordinated Debentures in the Notes to Consolidated Financial Statements included in this report for additional disclosures related to these types of borrowings (dollars in thousands).

|                                              |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|--------------------------------------------- |  | ----------------- | ------ | --------------------- | ------- | ----------------- | ---- | ------------------------ | ------ |  | - | ------ |  |  | ---- | -
|                                              |  | Ending    Balance |        | Period-   End    Rate |         | Maximum   Balance |      | Average   for the Period |       
|                                              |  |                   |        |                       |         |                  
|                                              |  |                   |        |                       | Balance |                   | Rate |                         
|                                              |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|As of or for the Year Ended December 31, 2005 |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|Federal Home Loan Bank   advances             |  | $                 | 26,612 |                       |         | 3.99              | %    | $                        | 30,436 |  | $ | 27,966 |  |  | 3.31 | %
|Federal funds purchased                       |  |                   |       |                       |         |                  |      |                          | 5,836  |  |   | 1,329  |  |  | 3.09 | %
|Junior subordinated   debentures              |  | $                 | 6,186  |                       |         | 7.33              | %    | $                        | 6,186  |  | $ | 6,186  |  |  | 6.14 | %
|                                              |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|As of or for the Year Ended December 31, 2004 |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|Federal Home Loan Bank   advances             |  | $                 | 23,079 |                       |         | 2.68              | %    | $                        | 23,114 |  | $ | 13,657 |  |  | 1.97 | %
|Federal funds purchased                       |  |                   |       |                       |         |                  |      |                          | 7,250  |  |   | 549    |  |  | 1.82 | %
|Junior subordinated   debentures              |  | $                 | 6,186  |                       |         | 5.04              | %    | $                        | 6,186  |  | $ | 5,155  |  |  | 4.58 | %
|                                              |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|As of or for the Year Ended December 31, 2003 |  |                   |        |                       |         |                   |      |                          |        |  |   |        |  |  |      |  
|Federal Home Loan Bank   advances             |  | $                 | 9,500  |                       |         | 2.27              | %    | $                        | 9,500  |  | $ | 8,436  |  |  | 1.81 | %
|Federal funds purchased                       |  |                   |       |                       |         |                  |      |                          |       |  |   |       |  |  |     |  
|Junior subordinated   debentures              |  | $                 | 3,093  |                       |         | 3.92              | %    | $                        | 3,093  |  | $ | 102    |  |  | 3.92 | %

As of December 31, 2005, 2004 and 2003, we had short-term lines of credit with correspondent banks to purchase unsecured federal funds totaling $23.5 million, $19.5 million, and $5.4 million, respectively.

Capital Resources

Total shareholders equity amounted to $22.0 million and $13.9 million on December 31, 2005 and 2004, respectively.  A portion of the increase between 2004 and 2005 resulted from the $2.8 million of net income earned during the year.  Also contributing to the increase in shareholders equity was the net proceeds of $6.3 million from the offering or our common stock that ended in December 2005.  The increase was partially offset by the increase in the unrealized loss on investment securities available for sale, net of tax, during 2005 and a reduction in equity from the issuance of shares of common stock to the leveraged ESOP, net of shares allocated to participant accounts.

As of December 31, 2005, the unrealized loss on securities available for sale was recorded to reflect the change in the market value of these securities since December 31, 2004.  We believe that the deterioration in value is attributable to changes in market interest rates, not in credit quality, and we consider these unrealized losses to be temporary.  We use the securities available for sale to pledge as collateral to secure public deposits and for other purposes required or permitted by law, including as collateral for FHLB advances outstanding.  Due to availability of numerous liquidity sources, we believe that we have the capability to hold these securities to maturity and do not anticipate the need to liquidate the securities and realize the related loss.  See the Liquidity section for a more detailed discussion of our available liquidity sources.  We currently
expect that we will have sufficient cash flow to fund ongoing operations.

The Federal Reserve and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%.  The Federal Reserve guidelines contain an exemption from the capital requirements for small bank holding companies.  On February 27, 2006, the Federal Reserve approved a new rule expanding the definition of a small bank holding company.  The new definition will include bank holding companies with less than $500 million in total assets.  Bank holding companies will not qualify under the new definition if they (i) are engaged in significant nonbanking activities either directly or indirectly through a subsidiary, (ii) conduct significant off-balance sheet activities, including securitizations or managing
or administering assets for third parties, or (iii) have a material amount of debt or equity securities (including trust preferred securities) outstanding that are registered with the SEC.  The new rule will be effective on March 30, 2006.  Although we have less than $500 million in assets, it is unclear at this point whether we otherwise meet the requirements for qualifying as a small bank holding company.

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According to the Federal Reserve Board, the revision of the criterion to exclude any bank holding company that has outstanding a material amount of SEC-registered debt or equity securities reflects the fact that SEC registrants typically exhibit a degree of complexity of operations and access to multiple funding sources that warrants excluding them from the new policy statement and subjecting them to the capital guidelines.  In the adopting release for the new rule, the Federal Reserve Board stated that what constitutes a material amount of SEC-registered debt or equity for a particular bank holding company depends on the size, activities and condition of the relevant bank holding company.  In lieu of using fixed measurable parameters of materiality across all institutions, the rule provides the Federal Reserve with supervisory flexibility in determining, on a case-by-case basis, the significance or materiality of activities or securities
outstanding such that a bank holding company should be excluded from the policy statement and subject to the capital guidelines.  Prior to adoption of this new rule, our holding company was subject to these capital guidelines, as it had more than $150 million in assets.  Until the Federal Reserve provides further guidance on the new rules, it will be unclear whether our holding company will be subject to the exemption from the capital requirements for small bank holding companies.  Regardless, our bank falls under these minimum capital requirements as set per bank regulatory agencies.

Under the capital adequacy guidelines, capital is classified into two tiers.  These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets.  Tier 1 capital consists of common shareholders equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets plus trust preferred securities up to 25% of Tier 1 capital with the excess being treated as Tier 2 capital.  In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed inherent in the type of asset.  Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses subject to certain limitations.  The bank is also required to maintain capital at a minimum level based on total
average assets, which is known as the Tier 1 leverage ratio.

On December 19, 2003, FNSC Capital Trust I, a subsidiary of our holding company, was formed to issue $3 million in floating rate trust preferred securities. On April 30, 2004, FNSC Statutory Trust II was formed to issue an additional $3 million in floating rate trust preferred securities.  Under the provisions of Financial Accounting Standards Board, or FASB, Interpretation No. 46, we deconsolidated these entities from our consolidated financial statements as of December 31, 2004.  The trust preferred securities qualify as Tier 1 capital up to 25% or less of Tier 1 capital with the excess includable as Tier 2 capital.

We are both subject to various regulatory capital requirements administered by the federal banking agencies.  Under these capital guidelines, we must maintain a minimum total risk-based capital of 8%, with at least 4% being Tier 1 capital.  In addition, we must maintain a minimum Tier 1 leverage ratio of at least 4%.  To be considered well-capitalized, we must maintain total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least 5%.

The following table sets forth the companys and the banks various capital ratios as of December 31, 2005, 2004 and 2003.  For all periods, the bank was considered well-capitalized and the company met or exceeded its applicable regulatory capital requirements.

|                          |  | December   31, 2005 |       | December   31, 2004 |  | December   31, 2003 |  
|------------------------- |  | ------------------- | ----- | ------------------- |  | ------------------- | -
|                          |  |                     |       |                     |  |                     |  
|                          |  | Holding Company     |       | Bank                |  | Holding   Company   |  
|                          |  |                     |       |                     |  |                     |  
|Total risk-based capital  |  |                     | 13.16 | %                   |  | 11.35               | %
|Tier 1 risk-based capital |  |                     | 11.92 | %                   |  | 10.19               | %
|Leverage capital          |  |                     | 9.09  | %                   |  | 7.75                | %

As of December 31, 2005, we did not have any significant firm commitments outstanding for capital expenditures.  However, we expect to begin construction on our operations center at our corporate headquarters in Spartanburg and our Greenville market headquarters during the second quarter of 2006.  We anticipate related capital expenditures in the near future to be approximately $3.0 million.

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 distributed a 3 for 2 stock split on March 1, 2004, and January 18, 2006.

Return on Equity and Assets

The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio (equity divided by total assets) for the years ended December 31, 2005 and 2004:

|                         |  | December 31,
   2005 |       | December 31,
   2004 | 
|------------------------ |  | -------------------- | ----- | -------------------- | 
|                         |  |                      |       |                      | 
|Return on average assets |  |                      | 1.01  | %                    | 
|Return on average equity |  |                      | 17.72 | %                    | 
|Equity to assets ratio   |  |                      | 6.71  | %                    | 

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Effect of Inflation and Changing Prices

The effect of relative purchasing power over time due to inflation has not been taken into effect in our financial statements.  Rather, the statements have been prepared on an historical cost basis in accordance with accounting principles generally accepted in the United States of America.

Unlike most industrial companies, the assets and liabilities of financial institutions such as our holding company and bank are primarily monetary in nature.  Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general.  In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude.  As discussed previously, we seek to manage the relationships between interest-sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.

Off-Balance Sheet Risk

Through the operations of our bank, we have made contractual commitments to extend credit in the ordinary course of our business activities to meet the financing needs of customers.  Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets.  These commitments are legally binding agreements to lend money at predetermined interest rates for a specified period of time and generally have fixed expiration dates or other termination clauses.  We use the same credit and collateral policies in making these commitments as we do for on-balance sheet instruments.

We evaluate each customers creditworthiness on a case-by-case basis and obtain collateral, if necessary, based on our credit evaluation of the borrower.  In addition to commitments to extend credit, we also issue standby letters of credit that are assurances to a third party that they will not suffer a loss if our customer fails to meet its contractual obligation to the third party. The credit risk involved in the underwriting of letters of credit is essentially the same as that involved in extending loan facilities to customers.

As of December 31, 2005 and 2004, we had issued commitments to extend credit of $97.1 million, and $47.9 million, respectively, through various types of commercial and consumer lending arrangements, of which the majority are at variable rates of interest.  Standby letters of credit totaled $575,000 and $605,000, as of December 31, 2005 and 2004, respectively.  Past experience indicates that many of these commitments to extend credit will expire unused.  However, we believe that we have adequate sources of liquidity to fund commitments that may be drawn upon by borrowers.

Except as disclosed in this annual report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements, or transactions that could result in liquidity needs or other commitments that could significantly impact earnings.

Liquidity

Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits.  Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities.  Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control.  For example, the timing of maturities of the investment portfolio is fairly predictable and subject to a high degree of control at the time the investment decisions are made.  However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control.

As of December 31, 2005 and 2004, our liquid assets, consisting of cash and due from banks, interest-bearing bank balances and federal funds sold, amounted to $21.3 million, and $3.3 million, representing 6.48% and 1.39% of total assets, respectively.  Investment securities provide a secondary source of liquidity, net of amounts pledged for deposits and FHLB advances. Our ability to maintain and expand our deposit base and borrowing capabilities also serves as a source of liquidity.

We plan to meet our future cash needs through the liquidation of temporary investments, the maturities of loans and investment securities, and the generation of deposits.  In addition, the bank maintains federal funds purchased lines of credit with correspondent banks that totaled $23.5 million as of December 31, 2005.  The bank is also a member of the Federal Home Loan Bank of Atlanta from which application for borrowings can be made for leverage purposes, if so desired.  We believe that our existing stable base of core deposits along with continued growth in this deposit base will enable us to meet our long-term liquidity needs.

In addition, other sources of regulatory capital may be accessed such as trust preferred securities or common stock to fund our liquidity needs.

Interest Rate Sensitivity

Asset/liability
management is the process by which we monitor and control the mix and maturities
of our assets and liabilities. The essential purposes of asset/liability
management are to ensure adequate liquidity and to maintain an appropriate
balance between interest-sensitive assets and liabilities to minimize
potentially adverse impacts on earnings from changes in market interest
rates.  Our asset/liability management committee (ALCO)
monitors and considers methods of managing exposure to interest rate risk. 
The ALCO consists of members of the board of directors and senior management of
the bank and meets quarterly.  The ALCO is charged with the responsibility
to maintain the level of interest rate sensitivity of the banks
interest-sensitive assets and liabilities within board-approved
limits.

