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Filed Pursuant to Rule 424(B)(3)
Registartion No. 333-87503
PROSPECTUS
FIRST NATIONAL BANCSHARES, INC.
A proposed bank holding company for
FIRST NATIONAL BANK OF SPARTANBURG (PROPOSED)
1,200,000 Shares of Common Stock
$10.00 per share
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We are offering shares of common stock of First National Bancshares,
Inc. to fund the start-up of a new community bank, First National Bank of
Spartanburg (proposed). First National Bancshares, Inc. will be the holding
company and sole owner of the bank. The bank will be headquartered in
Spartanburg, South Carolina, and we expect to open the bank in the first or
second quarter of 2000. This is our first offering of stock to the public, and
there is no public market for our shares. The minimum purchase requirement for
investors is 100 shares and maximum purchase amount is 5% of the offering,
although we may at our discretion accept subscriptions for more. We will request
that quotations for the common shares be reported on the Nasdaq OTC Bulletin
Board under the symbol "FNBK."
Our organizers will receive warrants to purchase two shares of common
stock for $10.00 per share for every three shares they purchase in the offering.
We describe the warrants in more detail in the "Management Stock Warrants"
section on page 38.
The shares will be sold primarily by our officers and directors, except
for C. Dan Adams who may not participate in our stock sales effort because he is
currently an affiliate of a licensed securities dealer, and by our exclusive
sales agent, J.C. Bradford & Co. J.C. Bradford has agreed to use its best
efforts to sell at least 150,000 of the shares offered, and may sell up to
240,000 shares. We will pay the sales agent $.57 for each share it sells.
The offering is scheduled to end on May 31, 2000, but we may extend the
offering until October 31, 2000, at the latest. All of the money which we
receive will be placed with an independent escrow agent which will hold the
money until we sell (1) 1,200,000 shares and (2) we receive preliminary approval
from our bank regulatory agencies for the new bank. If we do not succeed before
the end of the offering period, we will return all funds received to the
subscribers promptly, without interest.
This table summarizes the offering and the amounts we expect to
receive. The commissions shown are the maximum we expect to pay the sales agent.
PER SHARE TOTAL
Public Offering Price..................... $10.00 $12,000,000
Sales Agency Commission................... $ .57 $ 136,800
Proceeds to First National
Bancshares ............................... $ 9.43 $11,863,200
THIS IS A NEW BUSINESS. AS WITH ALL NEW BUSINESSES, AN INVESTMENT WILL
INVOLVE RISKS. IT IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY. YOU SHOULD NOT INVEST IN THIS OFFERING UNLESS
YOU CAN AFFORD TO LOSE SOME OR ALL OF YOUR INVESTMENT. SOME OF THE RISKS OF THIS
INVESTMENT ARE DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 10, 1999
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FIRST NATIONAL BANCSHARES, INC.
FIRST NATIONAL BANK OF SPARTANBURG (PROPOSED)
PROPOSED MARKET AREA
[INSERT MAP OF SOUTH CAROLINA AND SPARTANBURG COUNTY SHOWING MARKET AREA]
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SUMMARY
WE ENCOURAGE YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE INVESTING.
FIRST NATIONAL BANCSHARES AND FIRST NATIONAL BANK OF SPARTANBURG
We incorporated First National Bancshares, Inc. in July 1999 to
organize and serve as the holding company for First National Bank of
Spartanburg, a new national bank proposed to be located in Spartanburg, South
Carolina. The bank will focus on the local community, emphasizing personal
service to individuals and businesses in Spartanburg County. We have filed for
regulatory approval to open the new bank with the Office of the Comptroller of
the Currency and for deposit insurance for the bank with the FDIC. We will file
for approval of the Federal Reserve Board to become a bank holding company and
acquire all of the stock of the new bank. We expect to receive all final
regulatory approvals and open for business in the first or second quarter of
2000.
WHY WE ARE ORGANIZING A NEW BANK IN SPARTANBURG COUNTY
Spartanburg County has a growing and dynamic economic environment that
we believe will support First National Bank of Spartanburg. It is South
Carolina's fourth most populous county with over 247,000 residents. The county
and surrounding area are home to several large manufacturing concerns, including
BMW, Springs Industries, Michelin Tire Company, Advantica, Milliken & Company,
and Spartanburg Regional Medical Center, which support a stable business
foundation and a skilled labor force. The presence of companies like these has
resulted in Spartanburg County having the highest per capita international
investment of any area in the United States in 1995. In November 1998, the
unemployment rate was approximately 3.1%. One factor in this economic growth is
Spartanburg County's strategic location on the I-85 corridor between Atlanta,
Georgia and Charlotte, North Carolina.
We believe that there is an opportunity in Spartanburg County for a new
locally managed bank focused on the community and personalized service to
individuals and local businesses. The county's bank and thrift deposits grew
over the last four years at an average annual rate of 5%, and should continue to
grow with the community and its economy. The two community banks and the local
thrift located in Spartanburg County experienced average annual growth rates of
over 10% during this same period. We believe that this indicates many residents
in the area prefer the community bank experience to that provided by the larger
and more impersonal regional and super-regional banks. Despite this perceived
preference, large regional banks continue to consolidate the banking market
through mergers and acquisitions, as evidenced by Regions Bank's recent
acquisition of Spartanburg National Bank. This acquisition left only one
community bank in Spartanburg with less than $50 million in assets. We believe
that the combination of positive deposit growth rates, good economic conditions,
and the consolidation of existing community banks into larger banks creates a
favorable environment for a new community oriented bank.
Taking advantage of this opportunity, First National Bank of
Spartanburg will position itself as "the hometown bank" that cares about its
clients. We will provide professional and personalized service to our clients by
employing well trained, seasoned bankers who are familiar with our market area
and our clients' individual needs. We will emphasize our local ownership and
management and our strong ties to the Spartanburg County community. Our target
market will be primarily individuals and small- to medium-sized businesses who
desire a consistent and professional relationship with a local banker.
OUR BOARD OF DIRECTORS AND MANAGEMENT
First National Bancshares was founded by thirteen local business
leaders, most of who have lived in Spartanburg for many years. They are also
community leaders and serve on numerous charitable and service organizations
throughout Spartanburg County. We believe our directors' long-standing ties to
the community and their significant business experience will provide First
National Bank of Spartanburg with the ability to effectively assess and address
the needs of our proposed market area.
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Our Board of Directors consists of the following:
o C. Dan Adams o Benjamin R. Hines
o Mellnee G. Buchheit o William A. Hudson
o Jerry L. Calvert o Norman F. Pulliam
o Martha C. Chapman o Peter E. Weisman
o W. Russel Floyd, Jr. o Donald B. Wildman
o Dr. C. Tyrone Gilmore, Sr. o Coleman L. Young, Jr.
o Dr. Gaines W. Hammond, Jr.
Our management team consists of the following:
o Jerry Calvert will serve as the president and chief