---



The following table sets forth information regarding our interest rate sensitivity as of December 31, 2005, for each of the time intervals indicated.  The information in the table may not be indicative of our interest rate sensitivity position at other points in time.  In addition, the maturity distribution indicated in the table may differ from the contractual maturities of the interest-earning assets and interest-bearing liabilities presented due to consideration of prepayment speeds under various interest rate change scenarios in the application of the interest rate sensitivity methods described above (dollars in thousands).

|                                                           |  | Within three months |         | After three    but within    twelve months |   | After one but within five    years |   | After five years |         | Total |  
|---------------------------------------------------------- |  | ------------------- | ------- | ------------------------------------------ | - | ---------------------------------- | - | ---------------- | ------- | ----- | -
|                                                           |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|Interest-earning assets:                                   |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|Federal   funds sold and other                             |  | $                   | 18,615  |                                            | $ |                                   |   | $                |        |       | $
|Investment   securities                                    |  |                     | 3,521   |                                            |   | 10,140                             |   |                  | 13,690  |       |  
|Loans                                                      |  | $                   | 191,288 |                                            |   | 29,442                             |   |                  | 27,160  |       |  
|                                                           |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|Total   interest-earning assets                            |  | $                   | 213,424 |                                            | $ | 39,582                             |   | $                | 40,850  |       | $
|                                                           |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|Interest-bearing liabilities:                              |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|NOW   accounts                                             |  | $                   | 9,564   |                                            | $ |                                   |   | $                | 16,284  |       | $
|Money   market and savings                                 |  |                     | 40,516  |                                            |   |                                   |   |                  | 12,163  |       |  
|Time   deposits                                            |  |                     | 54,243  |                                            |   | 53,253                             |   |                  | 67,293  |       |  
|FHLB   advances                                            |  |                     |        |                                            |   | 5,850                              |   |                  | 20,762  |       |  
|Junior   subordinated  debentures                          |  |                     | 6,186   |                                            |   |                                   |   |                  |        |       |  
|                                                           |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|Total   interest-bearing  liabilities                      |  | $                   | 110,509 |                                            | $ | 59,103                             |   | $                | 116,502 |       | $
|                                                           |  |                     |         |                                            |   |                                    |   |                  |         |       |  
|Period   gap                                               |  | $                   | 102,915 |                                            |   | (19,521                            | ) | $                | (75,652 | )     | $
|Cumulative   gap                                           |  |                     | 102,915 |                                            |   | 83,394                             |   |                  | 7,742   |       |  
|Ratio   of cumulative gap to total interest-earning assets |  |                     | 32.61   | %                                          |   | 26.42                              | % |                  | 2.45    | %     |  

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates that principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities.  Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not normally arise in the normal course of our business.   We actively monitor and manage our interest rate risk exposure.

The principal interest rate risk monitoring technique we employ is the measurement of our interest sensitivity gap, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time.  Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available for sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in this same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates.  We generally would benefit from increasing market rates of interest when we have an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when we are
liability-sensitive.

As of December 31, 2005, we were asset sensitive over a one-year time frame. However, our gap analysis is not a precise indicator of our interest sensitivity position. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by management as significantly less interest-sensitive than market-based rates such as those paid on non-core deposits. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information.

In March 2004, the FASB issued Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.  This issue addresses the meaning of other-than-temporary impairment and its application to investments classifies as either available for sale or held to maturity under SFAS No. 115 and it also provides guidance on quantitative and qualitative disclosures.

Paragraphs 10 through 20 of EITF 03-1 provide guidance on when impairment of debt and equity securities is considered other-than-temporary.  This guidance generally states impairment is considered other-than-temporary unless the holder of the security has both the intent and ability to hold the security until the fair value recovers and evidence supporting the recovery outweighs evidence to the contrary.

---



The company adopted the guidance of EITF 03-1, excluding paragraphs 10-20, effective as of December 31, 2004.  As a result of this adoption, the company provides additional disclosure, which is found in Note 4 of the financial statements.  The initial adoption of this issue, which excludes paragraphs 10-20, did not have a material impact on the financial condition or results of operations of the company.

In July 2005, the FASB issued guidance that eliminated paragraphs 10-18 of EITF-03-1 (paragraphs 19-20 have no material impact on the financial condition or results of the company) and have reissued the final pronouncement as FSP FAS 115-1 that will be effective for other-than-temporary impairment analysis conducted in periods beginning after December 15, 2005.  The adoption of the final pronouncement is not expected to have a material impact on the companys financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123(R).  SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its financial statements.  In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements.  SFAS No. 123(R) is effective beginning as of the first annual reporting period beginning after December 15, 2005.  The adoption of SFAS No. 123(R) is not expected to have a material impact on the companys financial condition or results of operations.  The effect of adoption, if any, will be measured and recognized in the statement of income on the date of adoption.

In December 2004, the FASB issued SFAS No.153, Exchange of Nonmonetary Assets  an amendment of APB Opinion No. 29.  The standard is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and eliminates the exception under ABP Opinion No. 29 for an exchange of similar productive assets and replaces it with an exception for exchanges of nonmonetary assets that do not have commercial substance.  A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  The standard is effective for nonmonetary exchanges occurring in fiscal years beginning after June 15, 2005.  The adoption of SFAS 153 is not expected to have a material impact on the Companys financial position or results of operations.

In April 2005, the SECs Office of the Chief Accountant and its Division of Corporation Finance released Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding the application of Statement of Financial Accounting Standards (SFAS) No. 123(revised 2004), Share-Based Payment(SFAS No. 123 (R)).  SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.  SAB No. 107 provides interpretive guidance related to the interaction between SFAS No.123(R) and certain SEC rules and regulations, as well as the staffs views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 also reminds public companies of the importance of including disclosures
within filings made with the SEC relating to the accounting for share-based payment transactions, particularly during the transition to SFAS No.123(R).

In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections  a replacement of APB Opinion No. 20 and FASB Statement No. 3.  SFAS No. 154 establishes retrospective application as the required method for reporting a change in accounting principle, unless it is impracticable, in which case the changes should be applied to the latest practicable date presented.  SFAS No. 154 also requires that a correction of an error be reported as a prior period adjustment by restating prior period financial statements.  SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The adoption of this pronouncement is not expected to have a material impact on the Companys financial position or results of operations.

In December 2005, the FASB issued FASB Staff Position (FSP) SOP 94-6-1, Terms of Loan Products that May Give Rise to a Concentration of Credit Risk.  The disclosure guidance in this FSP is effective for interim and annual periods ending after December 19, 2005.  The FSP states that the terms of certain loan products may increase a reporting entitys exposure to credit risk and thereby may result in a concentration of credit risk as that term is used in SFAS No. 107, either as an individual product type or as a group of products with similar features.  SFAS No. 107 requires disclosures about each significant concentration, including information about the (shared) activity, region, or economic characteristic that identifies the concentration.  The FSP suggests possible shared characteristics on which significant concentrations may be determined
which include, but are not limited to:

| | a. | Borrowers subject to   significant payment increases
| | -- | ----------------------------------------------------
| | b. | Loans with terms that permit   negative amortization
| | c. | Loans with high loan-to-value   ratios              

This FSP requires entities to provide the disclosures required by SFAS No. 107 for loan products that are determined to represent a concentration of credit risk in accordance with the guidance of this FSP for all periods presented.  The Company adopted this disclosure standard effective December 31, 2005.

---



During the last half of 2005, the FASB issued four FSPs related to the implementation of SFAS No. 123(R).  These FSPs related to (1) the classification and measurement of freestanding financial instruments originally issued in exchange for employee services, (2) the application of grant date as defined in SFAS No. 123(R), (3) the transition election related to accounting for the tax effects of share-based payment awards, and (4) the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event.  The issuance of these FSPs by the FASB are intended to clarify the interpretation of the guidance related to these specific issues when implementing SFAS No. 123(R).

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

---



Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors First National Bancshares, Inc. and SubsidiarySpartanburg, South Carolina

We have audited the accompanying consolidated balance sheets of First National Bancshares, Inc. and Subsidiary(the Company) as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders equity and comprehensive income, and cash flows for each of the years in the three year period ended December 31, 2005.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).   Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First National Bancshares, Inc. and Subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ Elliott Davis LLC

Greenville, South Carolina January 27, 2006

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FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Balance Sheets

December 31, 2005 and 2004 (dollars in thousands)

|                                                                                                                                              |  | 2005 |         | 2004 |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -
|                                                                                                                                              |  |      |         |      |  
|Assets                                                                                                                                        |  |      |         |      |  
|Cash and due from banks                                                                                                                       |  | $    | 2,691   |      | $
|Interest-bearing bank   balances                                                                                                              |  |      | 1,937   |      |  
|Federal funds sold                                                                                                                            |  |      | 16,678  |      |  
|Securities available for   sale                                                                                                               |  |      | 45,151  |      |  
|Loans, net of allowance for   loan losses of  $2,719 and $2,258,   respectively                                                               |  |      | 248,686 |      |  
|Premises and equipment, net                                                                                                                   |  |      | 4,977   |      |  
|Other                                                                                                                                         |  |      | 8,559   |      |  
|                                                                                                                                              |  |      |         |      |  
|Total   assets                                                                                                                                |  | $    | 328,679 |      | $
|                                                                                                                                              |  |      |         |      |  
|Liabilities and Shareholders Equity                                                                                                          |  |      |         |      |  
|Liabilities:                                                                                                                                  |  |      |         |      |  
|Deposits                                                                                                                                      |  |      |         |      |  
|Noninterest-bearing                                                                                                                           |  | $    | 18,379  |      | $
|Interest-bearing                                                                                                                              |  |      | 253,316 |      |  
|                                                                                                                                              |  |      |         |      |  
|Total   deposits                                                                                                                              |  |      | 271,695 |      |  
|                                                                                                                                              |  |      |         |      |  
|FHLB   advances                                                                                                                               |  |      | 26,612  |      |  
|Junior   subordinated debentures                                                                                                              |  |      | 6,186   |      |  
|Accrued   expenses and other liabilities                                                                                                      |  |      | 2,157   |      |  
|                                                                                                                                              |  |      |         |      |  
|Total   liabilities                                                                                                                           |  |      | 306,650 |      |  
|                                                                                                                                              |  |      |         |      |  
|Commitments and   contingenciesNotes 16 and 17                                                                                               |  |      |         |      |  
|Shareholders equity:                                                                                                                         |  |      |         |      |  
|Preferred   stock, par value $.01 per share, 10,000,000 shares authorized, no shares   issued or outstanding                                  |  |      |        |      |  
|Common   stock, par value $.01 per share, 10,000,000 shares authorized; 3,130,767 and   2,704,269 shares issued and outstanding, respectively |  |      | 31      |      |  
|Additional   paid-in capital                                                                                                                  |  |      | 18,189  |      |  
|Unearned   ESOP shares                                                                                                                        |  |      | (599    | )    |  
|Retained   earnings                                                                                                                           |  |      | 5,080   |      |  
|Accumulated   other comprehensive loss                                                                                                        |  |      | (672    | )    |  
|                                                                                                                                              |  |      |         |      |  
|Total   shareholders equity                                                                                                                  |  |      | 22,029  |      |  
|                                                                                                                                              |  |      |         |      |  
|Total   liabilities and shareholders equity                                                                                                  |  | $    | 328,679 |      | $
|                                                                                                                                              |  |      |         |      |  

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

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FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income

For the Years Ended December 31, 2005, 2004 and 2003 (dollars in thousands, except share data)

|                                                      |  | 2005 |           | 2004 |   | 2003      | 
|----------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                                      |  |      |           |      |   |           | 
|Interest income:                                      |  |      |           |      |   |           | 
|Loans                                                 |  | $    | 15,461    |      | $ | 8,926     | 
|Taxable   securities                                  |  |      | 1,319     |      |   | 1,190     | 
|Nontaxable   securities                               |  |      | 262       |      |   | 230       | 
|Federal   funds sold and other                        |  |      | 299       |      |   | 78        | 
|                                                      |  |      |           |      |   |           | 
|Total   interest income                               |  |      | 17,341    |      |   | 10,424    | 
|                                                      |  |      |           |      |   |           | 
|Interest expense:                                     |  |      |           |      |   |           | 
|Deposits                                              |  |      | 6,484     |      |   | 3,397     | 
|Junior   subordinated debentures                      |  |      | 380       |      |   | 236       | 
|FHLB   advances                                       |  |      | 925       |      |   | 269       | 
|Federal   funds purchased                             |  |      | 41        |      |   | 10        | 
|                                                      |  |      |           |      |   |           | 
|Total   interest expense                              |  |      | 7,830     |      |   | 3,912     | 
|                                                      |  |      |           |      |   |           | 
|Net interest income                                   |  |      | 9,511     |      |   | 6,512     | 
|Provision for loan losses                             |  |      | 594       |      |   | 679       | 
|                                                      |  |      |           |      |   |           | 
|Net interest income after   provision for loan losses |  |      | 8,917     |      |   | 5,833     | 
|                                                      |  |      |           |      |   |           | 
|Noninterest income:                                   |  |      |           |      |   |           | 
|Service   charges and fees on deposit accounts        |  |      | 961       |      |   | 866       | 
|Gain   on sale of guaranteed portion of SBA loans     |  |      | 441       |      |   | 348       | 
|Loan   service charges and fees                       |  |      | 163       |      |   | 127       | 
|Earnings   on bank-owned life insurance contracts     |  |      | 117       |      |   | 125       | 
|Mortgage   loan fees from correspondent bank          |  |      | 135       |      |   | 103       | 
|Gain   on sale of securities available for sale       |  |      |          |      |   | 160       | 
|Other                                                 |  |      | 38        |      |   | 42        | 
|                                                      |  |      |           |      |   |           | 
|Total   noninterest income                            |  |      | 1,855     |      |   | 1,771     | 
|                                                      |  |      |           |      |   |           | 
|Noninterest expense:                                  |  |      |           |      |   |           | 
|Salaries   and employee benefits                      |  |      | 3,744     |      |   | 2,783     | 
|Professional   fees                                   |  |      | 251       |      |   | 231       | 
|Data   processing and ATM expense                     |  |      | 487       |      |   | 378       | 
|Public   relations                                    |  |      | 378       |      |   | 308       | 
|Occupancy   and equipment expense                     |  |      | 660       |      |   | 562       | 
|Telephone   and supplies                              |  |      | 211       |      |   | 137       | 
|Other                                                 |  |      | 745       |      |   | 567       | 
|                                                      |  |      |           |      |   |           | 
|Total   noninterest expense                           |  |      | 6,476     |      |   | 4,966     | 
|                                                      |  |      |           |      |   |           | 
|Net income before income   taxes                      |  |      | 4,296     |      |   | 2,638     | 
|Provision for income taxes                            |  |      | 1,461     |      |   | 823       | 
|                                                      |  |      |           |      |   |           | 
|Net   income                                          |  | $    | 2,835     |      | $ | 1,815     | 
|                                                      |  |      |           |      |   |           | 
|Net income per share                                  |  |      |           |      |   |           | 
|Basic                                                 |  | $    | 1.03      |      | $ | 0.67      | 
|                                                      |  |      |           |      |   |           | 
|Diluted                                               |  | $    | 0.83      |      | $ | 0.55      | 
|                                                      |  |      |           |      |   |           | 
|Weighted average shares   outstanding                 |  |      |           |      |   |           | 
|Basic                                                 |  |      | 2,770,265 |      |   | 2,704,269 | 
|Diluted                                               |  |      | 3,468,312 |      |   | 3,287,547 | 

All share and per share amounts for the three years have been retroactively restated to reflect the 3 for 2 stock split distributed on January 18, 2006.  Also, the 2003 share and per share amounts have been retroactively restated to reflect the 3 for 2 stock split distributed on March 1, 2004. See Note 1 to the Financial Statements.

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

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FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income

For the Years Ended December 31, 2005, 2004 and 2003(dollars in thousands)

|                                                                                                        |  |                |           |        |   |    |  | Additional   Paid-In
Capital |        | Unearned   ESOP
Shares |   | Retained   Earnings   (Deficit) |   | AccumulatedOtherComprehensiveIncome/(Loss) |       | Total   Shareholders   Equity |  
|------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------ | - | -- |  | ---------------------------- | ------ | ---------------------- | - | ------------------------------- | - | ------------------------------------------ | ----- | ------------------------------ | -
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                
|                                                                                                        |  | Common   Stock |           |        |   |    |  |                             
|                                                                                                        |  |                |           |        |   |    |  |                             
|                                                                                                        |  | Shares         |           | Amount |   |    |  |                              |        |                       
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |      
|Balance, December 31, 2002                                                                              |  |                | 2,703,150 |        | $ | 27 |  | $                            | 11,792 |                        |   |                                |   | $                                          | (486  | )                              | $
|Proceeds from exercise of   employee stock options                                                      |  |                | 1,125     |        |   |   |  |                              | 6      |                        |   |                                 |   |                                            |      |                                |  
|Grant of employee stock   options                                                                       |  |                |          |        |   |   |  |                              | 3      |                        |   |                                |   |                                            |      |                                |  
|Comprehensive income:                                                                                   |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Net   income                                                                                            |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            | 916   |                                |  
|Change   in net unrealized gains (losses) on securities available for sale, net of   income tax of $139 |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Total   comprehensive income                                                                            |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Balance, December 31, 2003                                                                              |  |                | 2,704,275 |        | $ | 27 |  | $                            | 11,801 |                        |   |                                |   | $                                          | 430   |                                | $
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Cash in lieu of fractional   shares                                                                     |  |                | (6        | )      |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|Grant of employee stock   options                                                                       |  |                |          |        |   |   |  |                              | 9      |                        |   |                                |   |                                            |      |                                |  
|Comprehensive income:                                                                                   |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Net   income                                                                                            |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            | 1,815 |                                |  
|Change   in net unrealized loss On securities available for sale, net of income tax of   $127           |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|Reclassification   adjustment for gains included in net income, net of income tax of $54                |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Total   comprehensive income                                                                            |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Balance, December 31, 2004                                                                              |  |                | 2,704,269 |        | $ | 27 |  | $                            | 11,810 |                        |   |                                |   | $                                          | 2,245 |                                | $
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Grant of employee stock   options                                                                       |  |                |          |        |   |   |  |                              | 32     |                        |   |                                |   |                                            |      |                                |  
|Proceeds from exercise of   employee stock options                                                      |  |                | 1,575     |        |   |   |  |                              | 12     |                        |   |                                |   |                                            |      |                                |  
|Proceeds from sale of stock,   net of offering costs of $460                                            |  |                | 424,923   |        |   | 4  |  |                              | 6,335  |                        |   |                                |   |                                            |      |                                |  
|Shares issued to leveraged   ESOP                                                                       |  |                |          |        |   |   |  |                              |       |                        |   | (600                            | ) |                                            |      |                                |  
|Allocation of ESOP shares                                                                               |  |                |          |        |   |   |  |                              |       |                        |   | 1                               |   |                                            |      |                                |  
|Comprehensive income:                                                                                   |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Net   income                                                                                            |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            | 2,835 |                                |  
|Change   in net unrealized loss on securities available for sale, net of income tax of   $259           |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Total comprehensive income                                                                              |  |                |          |        |   |   |  |                              |       |                        |   |                                |   |                                            |      |                                |  
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  
|Balance, December 31, 2005                                                                              |  |                | 3,130,767 |        | $ | 31 |  | $                            | 18,189 |                        | $ | (599                            | ) | $                                          | 5,080 |                                | $
|                                                                                                        |  |                |           |        |   |    |  |                              |        |                        |   |                                 |   |                                            |       |                                |  

All share amounts for the three years have been retroactively restated to reflect the 3 for 2 stock split distributed on January 18, 2006. Also, the share amounts for 2003 and 2002 have been retroactively restated to reflect the 3 for 2 stock split distributed on March 1, 2004.

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

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FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2005, 2004 and 2003 (dollars in thousands)

|                                                                                    |  | 2005 |         | 2004 |   | 2003    |  
|----------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                    |  |      |         |      |   |         |  
|Cash flows from operating   activities:                                             |  |      |         |      |   |         |  
|Net   income                                                                        |  | $    | 2,835   |      | $ | 1,815   |  
|Adjustments   to reconcile net income to net cash provided by operating activities: |  |      |         |      |   |         |  
|Provision   for loan losses                                                         |  |      | 594     |      |   | 679     |  
|Provision   for deferred income tax benefit                                         |  |      | (66     | )    |   | (95     | )
|Depreciation                                                                        |  |      | 269     |      |   | 245     |  
|Premium   amortization, net                                                         |  |      | 86      |      |   | 103     |  
|Earnings   on bank owned life insurance, net                                        |  |      | (102    | )    |   | (112    | )
|Gain   on sale of securities available for sale                                     |  |      |        |      |   | (160    | )
|Gain   on sale of guaranteed portion of SBA loans                                   |  |      | (441    | )    |   | (348    | )
|Origination   of residential mortgage loans held for sale                           |  |      | (12,196 | )    |   | (91     | )
|Proceeds   from sale of residential mortgage loans held for sale                    |  |      | 11,653  |      |   |        |  
|Compensation   expense for employee stock options                                   |  |      | 32      |      |   | 9       |  
|Compensation   expense for ESOP shares allocated                                    |  |      | 1       |      |   |        |  
|Changes   in deferred and accrued amounts:                                          |  |      |         |      |   |         |  
|Prepaid   expenses and other assets                                                 |  |      | (1,219  | )    |   | (211    | )
|Accrued   expenses and other liabilities                                            |  |      | 548     |      |   | 71      |  
|                                                                                    |  |      |         |      |   |         |  
|Net   cash provided by operating activities                                         |  |      | 1,994   |      |   | 1,905   |  
|                                                                                    |  |      |         |      |   |         |  
|Cash flows from investing   activities:                                             |  |      |         |      |   |         |  
|Proceeds   from maturities/prepayment of securities available for sale              |  |      | 6,514   |      |   | 8,671   |  
|Proceeds   from sale of securities available for sale                               |  |      |        |      |   | 14,375  |  
|Proceeds   from sale of guaranteed portion of SBA loans                             |  |      | 6,188   |      |   | 3,354   |  
|Purchases   of securities available for sale                                        |  |      | (16,347 | )    |   | (23,193 | )
|Loan   originations, net of principal collections                                   |  |      | (68,137 | )    |   | (61,109 | )
|Investment   in common securities of Trusts                                         |  |      |        |      |   | (93     | )
|Purchase   of bank-owned life insurance contracts                                   |  |      |        |      |   |        |  
|Net   purchases of premises and equipment                                           |  |      | (972    | )    |   | (139    | )
|Redemption   of FHLB and other stock                                                |  |      | 357     |      |   | 305     |  
|Purchase   of FHLB and other stock                                                  |  |      | (744    | )    |   | (1,236  | )
|                                                                                    |  |      |         |      |   |         |  
|Net   cash used by investing activities                                             |  |      | (73,141 | )    |   | (59,065 | )
|                                                                                    |  |      |         |      |   |         |  
|Cash flows from financing   activities:                                             |  |      |         |      |   |         |  
|Proceeds   from issuance of subordinated debentures                                 |  |      |        |      |   | 3,093   |  
|Proceeds   from secondary stock offering, net of offering expenses                  |  |      | 6,339   |      |   |        |  
|Shares   issued to leveraged ESOP                                                   |  |      | (600    | )    |   |        |  
|Increase   in FHLB advances                                                         |  |      | 14,100  |      |   | 36,730  |  
|Repayment   of FHLB advances                                                        |  |      | (10,566 | )    |   | (23,151 | )
|Proceeds   from exercise of employee stock options                                  |  |      | 12      |      |   |        |  
|Net   increase in deposits                                                          |  |      | 79,884  |      |   | 37,078  |  
|                                                                                    |  |      |         |      |   |         |  
|Net   cash provided by financing activities                                         |  |      | 89,169  |      |   | 53,750  |  
|                                                                                    |  |      |         |      |   |         |  
|Net   increase (decrease) in cash and cash equivalents                              |  |      | 18,022  |      |   | (3,410  | )
|Cash and cash equivalents,   beginning of year                                      |  |      | 3,284   |      |   | 6,694   |  
|                                                                                    |  |      |         |      |   |         |  
|Cash and cash equivalents,   end of year                                            |  | $    | 21,306  |      | $ | 3,284   |  
|                                                                                    |  |      |         |      |   |         |  

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

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FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARYNotes to Consolidated Financial StatementsDecember 31, 2005 and 2004

|Note 1 - Summary   of Significant Accounting Policies and Activities
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| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Concentration of Credit Risk - The Company, through the Bank, makes   loans to individuals and small- to mid-sized businesses for various personal   and commercial purposes primarily in Spartanburg County and Charleston County   in South Carolina.  The Company has a   diversified loan portfolio and the Companys loan portfolio is not dependent   on any specific economic segment.  The   Company regularly monitors its credit concentrations based on loan purpose,   industry and customer base. As of December 31, 2005, there were no material   concentrations of credit risk within the Companys loan portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In addition to monitoring   potential concentrations of loans to particular borrowers or groups of   borrowers, industries and geographic regions, Management monitors exposure to   credit risk that could arise from potential concentrations of lending   products and practices such as loans that subject borrowers to substantial   payment increases (e.g. principal deferral periods, loans with initial   interest-only periods, etc), and loans with high loan-to-value ratios.  Additionally, there are industry practices   that could subject the Company to increased credit risk should economic   conditions change over the course of a loans life.  For example, the Company makes variable rate loans and fixed   rate principal-amortizing loans with maturities prior to the loan being fully   paid (i.e. balloon payment loans).    These loans are underwritten and monitored to manage the associated   risks.  Management has determined that   the Company
has a concentration of non-1-to-4-family residential loans that   exceed supervisory limits for loan to value ratios. This segment of loans is   generally described as the commercial basket and may not exceed thirty   percent of total regulatory capital.    The commercial basket totals $13.6 million at December 31, 2005   representing 61.9% of total equity and 5.4% of loans, net of allowance for   loan losses.  At December 31,2004,   this concentration totaled $7.7 million representing 55.3% of total equity   and 4.1% of loans, net of allowance for loan losses. The Company experienced   no loan losses related to this identified risk during the years ended   December 31, 2005, 2004, and 2003.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Companys investment   portfolio consists principally of obligations of the United States, its   agencies or its corporations and general obligation municipal   securities.  In the opinion of   management, there is no concentration of credit risk in its investment   portfolio.  The Company places its   deposits and correspondent accounts with and sells its federal funds to high   quality institutions.  Management   believes credit risk associated with correspondent accounts is not significant. Therefore, management   believes that these particular practices do not subject the Company to   unusual credit risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Cash and Cash Equivalents-In   accordance with the provisions of Statement of Financial Accounting Standards   (SFAS) No. 95, Statement of Cash Flows, the Company considers cash and cash   equivalents to be those amounts included in the balance sheet captions Cash   and due from banks, Interest-bearing bank balances and Federal funds   sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Investment   Securities-Investment securities are accounted for   in accordance with SFAS No. 115, Accounting for Certain Investments in Debt   and Equity Securities.  Management   classifies securities at the time of purchase into one of three categories as   follows:  (1) Securities Held to   Maturity - securities which the Company has the positive intent and ability   to hold to maturity, which are reported at amortized cost; (2) Trading   Securities -  securities that are   bought and held principally for the purpose of selling them in the near   future, which are reported at fair value with unrealized gains and losses   included in earnings; and (3) Securities Available for Sale -  securities that may be sold under certain   conditions, which are reported at fair value, with unrealized gains and   losses excluded from earnings and reported as a separate component of   shareholders equity as accumulated other

comprehensive income.  The amortization of premiums and accretion   of discounts on investment securities are recorded as adjustments to interest   income.  Gains or losses on sales of   investment securities are based on the net proceeds and the adjusted carrying   amount of the securities sold, using the specific identification method.  Unrealized losses on securities,   reflecting a decline in value or impairment judged by the Company to be other   than temporary, are charged to earnings in the consolidated statements of   income.                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Loans and   Interest Income- Loans   of the Bank are carried at principal amounts, reduced by an allowance for   loan losses.  The Bank recognizes interest   income daily based on the principal amount outstanding using the simple   interest method.  The accrual of   interest is generally discontinued on loans of the Bank which become 90 days   past due as to principal or interest or when management believes, after   considering economic and business conditions and collection efforts, that the   borrowers financial condition is such that collection of interest is   doubtful.  Management may elect to   continue accrual of interest when the estimated net realizable value of   collateral is sufficient to cover the principal balances and accrued interest   and the loan is in the process of collection.  Amounts received on nonaccrual loans generally are applied   against principal prior to the recognition of any interest income.
 Generally, loans are restored to accrual   status when the obligation is brought current, has performed in accordance   with the contractual terms for a reasonable period of time and the ultimate   collectibility of the total contractual principal and interest is no longer   in doubt.                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Bank also originates   loans to small businesses under the United States Small Business Administration   (SBA) loan programs.  These loans   are solicited from the Companys market areas and are generally underwritten   in the same manner as conventional loans generated for the Banks portfolio.  The portion of loans that are secured by   the guaranty of the SBA is usually sold in the secondary market to provide   additional liquidity and to provide a source of noninterest income.  Deferred gains on the sale of the   guaranteed portion of SBA loans are amortized over the lives of the   underlying loans using the interest method.    Excess servicing is recognized as an asset and is amortized in   proportion to and over the period of the estimated net servicing income and   is subject to periodic assessment. Excess servicing at December 31, 2005 and   2004 of $299,000 and $225,000, respectively is included in the balance

sheet   caption other assets.  The   guaranteed amount of loans sold to the SBA serviced by Company was   approximately $8.7 million and $3.1 million at December 31, 2005 and 2004,   respectively.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Residential   Mortgage Loans Held for Sale- Mortgage loans originated   for sale in the secondary market are carried at the lower of cost or   estimated market value in the aggregate.    Net unrealized losses are provided for in a valuation allowance by   charges to operations. The Company obtains commitments from the secondary   market investors prior to closing of the loans, therefore, no gains or losses   are recognized when the loans are sold.    The Company receives origination fees received from the secondary   market investors. At December 31, 2005 and 2004, the amount of residential   mortgage loans held for sale was approximately $634,000 and $91,000,   respectively, which is included in loans, net of allowance for loan losses on   the Consolidated Balance Sheets.                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Impairment   of Loans-   Loans are considered to be impaired when, in managements judgment, the   collection of all amounts of principal and interest is not probable in   accordance with the terms of the loan agreement.  The Company accounts for impaired loans in accordance with the   terms of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as   amended by SFAS No. 118 in the areas of disclosure requirements and methods   of recognizing income.  SFAS No. 114   requires that impaired loans be recorded at fair value, which is determined   based upon the present value of expected cash flows discounted at the loans   effective interest rate, the market price of the loan, if available, or the   value of the underlying collateral.    All cash receipts on impaired loans are applied to principal until   such time as the principal is brought current.  After principal has been satisfied, future cash
receipts are   applied to interest income, to the extent that any interest has been   foregone.  The Bank determines which   loans are impaired through a loan review process.                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Allowance   for Loan Losses-   The allowance for loan losses is established through a provision for loan   losses charged to operations and reflects an amount that, in managements   opinion, is adequate to absorb inherent losses in the existing   portfolio.  Additions to the allowance   are based on managements evaluation of the loan portfolio under current   economic conditions, past loan loss experience and such other factors which,   in managements judgment, deserve recognition in estimating loan losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Loans are charged off   when, in the opinion of management, they are deemed to be uncollectible.  Recognized losses are charged against the   allowance and subsequent recoveries are added to the allowance.  Management believes that the allowance is   adequate.  While management uses the   best information available to make evaluations, future adjustments to the   allowance may be necessary if economic conditions differ substantially from   the assumptions used in making the evaluations.  The allowance for loan losses is subject to periodic evaluation   by various regulatory authorities and may be subject to adjustments based   upon information that is available to them at the time of their examination.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Loan Fees - Loan origination fees and direct costs   of loan originations are deferred and recognized as an adjustment of yield by   the interest method based on the contractual terms of the loan.  Loan commitment fees are deferred and   recognized as an adjustment of yield over the related loans life, or if the   commitment expires unexercised, recognized in income upon expiration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Off-Balance Sheet Commitments - The Bank enters into off-balance sheet   financial instruments consisting of legally binding commitments to extend   credit and letters of credit.  Such   financial instruments are recorded in the financial statements when they are   funded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Premises   and Equipment- Land   is carried at cost.  Premises and   equipment are stated at cost less accumulated depreciation and amortization,   computed principally by the straight line method over the estimated useful   lives of the assets as follows:    building, 40 years; furniture and fixtures, 7 to 10 years; and   computer hardware and software, 3 to 5 years.  Amortization of leasehold improvements is recorded using the   straight-line method over the lesser of the estimated useful life of the   asset or the term of the operating lease.    Additions to premises and equipment and major replacements and   betterments are added at cost.    Maintenance, repairs and minor replacements are included in operating   expense.  When assets are retired or   otherwise disposed of, the cost and accumulated depreciation are removed from   the accounts and any gain or loss is reflected in income.                                                                                                                                                                                                                                            

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| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Income   Taxes - Income   taxes are accounted for in accordance with SFAS No. 109, Accounting for   Income Taxes.  Under the asset and   liability method of SFAS No. 109, deferred tax assets and liabilities are   recognized for the future tax consequences attributable to differences   between the financial statement carrying amounts of existing assets and   liabilities and their respective tax bases.    Deferred tax assets and liabilities are measured using the enacted   rates expected to apply to taxable income in the years in which those   temporary differences are expected to be recovered or settled.  Under SFAS No. 109, the effect on deferred   tax assets and liabilities of a change in tax rates is recognized in income   in the period that includes the enactment date.  Valuation allowances are established to reduce deferred tax   assets if it is determined to be more likely than not that all or some
portion   of the potential deferred tax asset will not be realized.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Reclassifications - Certain prior year amounts have been   reclassified to conform with the current year presentation.  These reclassifications have no effect on   previously reported shareholders equity or net income.  Share and per share data have been   restated for each of the 3 for 2 stock splits distributed on January 18,   2006, and March 1, 2004, discussed below under Net Income Per Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Stock   Compensation Plans   - At December 31, 2005, the Company has several stock-based employee   compensation plans, which are more fully described in Notes 14 and 15. The   Company accounts for its stock compensation plans under the provisions of   SFAS No. 148, Accounting for Stock-Based Compensation, which are consistent   with the provisions of SFAS No. 123, but allows use of the prospective method   of adoption if adopted by December 31, 2003.    All stock options granted under the stock compensation plans had an   exercise price equal to the market value of the underlying common stock on   the date of grant.                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Stock options granted   after January 1, 2003, have been reflected in net income over the vesting   period of these grants under the prospective method.  The Company will continue to provide pro   forma disclosures of net income and income per share in the following table   for the years ended December 31, as if the fair value based method of   accounting had been applied (dollars, except per share, in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Pro Forma Disclosure for Net Income and Earnings per Share

|                           |  | 2005 |       | 2004 |   | 2003  | 
|-------------------------- |  | ---- | ----- | ---- | - | ----- | 
|                           |  |      |       |      |   |       | 
|Net income  as reported   |  | $    | 2,835 |      | $ | 1,815 | 
|Net income  pro forma     |  |      | 2,773 |      |   | 1,565 | 
|Basic earnings per share   |  |      |       |      |   |       | 
|As   reported              |  | $    | 1.03  |      | $ | 0.67  | 
|Pro   forma                |  |      | 1.00  |      |   | 0.58  | 
|Diluted earnings per share |  |      |       |      |   |       | 
|As   reported              |  | $    | 0.83  |      | $ | 0.55  | 
|Pro   forma                |  |      | 0.80  |      |   | 0.47  | 

| | All 2004 and 2003 amounts   have been adjusted for the 3 for 2 stock split distributed on January 18,   2006.  Also, the 2003 amounts have   been adjusted for the 3 for 2 stock split distributed on March 1, 2004.  See Note 14 for additional   information regarding the Companys stock-based compensation plans.                                                                                                                                                                                                                                                                                   
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The weighted average fair   value per share of options granted in the years presented amounted to $7.41,   $2.01, and $.75 respectively.  The   fair value of each option grant was estimated on the date of grant using the   Black-Scholes option pricing model with the following assumptions used for   grants:  expected volatility of 6.0%   for all years presented, risk-free interest rate of 4.25%, 2.25% and 1.25%   for each year presented, respectively, and expected lives of the options of   seven years in all years presented.    There were no cash dividends in any years presented.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Net   Income Per Share   - The following is a reconciliation of the numerators and denominators of the   basic and diluted per share computations for net income for the years ended   December 31, 2005, 2004 and 2003:                                                                                                                                                                                                                                                                                                                                                                                 

|                                      |  | 2005  |           | 2004    |   | 2003      | 
|------------------------------------- |  | ----- | --------- | ------- | - | --------- | 
|                                      |  |       |           |         |   |           | 
|                                      |  | BASIC |           | DILUTED |   | BASIC     | 
|                                      |  |       |           |         |   |           | 
|Net income                            |  | $     | 2,835     |         | $ | 2,835     | 
|Grant of employee stock   options     |  |       | 32        |         |   | 32        | 
|                                      |  |       |           |         |   |           | 
|Adjusted net income                   |  | $     | 2,867     |         | $ | 2,867     | 
|                                      |  |       |           |         |   |           | 
|Weighted average shares   outstanding |  |       | 2,770,265 |         |   | 2,770,265 | 
|Effect of Dilutive   Securities:      |  |       |           |         |   |           | 
|Stock   options & warrants            |  |       |          |         |   | 698,047   | 
|                                      |  |       |           |         |   |           | 
|                                      |  |       | 2,770,265 |         |   | 3,468,312 | 
|                                      |  |       |           |         |   |           | 
|Per share amount                      |  | $     | 1.03      |         | $ | .83       | 
|                                      |  |       |           |         |   |           | 

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| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | On   December 30, 2005, the Companys board of directors approved a 3 for 2 split   of the Companys outstanding stock.    The split was distributed on January 18, 2006.  The number of outstanding shares increased   from 2,087,178 to 3,130,767.  All share   amounts for 2004 and 2003 have been restated to reflect the split.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | On   January 20, 2004, the Companys board of directors approved a 3 for 2 split   of the Companys outstanding stock.    The split was distributed on March 1, 2004.  The number of outstanding shares increased from 1,802,846 to   2,704,269.  All share amounts for 2003   have been restated to reflect this split as well as the 3 for 2 split   distributed on January 18, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Comprehensive   Income -   Accounting principles generally require that recognized revenue, expenses,   gains and losses be included in net income.    Although certain changes in assets and liabilities, such as unrealized   gains and losses on available-for-sale securities, are reported as a separate   component of the equity section of the balance sheet, such items, along with   net income, are components of comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Recently Adopted Accounting Standards - In March 2004, the FASB issued Emerging   Issues Task Force (EITF) Issue No. 03-1, The Meaning of   Other-Than-Temporary Impairment and its Application to Certain   Investments.  This issue addresses   the meaning of other-than-temporary impairment and its application to   investments classified as either available for sale or held to maturity under   SFAS No. 115 and it also provides guidance on quantitative and qualitative   disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Paragraphs 10 through 20   of EITF 03-1 provide guidance on when impairment of debt and equity   securities is considered other-than-temporary. This guidance generally states   impairment is considered other-than-temporary unless the holder of the   security has both the intent and ability to hold the security until the fair   value recovers and evidence supporting the recovery outweighs evidence to the   contrary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Company adopted the   guidance of EITF 03-1, excluding paragraphs 10-20 effective as of December   31, 2004. As a result of this adoption, the Company provides additional   disclosure, which is found in Note 4 of the financial statements. The initial   adoption of this issue, which excludes paragraphs 10-20 did not have a   material impact on the financial condition or results of operations of the   Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In July 2005, the FASB   issued final guidance that eliminated paragraphs 10-18 of EITF-03-01   (paragraphs 19-20 have no material impact on the financial condition or   results of operations of the Company) and have reissued  the final pronouncement as FASB Staff   Position (FSP) FAS 115-1 that will be effective for other-than-temporary   impairment analysis conducted in periods beginning after December 15,   2005.  The adoption of the final   pronouncement is not expected.                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In December 2005, the FASB   issued FSP SOP 94-6-1, Terms of Loan Products that May Give Rise to a   Concentration of Credit Risk.  The   disclosure guidance in this FSP is effective for interim and annual periods   ending after December 19, 2005.  The   FSP states that the terms of certain loan products may increase a reporting   entitys exposure to credit risk and thereby may result in a concentration of   credit risk as that term is used in SFAS No. 107, either as an individual   product type or as a group of products with similar features.  SFAS No. 107 requires disclosures about   each significant concentration, including information about the (shared)   activity, region, or economic characteristic that identifies the   concentration.  The FSP suggests   possible shared characteristics on which significant concentrations may be   determined which include, but are not limited to:

| | a. | Borrowers subject to   significant payment increases
| | -- | ----------------------------------------------------
| | b. | Loans with terms that   permit negative amortization
| | c. | Loans with high   loan-to-value ratios.             

| | This FSP requires entities   to provide the disclosures required by SFAS No. 107 for loan products that   are determined to represent a concentration of credit risk in accordance with   the guidance of this FSP for all periods presented.  The Company adopted this disclosure standard effective December   31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | During the last half of   2005, the FASB issued four FSPs related to the implementation of SFAS No.   123(R).  These FSPs related to (1)   the classification and measurement of freestanding financial instruments   originally issued in exchange for employee services, (2) the application of   grant date as defined in SFAS No. 123(R), (3) the transition election related   to accounting for the tax effects of share-based payment awards, and  (4) the classification of options and   similar instruments issued as employee compensation that allow for cash   settlement upon the occurrence of a contingent event. The issuance of these   FSPs by the FASB are intended to clarify the interpretation of the guidance   related to these specific issues when implementing SFAS No. 123(R).

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|                                   | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                   | Recently Issued Accounting Standards - In December 2004, the FASB issued SFAS   No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123(R)).  SFAS No. 123(R) will require companies to   measure all employee stock-based compensation awards using a fair value   method and record such expense in its financial statements.  In addition, the adoption of SFAS No.   123(R) requires additional accounting and disclosure related to the income   tax and cash flow effects resulting from share-based payment   arrangements.  SFAS No. 123(R) is   effective beginning as of the first interim or annual reporting period   beginning after December 15, 2005.    The adoption of SFAS No. 123(R) is not expected to have a material   impact on the Companys financial position or results of operations.                                                                                                      
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                   | In April 2005, the   Securities and Exchange Commissions Office of the Chief Accountant and its   Division of Corporation Finance issued Staff Accounting Bulletin (SAB)   No.107 to provide guidance regarding the application of SFAS No.123(R).  SAB No. 107 provides interpretive guidance   related to the interaction between SFAS No. 123(R) and certain SEC rules and   regulations, as well as the staffs views regarding the valuation of   share-based payment arrangements for public companies.  SAB No. 107 also reminds public companies of   the importance of including disclosures within filings made with the SEC   relating to the accounting for share-based payment transactions, particularly   during the transition to SFAS No. 123(R).                                                                                                                                                        
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                   | In December 2004, the FASB   issued SFAS No. 153, Exchanges of Nonmonetary Assets  an amendment of APB   Opinion No. 29.  The standard is   based on the principle that exchanges of nonmonetary assets should be   measured based on the fair value of the assets exchanged and eliminates the   exception under ABP Opinion No. 29 for an exchange of similar productive   assets and replaces it with an exception for exchanges of nonmonetary assets   that do not have commercial substance.    A nonmonetary exchange has commercial substance if the future cash   flows of the entity are expected to change significantly as a result of the   exchange.  The standard is effective   for nonmonetary exchanges occurring in fiscal years beginning after June 15,   2005.  The adoption of SFAS 153 is not   expected to have a material impact on the Companys financial position or   results of operations.
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                   | In May 2005, the FASB   issued SFAS No. 154, Accounting Changes and Error Corrections  a   replacement of APB Opinion No. 20 and FASB Statement No. 3.  SFAS No. 154 establishes retrospective   application as the required method for reporting a change in accounting   principle, unless it is impracticable, in which case the changes should be   applied to the latest practicable date presented.  SFAS No. 154 also requires that a correction of an error be   reported as a prior period adjustment by restating prior period financial   statements.  SFAS No. 154 is effective   for accounting changes and corrections of errors made in fiscal years   beginning after December 15, 2005.    The adoption of this pronouncement is not expected to have a material   impact on the Companys financial position or results of operations.                                                                  
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                   | Other accounting standards   that have been issued or proposed by the FASB or other standards-setting   bodies that do not require adoption until a future date are not expected to   have a material impact on the consolidated financial statements upon   adoption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Note 2 - Statement   of Cash Flows
|                                  
|                                   | The following summarizes   supplemental cash flow data for the years ended December 31 (dollars in   thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                                           |  | 2005 |       | 2004 |   | 2003  |  
|-------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                                                           |  |      |       |      |   |       |  
|Interest   paid                                                            |  | $    | 7,747 |      | $ | 3,813 |  
|Cash paid for income taxes                                                 |  |      | 1,387 |      |   | 1,075 |  
|Change in fair value of   securities available for sale, net of income tax |  |      | (502  | )    |   | (141  | )

|Note 3 - Restrictions   on Cash and due from Banks
|--------------------------------------------------
|                                                  
|                                                  

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|                                 | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                    
|-------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                 |                                                                                                                                                                                                      
|Note 4  Investment   Securities
|                                 |                                                                                                                                                                                                      
|                                 | The amortized cost, fair   value and gross unrealized holding gains and losses of securities available   for sale at December 31, 2005 and 2004, consisted of the following (dollars   in thousands):

|                                 |  | 2005             |       
|-------------------------------- |  | ---------------- | ------
|                                 |  |                  |       
|                                 |  | Amortized   Cost |       
|                                 |  |                  |       
|Securities   available for sale: |  |                  |       
|U.S.   Agency obligations        |  | $                | 9,500 
|Mortgage-backed                  |  |                  | 28,070
|Municipal                        |  |                  | 8,600 
|                                 |  |                  |       
|Total                            |  | $                | 46,170
|                                 |  |                  |       

|                                 |  | 2004             |       
|-------------------------------- |  | ---------------- | ------
|                                 |  |                  |       
|                                 |  | Amortized   Cost |       
|                                 |  |                  |       
|Securities   available for sale: |  |                  |       
|U.S.   Agency obligations        |  | $                | 6,500 
|Mortgage-backed                  |  |                  | 23,998
|Municipal                        |  |                  | 5,924 
|                                 |  |                  |       
|Total                            |  | $                | 36,422
|                                 |  |                  |       

| | At December 31, 2005 and   2004, securities with a carrying value of approximately $34.3 million and   $19.4 million respectively, were pledged to secure public deposits and for   other purposes required or permitted by law, including as collateral for FHLB   advances outstanding.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                          
| | The following table shows   gross unrealized losses and fair value, aggregated by investment category,   and length of time that individual securities have been in a continuous   unrealized loss position at December 31, 2005 (dollars in thousands).                                 

|                               |  | Less than 12 Months |        | 12 Months or More |   | Total      |  
|------------------------------ |  | ------------------- | ------ | ----------------- | - | ---------- | -
|                               |  |                     |        |                   |   |            |  
|                               |  | Fair value          |        | Unrealized Losses |   | Fair value |  
|                               |  |                     |        |                   |   |            |  
|Securities available for sale: |  |                     |        |                   |   |            |  
|U.S. Agency obligations        |  | $                   | 2,937  |                   | $ | (63        | )
|Mortgage-backed                |  |                     | 11,931 |                   |   | (204       | )
|Municipal                      |  |                     | 2,307  |                   |   | (11        | )
|                               |  |                     |        |                   |   |            |  
|Total                          |  | $                   | 17,175 |                   | $ | (278       | )
|                               |  |                     |        |                   |   |            |  

| | At December 31, 2005,   thirty individual securities had been in a continuous loss position for   twelve months or more.  The Company   has the ability and intent to hold these securities until such time as the   value recovers or the securities mature.    The Company believes, based on industry analyst reports and the credit   ratings of the securities, that the deterioration in value is attributable to   changes in market interest rates and not in the credit quality of the issuer   and, therefore, these losses are not considered other-than-temporary.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The amortized cost and   estimated fair value of investment securities available for sale at December   31, 2005 by contractual maturity are shown in the following table.  Expected maturities may differ from   contractual maturities because issuers may have the right to call or repay   obligations with or without prepayment penalties.  Fair value of securities was determined using quoted market   prices (dollars in thousands).                                                                                                                                

---



| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements
| | -------------------------------------------------------------------------------------------------

|                                          |  | Amortized   Cost |        | Fair Value |  
|----------------------------------------- |  | ---------------- | ------ | ---------- | -
|                                          |  |                  |        |            |  
|Due after one year, through   five years  |  | $                | 5,000  |            | $
|Due after five years,   through ten years |  |                  | 13,100 |            |  
|Due after fifteen years                   |  |                  |       |            |  
|                                          |  |                  |        |            |  
|Subtotal                                  |  | $                | 18,100 |            | $
|Mortgage-backed securities                |  |                  | 28,070 |            |  
|                                          |  |                  |        |            |  
|Total                                     |  | $                | 46,170 |            | $
|                                          |  |                  |        |            |  

|Note 5 - Investments   Required by Law
|--------------------------------------
|                                      
|                                      
|                                      
|Note 6  Loans                        
|                                      
|                                      

|                                       |  | 2005 |         | 2004 |  
|-------------------------------------- |  | ---- | ------- | ---- | -
|                                       |  |      |         |      |  
|Commercial and industrial              |  | $    | 20,902  |      | $
|Commercial secured by real   estate    |  |      | 152,726 |      |  
|Real estate--residential   mortgages   |  |      | 71,900  |      |  
|Installment and other   consumer loans |  |      | 6,273   |      |  
|Unearned income                        |  |      | (396    | )    |  
|                                       |  |      |         |      |  
|Total   loans, net of unearned income  |  |      | 251,405 |      |  
|Less--allowance for loan   losses      |  |      | (2,719  | )    |  
|                                       |  |      |         |      |  
|Total   loans, net                     |  | $    | 248,686 |      | $
|                                       |  |      |         |      |  

| | Approximately $191,923,000   of the loans were variable interest rate loans at December 31,   2005.  The remaining portfolio was   comprised of fixed interest rate loans.                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | At December 31, 2005 and   2004, $349,000 and $49,000 in loans were on nonaccrual status,   respectively.  Foregone interest   income on these nonaccrual loans and other nonaccrual loans charged off   during the year was approximately $21,600, $1,800, and $15,000 in 2005, 2004,   and 2003 respectively.  There were no   loans contractually past due in excess of 90 days and still accruing interest   at December 31, 2005 or 2004.  There   were no foreclosed loans or other real estate owned at December 31, 2005 or   2004.  There were no impaired loans at   December 31, 2005 or 2004.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Qualifying loans held by   the bank and collateralized by 1-4 family residences of $27,360,000 were   pledged as collateral for FHLB advances outstanding of $26,612,000 at   December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Changes in the allowance   for loan losses for the years ended December 31 were as follows (dollars in   thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                             |  | 2005 |       | 2004 |   | 2003  |  
|-------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                             |  |      |       |      |   |       |  
|Balance, beginning of year                   |  | $    | 2,258 |      | $ | 1,631 |  
|Provision charged to   operations            |  |      | 594   |      |   | 679   |  
|Loans charged off                            |  |      | (144  | )    |   | (54   | )
|Recoveries on loans   previously charged off |  |      | 11    |      |   | 2     |  
|                                             |  |      |       |      |   |       |  
|Balance, end of year                         |  | $    | 2,719 |      | $ | 2,258 |  
|                                             |  |      |       |      |   |       |  

| | Directors, executive   officers and associates of such persons are customers of and have   transactions with the Bank in the ordinary course of business.  Included in such transactions are   outstanding loans and commitments, all of which are made under substantially   the same credit terms, including interest rates and collateral, as those   prevailing at the time for comparable transactions with unrelated persons and   do not involve more than the normal risk of collectibility.                
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The aggregate dollar amount   of these outstanding loans was approximately $14.25 million and $10.29   million at December 31, 2005 and 2004, respectively.  During 2005, new loans and advances on   these lines of credit totaled approximately $11.92 million and payments on   these loans and lines totaled approximately $7.96 million.  At December 31, 2005, there were unfunded   commitments and commitments to extend additional credit to related parties in   the amount of approximately $2.2 million.

---



|                                  | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                    
|--------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                  | Under current Federal   Reserve regulations, the Bank is limited to the amount it may loan to the   Company.  Loans made by the Bank may   not exceed 10% and loans to all affiliates may not exceed 20% of the Banks   capital, surplus and undivided profits, after adding back the allowance for   loan losses.  There were no loans   outstanding between the Bank and the Company at December 31, 2005 or 2004.
|                                  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|Note 7 - Premises   and Equipment
|                                 
|                                  | A summary of premises and   equipment at December 31 is as follows (dollars in thousands):                                                                                                                                                                                                                                                                                                                           

|                                    |  | 2005 |       | 2004 |  
|----------------------------------- |  | ---- | ----- | ---- | -
|                                    |  |      |       |      |  
|Land                                |  | $    | 1,374 |      | $
|Building and improvements           |  |      | 3,057 |      |  
|Furniture, fixtures and   equipment |  |      | 1,657 |      |  
|Construction in progress            |  |      | 36    |      |  
|                                    |  |      |       |      |  
|Subtotal                            |  |      | 6,124 |      |  
|Accumulated depreciation            |  |      | 1,147 |      |  
|                                    |  |      |       |      |  
|Total                               |  | $    | 4,977 |      | $
|                                    |  |      |       |      |  

| | Depreciation expense   charged to operations totaled $269,000, $245,000, and $240,000 in 2005, 2004,   and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Bank entered into a   long-term land operating lease during 2000, which had an initial term of 20   years and various renewal options under substantially the same terms.  Rent expense charged to operations totaled   $51,000, $48,000 and $48,000 for each of the years ended December 31, 2005,   2004, and 2003, respectively.  In   addition, the Bank currently has short-term operating leases for its full service   branch in Mount Pleasant and its loan production offices in our market areas.   The annual minimum rental commitments under the terms of the Companys   noncancellable leases at December 31, 2005 are as follows (dollars in   thousands):

|2006       |  | $ | 174   | 
|---------- |  | - | ----- | 
|2007       |  |   | 117   | 
|2008       |  |   | 73    | 
|2009       |  |   | 54    | 
|2010       |  |   | 56    | 
|Thereafter |  |   | 601   | 
|           |  |   |       | 
|Total      |  | $ | 1,075 | 
|           |  |   |       | 

|Note 8  Deposits
|-----------------
|                 
|                 
|                 
|                 

|                             |  | 2005 |         | 2004 |  
|---------------------------- |  | ---- | ------- | ---- | -
|                             |  |      |         |      |  
|One year or less             |  | $    | 107,496 |      | $
|From one year to three years |  |      | 35,885  |      |  
|After three years            |  |      | 31,408  |      |  
|                             |  |      |         |      |  
|Total                        |  | $    | 174,789 |      | $
|                             |  |      |         |      |  

|Note 9 - Lines   of Credit
|--------------------------
|                          
|                          
|                          
|Note 10    FHLB Advances 
|                          
|                          

---



| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements
| | -------------------------------------------------------------------------------------------------

|                         | At December 31, 2005,   fixed rate FHLB advances outstanding ranged from $1 million to $2.5 million   with initial maturities of one to seven years and rates of 2.82% to   4.70%.  At December 31, 2005, advances   totaling $10 million were subject to call features at the option of the FHLB   with call dates ranging from June 2006 to March 2008 and current rates of   2.92% to 3.88%.  Advances totaling   $9.75 million at December 31, 2005, were at variable rates based on three-month   LIBOR and were priced from 4.24% to 4.51% as of year end, depending on the   reset date.
|------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                         | Scheduled maturities of   FHLB advances subsequent to December 31, 2005 are $5.8 million in 2006, $1   million in 2009, $2.5 million in 2010 and in 2011, $12.3 million in 2012 and   $2.5 million in 2013.                                                                                                                                                                                                                                                                                                                                                                                    
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                         | The weighted-average   interest on FHLB advances outstanding as of December 31, 2005 and 2004 was   3.99% and 2.68%, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Note 11 - Income   Taxes
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                         | The following is a summary   of the items caused recorded income taxes to differ from taxes computed using   the statutory tax rate for the periods ended December 31 (dollars in   thousands):                                                                                                                                                                                                                                                                                                                                                                                                

|                                                      |  | 2005 |       | 2004 |   | 2003 |  
|----------------------------------------------------- |  | ---- | ----- | ---- | - | ---- | -
|                                                      |  |      |       |      |   |      |  
|Income tax expense at   federal statutory rate of 34% |  | $    | 1,461 |      | $ | 897  |  
|Change in valuation   allowance                       |  |      |      |      |   |     |  
|State income tax, net of   federal effect             |  |      | 89    |      |   | 62   |  
|Tax-exempt securities income                          |  |      | (89   | )    |   | (70  | )
|Bank-owned life insurance   earnings                  |  |      | (35   | )    |   | (43  | )
|Other, net                                            |  |      | 35    |      |   | (23  | )
|                                                      |  |      |       |      |   |      |  
|Income tax expense                                    |  | $    | 1,461 |      | $ | 823  |  
|                                                      |  |      |       |      |   |      |  

| | The provision for income   taxes for the years ended December 31 is as follows (dollars in thousands):
| | ------------------------------------------------------------------------------------------------------

|                             |  | 2005 |       | 2004 |   | 2003 |  
|---------------------------- |  | ---- | ----- | ---- | - | ---- | -
|                             |  |      |       |      |   |      |  
|Current:                     |  |      |       |      |   |      |  
|Federal                      |  | $    | 1,393 |      | $ | 827  |  
|State                        |  |      | 134   |      |   | 92   |  
|                             |  |      |       |      |   |      |  
|Total                        |  |      | 1,527 |      |   | 919  |  
|                             |  |      |       |      |   |      |  
|Deferred:                    |  |      |       |      |   |      |  
|Federal                      |  |      | (68   | )    |   | (98  | )
|State                        |  |      | 2     |      |   | 3    |  
|                             |  |      |       |      |   |      |  
|Total                        |  |      | (66   | )    |   | (95  | )
|                             |  |      |       |      |   |      |  
|Provision   for income taxes |  | $    | 1,461 |      | $ | 824  |  
|                             |  |      |       |      |   |      |  

| | The components of the   deferred tax assets and liabilities at December 31 are as follows (dollars in   thousands):
| | -------------------------------------------------------------------------------------------------------------------

|                                                   |  | 2005 |       | 2004 |  
|-------------------------------------------------- |  | ---- | ----- | ---- | -
|                                                   |  |      |       |      |  
|Deferred tax liability:                            |  |      |       |      |  
|Net   deferred loan costs                          |  | $    | 45    |      | $
|Prepaid   expenses deducted currently for tax      |  |      | 85    |      |  
|Tax   depreciation in excess of book               |  |      | 166   |      |  
|Loan   servicing rights                            |  |      | 101   |      |  
|                                                   |  |      |       |      |  
|Total   deferred tax liability                     |  |      | 397   |      |  
|                                                   |  |      |       |      |  
|Deferred tax asset:                                |  |      |       |      |  
|Allowance   for loan losses                        |  |      | 804   |      |  
|Deferred   organizational and start-up costs       |  |      |      |      |  
|Unrealized   loss on securities available for sale |  |      | 346   |      |  
|Other                                              |  |      | 1     |      |  
|                                                   |  |      |       |      |  
|Deferred   tax asset before valuation allowance    |  |      | 1,151 |      |  
|                                                   |  |      |       |      |  
|Valuation   allowance                              |  |      |      |      |  
|                                                   |  |      |       |      |  
|Net   deferred tax asset                           |  | $    | 754   |      | $
|                                                   |  |      |       |      |  

| | The net deferred tax asset   is included in Other assets in the accompanying consolidated balance   sheets.                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                              
| | The Company has not   recorded a valuation allowance for the net deferred tax asset as management   believes the realization of this asset is determined to be more likely than   not based on the Companys ability to generate future taxable income during   the periods in which temporary differences become deductible.

---



| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements
| | -------------------------------------------------------------------------------------------------

|                                                                      | A portion of the change in   the net deferred tax asset relates to the change of $259,000 in the tax   effect of the unrealized loss on securities available for sale.  The remainder of the change in the net   deferred tax asset is due to the current period deferred tax benefit of   $66,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Note 12 - Regulatory   Capital Requirements and Dividend Restrictions
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                      | The Company (on a   consolidated basis) and the Bank are subject to various regulatory capital   requirements administered by the federal banking agencies.  Failure to meet minimum capital   requirements can initiate certain mandatory and possibly additional   discretionary actions by regulators that, if undertaken, could have a   material effect on the financial statements.    Under capital adequacy guidelines and the regulatory framework for   prompt corrective action, the Company and the Bank must meet specific capital   guidelines that involve quantitative measures of their assets, liabilities   and certain off-balance sheet items as calculated under regulatory accounting   practices.  The Companys and the   Banks capital amounts and classification are also subject to qualitative   judgments by the regulators about components, risk weightings, and other   factors.  Prompt corrective action   provisions are not applicable to bank

holding companies.
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                      | The Company and the Bank   are required to maintain minimum amounts and ratios of total risk-based   capital, Tier 1 capital, and Tier 1 leverage capital (as defined in the   regulations) as set forth in the following table.  Management believes, as of December 31, 2005, that the   Company and the Bank meet all capital adequacy requirements to which they are   subject.  At December 31, 2005, the   Bank is categorized as well capitalized under the regulatory framework for   prompt corrective action.  There are   no current conditions or events that management believes would change the   Companys or the Banks category.                                                                                                                                                                                                                                                                                                                                                    
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                      | The following table   presents the Companys and the Banks actual capital amounts and ratios at   December 31, 2005 and 2004, as well as the minimum calculated amounts for   each regulatory-defined category (dollars in thousands).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                         |  | Actual |        | For   CapitalAdequacy Purposes |  | Minimum to be   Categorized as Well
   Capitalized Under   Prompt CorrectiveAction Provisions |  
|---------------------------------------- |  | ------ | ------ | ------------------------------ |  | --------------------------------------------------------------------------------------------- | -
|                                         |  |        |        |                                |  |                                                                                               |  
|                                         |  | Amount |        | Ratio                          |  | Amount                                                                                        |  
|                                         |  |        |        |                                |  |                                                                                               |  
|As of   December 31, 2005                |  |        |        |                                |  |                                                                                               |  
|The   Company                            |  |        |        |                                |  |                                                                                               |  
|Total   capital to risk-weighted assets  |  | $      | 30,886 |                                |  | 13.16                                                                                         | %
|Tier   1 capital to risk-weighted assets |  | $      | 27,981 |                                |  | 11.92                                                                                         | %
|Tier   1 capital to average assets       |  | $      | 27,981 |                                |  | 9.09                                                                                          | %
|The   Bank                               |  |        |        |                                |  |                                                                                               |  
|Total   capital to risk-weighted assets  |  | $      | 26,551 |                                |  | 11.35                                                                                         | %
|Tier   1 capital to risk-weighted assets |  | $      | 23,832 |                                |  | 10.19                                                                                         | %
|Tier   1 capital to average assets       |  | $      | 23,832 |                                |  | 7.75                                                                                          | %
|                                         |  |        |        |                                |  |                                                                                               |  
|As of   December 31, 2004                |  |        |        |                                |  |                                                                                               |  
|The   Company                            |  |        |        |                                |  |                                                                                               |  
|Total   capital to risk-weighted assets  |  | $      | 21,919 |                                |  | 12.21                                                                                         | %
|Tier   1 capital to risk-weighted assets |  | $      | 18,018 |                                |  | 10.04                                                                                         | %
|Tier   1 capital to average assets       |  | $      | 18,018 |                                |  | 7.90                                                                                          | %
|The   Bank                               |  |        |        |                                |  |                                                                                               |  
|Total   capital to risk-weighted assets  |  | $      | 21,290 |                                |  | 11.83                                                                                         | %
|Tier   1 capital to risk-weighted assets |  | $      | 19,031 |                                |  | 10.57                                                                                         | %
|Tier   1 capital to average assets       |  | $      | 19,031 |                                |  | 8.34                                                                                          | %

|                                         | The ability of the Company   to pay cash dividends is dependent upon receiving cash in the form of   dividends from the Bank.  The   dividends that may be paid by the Bank to the Company are subject to legal   limitations and regulatory capital requirements.  The approval 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 Banks net profits (as defined by the Comptroller) for that year   combined with its retained net profits (as defined by the Comptroller) for   the two preceding calendar years.  As   of December 31, 2005, no cash dividends have been declared or paid by the   Bank.                                                                                                           
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Note 13  Junior Subordinated Debentures
|                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                         | The Company issued trust   preferred securities totaling $6 million through its statutory trust   subsidiaries, FNSC Capital Trust I and FNSC Statutory Trust II, during 2003   and 2004.  On December 19, 2003, FNSC   Capital Trust I issued and sold floating rate trust preferred securities   having an aggregate liquidation amount of $3 million to institutional buyers   in a private placement of trust preferred securities.  On April 30, 2004, FNSC Statutory Trust II   (collectively with FNSC Capital Trust I (the Trusts)), issued an additional   $3 million through a pooled offering of trust preferred securities.  The Trusts also issued common securities   having an aggregate liquidation amount of approximately 3% of the total   capital of the Trusts, or $186,000, to the Company.

---



|                                     | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | Prior to January 1, 2004,   the Company consolidated the Trusts in its Consolidated Financial Statements.   In accordance with the provisions of FASB Interpretation No. 46 (revised),   the Company deconsolidated the Trusts from its financial statements during   2004 with retroactive restatement to 2003. As a result of the change, the   Company deconsolidated the Trusts, increasing other assets and junior   subordinated debentures each by $186,000.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The 2003 and 2004 trust   preferred securities issues accrue and pay cumulative distributions quarterly   in arrears at a rate per annum equal to 90-day LIBOR plus 292 basis points   and 90-day LIBOR plus 270 basis points, respectively.  The Company has the right, subject to   events of default, to defer payments of interest on the trust preferred   securities for a period not to exceed 20 consecutive quarters from the date   of issuance.  The Company has no   current intention to exercise this right.    At December 31, 2005, the distribution rates on the 2003 and 2004   issuances were 7.46% and 7.20%, respectively.                                                                                                                                                                                                                                                             
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The 2003 and 2004 trust   preferred securities issues are mandatorily redeemable upon maturity on   December 19, 2033, and April 30, 2034, respectively.  The Company has the right to redeem them   in whole or in part, on or after December 19, 2008 and April 30, 2009, and at   any time thereafter, respectively.  If   they are redeemed on or after these dates, the redemption price will be 100%   of the principal amount plus accrued and unpaid interest.  In addition, the Company may redeem either   issuance in whole (but not in part) at any time within 90 days following the   occurrence of a tax event, an investment company event, or a capital   treatment event at a special redemption price (as defined in the indenture).                                                                                                                                                     
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The Trusts invested the   gross proceeds of $6 million from the issuance of the trust preferred   securities and $186,000 from the issuance of the common securities in an   equivalent amount of floating rate junior subordinated debentures of the   Company or $6,186,000.  The Company   contributed the net proceeds from the issuance of the subordinated debentures   of $6 million after purchase of the common securities for $186,000 to the   Bank for general corporate purposes.    Issuance costs from the 2003 and 2004 transactions totaling $104,000   and $15,000, respectively are being amortized over the anticipated life.                                                                                                                                                                                                                                                           
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The junior subordinated   debentures are unsecured obligations of the Company and are subordinate and   junior in right of payment to all present and future senior indebtedness of   the Company.  The Company has entered   into guarantees, which together with its obligations under the junior   subordinated debentures and the declaration of trusts governing the Trusts,   provides full and unconditional guarantees of the trust preferred securities.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The common securities   owned by the Company rank equal to the trust preferred securities in priority   of payment.  The common securities   generally have sole voting power on matters to be voted upon by the holders   of the Trusts securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | On October 31, 2003, the   FASB proposed a modification and interpretation of FASB Interpretation No. 46   (FIN 46r) which required the Company to deconsolidate the Trusts from its   financial statements.  However, as a   small business issuer reporting under Regulation S-B, the Company was allowed   to delay deconsolidation until December 31, 2004.  Accordingly, the junior subordinated debentures and the common   securities are presented in the Companys financial statements as liabilities   and other assets, respectively, as of December 31, 2005 and 2004.  All prior periods have been restated   retroactively to reflect the deconsolidation.  The trust preferred securities are a part of the financial   statements of the Trusts and they are not reflected in the Companys   financial statements due to the adoption of FIN 46r.                                       
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Note 14 - Stock   Compensation Plans
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | Effective March 6, 2000,   the Company adopted the First National Bancshares, Inc. 2000 Stock Incentive   Plan (the Plan). Under the Plan, options are periodically granted to   employees and directors by the Companys Board of Directors at the   recommendation of its Personnel Committee at a price not less than the fair   market value of the shares at the date of grant.  Options granted are exercisable for a period of ten years from   the date of grant and become exercisable at a rate of 20% each year on the   first five anniversaries of the date of grant.  The Plan authorizes the granting of stock options up to a   maximum of 405,000 shares of common stock.    As of December 31, 2005, 122,400 option shares were available to   be granted under the Plan.  These   amounts reflect each of the 3 for 2 stock splits distributed on January 18,   2006 and March 1, 2004.
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | Upon consummation of the   initial public offering, the organizers were issued stock warrants to   purchase 705,000 shares of common stock for $4.44 per share.  These warrants vested ratably over a   five-year period beginning February 10, 2000, and are exercisable in whole or   in part during the ten-year period following that date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements
| | -------------------------------------------------------------------------------------------------
| |                                                                                                  
| | The following is a summary   of the activity under the plans for the years ended December 31:    

|                                   |  | 2005   |         | 2004                                     |   | 2003   | 
|---------------------------------- |  | ------ | ------- | ---------------------------------------- | - | ------ | 
|                                   |  |        |         |                                          |   |        | 
|                                   |  | Shares |         | Weighted Average
Exercise PricePer Share |   | Shares | 
|                                   |  |        |         |                                          |   |        | 
|Outstanding, beginning of   period |  |        | 958,125 |                                          | $ | 4.56   | 
|Granted                            |  |        | 28,500  |                                          |   | 17.15  | 
|Forfeited                          |  |        | (3,300  | )                                        |   | 9.59   | 
|Exercised                          |  |        | (1,575  | )                                        |   | 7.85   | 
|                                   |  |        |         |                                          |   |        | 
|Outstanding,   December 31         |  |        | 981,750 |                                          |   | 4.96   | 
|                                   |  |        |         |                                          |   |        | 
|Exercisable,   December 31         |  |        | 932,175 |                                          | $ | 4.50   | 
|                                   |  |        |         |                                          |   |        | 

| | The following table   summarizes information about stock options and warrants outstanding under the   stock-based option plans at December 31, 2005:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

|                            |  | Outstanding       |         | Exercisable                                      | 
|--------------------------- |  | ----------------- | ------- | ------------------------------------------------ | 
|                            |  |                   |         |                                                  | 
|Range of    Exercise Prices |  | NumberOutstanding |         | Weighted   Average   RemainingContractual   Life | 
|                            |  |                   |         |                                                  | 
|$4.45                       |  |                   | 916,500 |                                                  | 
|$4.67 - $4.80               |  |                   | 11,250  |                                                  | 
|$6.00 - $6.33               |  |                   | 3,375   |                                                  | 
|$8.33 - $10.67              |  |                   | 9,000   |                                                  | 
|$13.17 - $17.00             |  |                   | 31,125  |                                                  | 
|$17.67 - $19.33             |  |                   | 10,500  |                                                  | 
|                            |  |                   |         |                                                  | 
|$4.45 - $19.33              |  |                   | 981,750 |                                                  | 
|                            |  |                   |         |                                                  | 

|                                   | The above information has   been restated for each of the 3 for 2 stock splits distributed on January 18,   2006, and March 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Note 15    Employee Benefit Plans
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                   | The Company maintains an   employee benefit plan for all eligible employees of the Company and the Bank   under the provisions of Internal Revenue Code Section 401(k).  The First National Retirement Savings Plan   (the Savings Plan) allows for employee contributions and, upon annual   approval of the Board of Directors, the Company matches 50% of employee   contributions up to a maximum of six percent of annual compensation.  A total of $45,000, $37,000 and $30,000   were charged to operations in 2005, 2004, and 2003, respectively, for the   Companys matching contribution.    Employees are immediately vested in their contributions to the Savings   Plan and become fully vested in the employer matching contribution after five   years of service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                   | On May 31, 2004, the   Company adopted a leveraged Employee Stock Ownership Plan (ESOP) for the   exclusive benefit of employee participants.    Employees become vested in their account balances after seven years of   service.  On November 30, 2005, the   Company loaned the ESOP $600,000 which was used to purchase 37,500 shares of   the Companys common stock. The ESOP shares initially were pledged as   collateral for its debt.  As the debt   is repaid, shares are released from collateral and allocated to eligible   employees, based on the proportion of debt service paid in the year.  At December 31, 2005, the ESOP owned   39,600 shares of the Companys stock, of which 37,415 shares were pledged to   secure the loan to the Company.  The   remainder of the shares was allocated to individual accounts of participants.  In accordance with the requirements of the   SOP 93-6, the Company presented the shares that were
pledged as collateral as   a  deduction of $599,000 from   shareholders equity at December 31, 2005 as unearned ESOP shares in the   accompanying consolidated balance sheets.    The Board of Directors approved a $24,000 and $12,000 discretionary   contribution paid to the ESOP for the years ended December 31, 2005 and 2004,   respectively, which the Company recorded as compensation expense.  The Company also recorded $1,700 of   expense during the year ended December 31, 2005 to reflect the fair market   value of the shares allocated to eligible employees.  The fair market value of the unallocated   shares was $747,000 as of December 31, 2005.
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                   | The Company made a   contribution during December 31, 2005 of $2,400 equal to the ESOP 2005 debt   service. The note payable to the ESOP requires annual principal payments plus   interest at a fixed interest rate of 4.79%.    Future principal payments will be $40,000 until a final payment will   be made on December 31, 2020.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                   | During 2004, the Company   also adopted a formal incentive compensation plan, the First National   Incentive Plan (the FNIP) for members of its management team.  Approximately $492,000 and $380,000 was   expensed in 2005 and 2004 respectively, and paid in the subsequent year based   on achievement of individual and corporate performance goals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|                                                              | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Note 16  Commitments   and Contingencies                    
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | On September 10, 2004, the   Company entered into a new employment agreement with its President and Chief   Executive Officer that includes an annually renewable three-year compensation   term, annual bonus, incentive program, stock option plan and a one-year   non-compete agreement upon termination.    On January 31, 2005, the Company entered into employment agreements   with each of its three Executive Vice Presidents that include an annually   renewing two-year compensation term and one-year non-compete agreements upon   termination.                                                                                                                                                                                                                                                                         
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | In the normal course of   business, the Company and the Bank are periodically subject to various   pending or threatened lawsuits in which claims for monetary damages may be   asserted.  At December 31, 2005, the   Company and the Bank were not involved with any litigation matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | See Note 7 for specifics   on the Companys lease commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Note 17  Financial   Instruments with Off-Balance Sheet Risk
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | The Company is a party to   financial instruments with off-balance sheet risk in the normal course of   business to meet the financing needs of its customers.  These financial instruments include   commitments to extend credit and standby letters of credit and involve, to   varying degrees, elements of credit and interest rate risk in excess of the   amount recognized in the balance sheet.    The Companys exposure to credit loss in the event of nonperformance   by the other party to the financial instrument for commitments to extend   credit and standby letters of credit is represented by the contractual   amounts of those instruments.                                                                                                                                                                   
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | The Company uses the same   credit and collateral policies in making commitments and conditional   obligations as it does for on-balance sheet instruments.  The Company evaluates each customers   creditworthiness on a case-by-case basis.    The amount of collateral obtained if deemed necessary by the Company   upon extension of credit is based on managements credit evaluation.  Commitments to extend credit are   agreements to lend to a customer as long as there is no violation of any   condition established in the contract.    Commitments generally have fixed expiration dates or other termination   clauses and may require payment of a fee.    Since many of the commitments may expire without being drawn upon, the   total commitment amounts do not necessarily represent future cash   requirements.
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | At December 31, 2005, the   Companys commitments to extend additional credit totaled approximately $97.1   million, the majority of which are at variable rates of interest and expire   within one year.  Included in the   Companys total commitments are standby letters of credit. Letters of credit   are commitments issued by the Company to guarantee the performance of a   customer to a third party and totaled $575,000 at December 31, 2005. The credit   risk involved in the underwriting of letters of credit is essentially the   same as that involved in extending loan facilities to customers.                                                                                                                                                                                                                  
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Note 18  Fair   Value of Financial Instruments              
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | SFAS No. 107, Disclosures   about Fair Value of Financial Instruments, requires disclosure of fair value   information, whether or not recognized in the statement of financial   position, when it is practicable to estimate fair value. SFAS No. 107 defines   a financial instrument as cash, evidence of an ownership interest in an   entity, or contractual obligations which require the exchange of cash or   other financial instruments.  Certain   items which are specifically excluded from the disclosure requirements,   including the Companys common stock, premises and equipment and other assets   and liabilities.                                                                                                                                                                                            
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | Fair value approximates   book value for the following financial instruments due to the short-term   nature of the instrument:  cash and   due from banks, interest-bearing bank balances, federal funds sold,   investment in FHLB/FRB stock, and short-term FHLB advances.  Fair value of investment securities is   estimated based on quoted market prices where available.  If quoted market prices are not available,   fair values are based on quoted market prices of comparable instruments.                                                                                                                                                                                                                                                                                                                                 
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | Fair value for variable   rate loans that reprice frequently and for loans that mature in less than one   year is based on the carrying value, reduced by an estimate of credit losses   inherent in the portfolio.  Fair value   of fixed rate real estate, consumer, commercial and other loans maturing   after one year is based on the discounted present value of the estimated   future cash flows, reduced by an estimate of credit losses inherent in the   portfolio.  Discount rates used in   these computations approximate the rates currently offered for similar loans   of comparable terms and credit quality.                                                                                                                                                                                                       
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                              | Fair value for demand   deposit accounts and variable rate interest-bearing accounts with no fixed   maturity date is equal to the carrying value. Certificate of deposit accounts   maturing during 2006 are valued at their carrying value.  Certificate of deposit accounts maturing   after 2006 are estimated by discounting cash flows from expected maturities   using current interest rates on similar instruments.  Fair value for long-term FHLB advances is   based on discounted cash flows using the current market rate.  Fair value for the floating rate junior   subordinated debentures is based on the carrying value.                                                                                                                                                                                             

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| | FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY     Notes   to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The estimated fair market   value of commitments to extend credit and standby letters of credit are equal   to their carrying value as the majority of these off-balance sheet   instruments have relatively short terms to maturity and are generally written   with variable rates of interest.                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company has used   managements best estimate of fair values based on the above   assumptions.  Thus, the fair values   presented may not be the amounts which could be realized in an immediate sale   or settlement of the instrument.  In   addition, any income tax or other expense which would be incurred in an   actual sale or settlement is not taken into consideration in the fair value presented.
| |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The estimated fair values of   the Companys financial instruments at December 31 are as follows (dollars in   thousands):                                                                                                                                                                                                                                                                                         

|                                 |  | 2005            |         | 2004                 |  
|-------------------------------- |  | --------------- | ------- | -------------------- | -
|                                 |  |                 |         |                      |  
|                                 |  | Carrying
Amount |         | Estimated
Fair Value |  
|                                 |  |                 |         |                      |  
|Financial assets:                |  |                 |         |                      |  
|Cash   and due from banks        |  | $               | 2,691   |                      | $
|Interest-bearing   bank balances |  |                 | 1,937   |                      |  
|Federal   funds sold             |  |                 | 16,678  |                      |  
|Securities   available for sale  |  |                 | 45,151  |                      |  
|Investment   in FHLB/FRB stock   |  |                 | 2,122   |                      |  
|Loans,   net                     |  |                 | 248,686 |                      |  
|                                 |  |                 |         |                      |  
|Financial liabilities:           |  |                 |         |                      |  
|Deposits                         |  | $               | 271,695 |                      | $
|FHLB   advances                  |  |                 | 26,612  |                      |  
|Junior   subordinated debentures |  |                 | 6,186   |                      |  

|Note 19  Parent   Company Financial Information
|------------------------------------------------
|                                                
|                                                



First National Bancshares, Inc. Condensed Balance Sheets (dollars in thousands)

|                                        |  | 2005 |        | 2004 |  
|--------------------------------------- |  | ---- | ------ | ---- | -
|                                        |  |      |        |      |  
|Assets:                                 |  |      |        |      |  
|Cash                                    |  | $    | 3,843  |      | $
|Investment   in bank subsidiary         |  |      | 23,880 |      |  
|Investment   in Trust subsidiaries      |  |      | 186    |      |  
|Other   assets                          |  |      | 306    |      |  
|                                        |  |      |        |      |  
|Total                                   |  | $    | 28,215 |      | $
|                                        |  |      |        |      |  
|Liabilities and   shareholders equity: |  |      |        |      |  
|Junior   subordinated debentures        |  | $    | 6,186  |      | $
|Shareholders   equity                  |  |      | 22,029 |      |  
|                                        |  |      |        |      |  
|Total                                   |  | $    | 28,215 |      | $
|                                        |  |      |        |      |  

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| | FIRST NATIONAL BANCSHARES, INC. AND   SUBSIDIARY     Notes to Consolidated Financial   Statements
| | -------------------------------------------------------------------------------------------------
| |                                                                                                  

First National Bancshares, Inc. Condensed Statements of Income (dollars in thousands)

|                                                        |  | 2005 |       | 2004 |   | 2003  |  
|------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                                        |  |      |       |      |   |       |  
|Interest income                                         |  | $    | 16    |      | $ | 11    |  
|Interest expense on junior   subordinated debentures    |  |      | 391   |      |   | 236   |  
|                                                        |  |      |       |      |   |       |  
|Net   interest income/(expense)                         |  |      | (375  | )    |   | (225  | )
|Professional fees                                       |  |      | 25    |      |   | 9     |  
|Shareholder relations                                   |  |      | 21    |      |   | 31    |  
|Other                                                   |  |      |      |      |   | 1     |  
|                                                        |  |      |       |      |   |       |  
|Noninterest   expense                                   |  |      | 46    |      |   | 41    |  
|Equity in undistributed net   income of bank subsidiary |  |      | 3,113 |      |   | 1,990 |  
|                                                        |  |      |       |      |   |       |  
|Net income before income   taxes                        |  |      | 2,692 |      |   | 1,724 |  
|Income tax benefit                                      |  |      | (143  | )    |   | (91   | )
|                                                        |  |      |       |      |   |       |  
|Net   income                                            |  | $    | 2,835 |      | $ | 1,815 |  
|                                                        |  |      |       |      |   |       |  

First National Bancshares, Inc. Condensed Statements of Cash Flows (dollars in thousands)

|                                                                                 |  | 2005 |        | 2004 |   | 2003   |  
|-------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|                                                                                 |  |      |        |      |   |        |  
|Operating activities:                                                            |  |      |        |      |   |        |  
|Net   income                                                                     |  | $    | 2,835  |      | $ | 1,815  |  
|Adjustments   to reconcile net income to net cash used for operating activities: |  |      |        |      |   |        |  
|Equity   in undistributed net income of bank subsidiary                          |  |      | (3,113 | )    |   | (1,990 | )
|Compensation   expense for ESOP shares allocated                                 |  |      | 1      |      |   |       |  
|Compensation   expense for employee stock options                                |  |      | 32     |      |   | 9      |  
|(Increase)   decrease in other assets                                            |  |      | 15     |      |   | (7     | )
|Increase   (decrease) in other liabilities                                       |  |      |       |      |   | (6     | )
|Increase   in intercompany receivable                                            |  |      | (138   | )    |   | (91    | )
|                                                                                 |  |      |        |      |   |        |  
|Net   cash used for operating activities                                         |  |      | (368   | )    |   | (270   | )
|                                                                                 |  |      |        |      |   |        |  
|Investing activities:                                                            |  |      |        |      |   |        |  
|Investment   in common securities of Trusts                                      |  |      |       |      |   | (93    | )
|Capital   contribution to bank subsidiary                                        |  |      | (2,000 | )    |   | (2,997 | )
|                                                                                 |  |      |        |      |   |        |  
|Net   cash used for investing activities                                         |  |      | (2,000 | )    |   | (3,090 | )
|                                                                                 |  |      |        |      |   |        |  
|Financing activities:                                                            |  |      |        |      |   |        |  
|Proceeds   from exercise of employee stock options                               |  |      | 12     |      |   |       |  
|Proceeds   from secondary stock offering, net of offering expenses               |  |      | 6,339  |      |   |       |  
|Shares   issued to leveraged ESOP                                                |  |      | (600   | )    |   |       |  
|Proceeds   from junior subordinated debentures                                   |  |      |       |      |   | 3,093  |  
|                                                                                 |  |      |        |      |   |        |  
|Net   cash provided by financing activities                                      |  |      | 5,751  |      |   | 3,093  |  
|                                                                                 |  |      |        |      |   |        |  
|Net increase (decrease) in   cash and cash equivalents                           |  |      | 3,383  |      |   | (267   | )
|Cash, beginning of year                                                          |  |      | 460    |      |   | 727    |  
|                                                                                 |  |      |        |      |   |        |  
|Cash, end of year                                                                |  | $    | 3,843  |      | $ | 460    |  
|                                                                                 |  |      |        |      |   |        |  

For a complete discussion of the junior subordinated debentures, common securities and the related trust preferred securities, see Note 13  Junior Subordinated Debentures.

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Stock Listing First National Bancshares, Inc. common stock was approved for listing on the NASDAQ National Market on November 2, 2005, under the symbol FNSC. Prior to such listing, our common stock was quoted on the OTC Bulletin Board under the symbol FNSC.OB.As of March 1, 2006, there were 642 shareholders of record. This number does not reflect the number of persons or entities who hold the stock in nominee or street name through various brokerage firms. Shareholder Services Shareholders seeking information regarding stock transfers, lost certificates, dividends and address changes should contact our TransferAgent: First Citizens Bank Corporate Trust Division P.O. Box 29522 Raleigh, NC 27626-0522 (877) 685-0576 Annual Meeting TheAnnual Meeting of Shareholders will be held at 5:30 p.m. on Tuesday,April 18, 2006, at our main office at 215 North Pine Street, Spartanburg, SC 29302.All shareholders of record as of March 1, 2006, are eligible to attend and vote. Financial Information We will furnish, upon request, free of charge, copies of ourAnnual Report to the SEC on Form 10-KSB by contacting: Kitty B. Payne First National Bancshares, Inc. P.O. Box 3508 Spartanburg, SC 29304 (864) 948-9001 General Counsel Nelson Mullins Riley & Scarborough LLP P.O. Box 10084 Greenville, SC 29603





Independent Registered Public Accounting Firm Elliott Davis, LLC 200 East Broad StreetGreenville, SC 29601 Market Makers Scott & Stringfellow, Inc. Monroe Securities, Inc. FIG Partners, LLC GVR Company, LLC Citadel Derivatives Group, LLC UBS Securities, LLC Hill, Thompson, Magid & Co. Sandler ONeill & Partners Knight Equity Markets, L.P. Jefferies & Company, Inc. Historical Stock Price 2005
  
  2004HistoricalStock Price
  
  
  High
  
  
  Low
  
  
  High
  
  
  LowFirst Quarter
  
  $
  18.67
  
  $
  16.00
  
  $
  11.33
  
  $
  7.11Second Quarter
  
  $
  20.00
  
  $
  15.67
  
  $
  14.33
  
  $
  11.67Third Quarter
  
  $
  20.00
  
  $
  15.13
  
  $
  16.00
  
  $
  13.33Fourth Quarter
  
  $
  20.67
  
  $
  14.00
  
  $
  17.67
  
  $
  14.17 Informationreported for trades occurring prior to November 2, 2005, represent high and low bid prices on the OTC Bulletin Board. These bid prices are quotations, which reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The prices shown reflect historical activity and have been adjusted for the 3 for 2 stock splits distributed on January 18, 2006 and March 1, 2004. New Investor Relations Icon Message
This icon will soon appear on our website as a link to our new Media Room:

http://firstnational-online.mediaroom.com.
Here you will find the latest news and financial information concerning First National. Sign up for optional email alerts to easily and quickly stay informed.


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|Board of Directors                                 |  | Executive Officers                     |  | Renee Cothran                          
|-------------------------------------------------- |  | -------------------------------------- |  | ---------------------------------------
|                                                   |  |                                        |  | VP   Commercial Banking Officer        
|CHAIRMAN                                           |  | Jerry L. Calvert                       |  |                                        
|Gaines W. Hammond, Jr.,   M.D.                     |  | President   & CEO                      |  | Mary Jane Davidson                     
|President/Physician,   Hammond Urology             |  |                                        |  | VP City   Executive, Spartanburg       
|President,   Hammond Capital                       |  | Robert W. Murdoch, Jr.                 |  |                                        
|                                                   |  | EVP   Retail Banking Manager           |  | Scott Elmore                           
|VICE CHAIRMAN                                      |  |                                        |  | AVP   Financial Reporting Manager      
|Jerry L. Calvert                                   |  | Kitty B. Payne                         |  |                                        
|President   & CEO,                                 |  | EVP Chief   Financial Officer          |  | Shany Ezell                            
|First   National Bancshares, Inc.                  |  |                                        |  | AVP   Mortgage Loan Officer            
|                                                   |  | David H. Zabriskie                     |  |                                        
|CHAIRMAN   EMERITUS                                |  | EVP   Senior Lender                    |  | Randy Foster                           
|NormanF. Pulliam                                   |  |                                        |  | AVP   Commercial Banking Officer       
|Chairman,                                          |  |                                        |  |                                        
|Pulliam   Investment Co., Inc.                     |  |                                        |  | Pamela Gilliam                         
|                                                   |  | Senior                                 |  | VP Loan   Operations Manager           
|C. DanAdams                                        |  | Leadership Team                        |  |                                        
|President,                                         |  |                                        |  | Susan Gustafson                        
|The   Capital Corporation                          |  | John Bickley                           |  | AVP   Business Banking Officer         
|                                                   |  | SVP First   National Business Capital, |  |                                        
|Mellnee G. Buchheit                                |  | Greenville                             |  | Matthew Klessens                       
|President,                                         |  |                                        |  | Branch   Supervisor, Pine Street Office
|Buchheit   News Management                         |  | Louie Blanton                          |  |                                        
|                                                   |  | SVP   Commercial Banking &             |  | Dawn Kunak                             
|Martha C. Chapman                                  |  | Business   Development                 |  | Banking   Officer, Executive Assistant 
|CommunityVolunteer                                 |  |                                        |  |                                        
|                                                   |  | Rudy Gill                              |  | Jason Land                             
|W. Russel Floyd, Jr.                               |  | Market   President, Charleston         |  | AVP   Marketing Manager                
|President,                                         |  |                                        |  |                                        
|W. R.   Floyd Services, Inc.                       |  | Peter Seitz                            |  | Sandy Meister                          
|                                                   |  | SVP                                    |  | VP   Finance Director                  
|Dr. C. Tyrone Gilmore, Sr.                         |  |                                        |  |                                        
|Vice   President/Customer Relations,               |  | Barry Starling                         |  | Terry Phillips                         
|Compass   Learning, Inc.                           |  | SVP   Commercial Banking Officer,      |  | AVP   Branch Manager,                  
|                                                   |  | Greenville                             |  | Reidville   Road                       
|Benjamin R. Hines                                  |  |                                        |  |                                        
|President,                                         |  | Robert Whittemore                      |  | Janetta Riffenburg                     
|Spencer/Hines   Properties, Inc.                   |  | Market   President, Columbia           |  | AVP   Compliance Officer               
|                                                   |  | Regional   Lending Manager             |  |                                        
|WilliamA. Hudson                                   |  |                                        |  | Phyllis Shropshier                     
|Partner,                                           |  |                                        |  | Deposit   Operations Coordinator       
|Hudson   Development Group                         |  |                                        |  |                                        
|                                                   |  | Leadership   Team                      |  | Marilyn Smith                          
|Peter E. Weisman                                   |  |                                        |  | VP Branch   Operations Manager         
|Managing   Member,                                 |  | Foster Alexander                       |  |                                        
|Peter   Weisman/Kinney Hill Associates, LLC        |  | AVP   Branch Manager,                  |  | Carrie Wallace                         
|                                                   |  | Boiling   Springs                      |  | AVP   Branch Manager, Mt. Pleasant     
|Donald B. Wildman                                  |  |                                        |  |                                        
|Partner,                                           |  | David Bowdish                          |  | Angela Willingham                      
|Johnson,   Smith, Hibbard                          |  | VP   Operations Manager                |  | Branch   Coordinator                   
|&   Wildman Law Firm                               |  |                                        |  |                                        
|                                                   |  | Van Clark                              |  |                                        
|                                                   |  | VP Human   Resource Manager            |  |                                        
|                                                   |  |                                        |  |                                        
|                                                  
|                                                   |  |                                        |  |                                        
|Charleston Advisory Board Members                  |  |                                        |  |                                        
|                                                   |  |                                        |  |                                        
|W. E. Applegate, III, Esq.                         |  | Thomas P. Cothran, Esq.                |  | Robert B. Lawson                       
|Moore   & Van Allen                                |  | Cothran   Law Office, LLC              |  | President,   Palmetto Patterns         
|                                                   |  |                                        |  |                                        
|J. Ron Brinson                                     |  | The Honorable Dr. James B.   Edwards   |  | Major General James E.   Livingston    
|Chairman,   National Waterways    Conference, Inc. |  | Governor   of South Carolina, Retired  |  | USMC,   Retired                        
|                                                   |  |                                        |  |                                        
|Richard H. Coen                                    |  | Marvin J. Jenkins                      |  | Amy S. Pearson                         
|Coen   Capital, LLC                                |  | Daniel   Island Academy                |  | VP   Finance, Daniel Island Company    
|                                                   |  |                                        |  |                                        
|James B. Connelly                                  |  | James G. Kennedy, Esq.                 |  | Charles C. Shaw, Jr.                   
|Connelly   Management, Inc.                        |  | Pierce,   Herns, Sloan & McLeod        |  | Owner,   MSI Viking Gage, Inc.         

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Our mission is to be the premier bank in our markets that exceeds the
expectations of our customers, employees, stockholders and the community and to
provide quality, competitive products and services with a team of friendly and
well-trained professionals.

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Trust Services and Investment Management provided by:

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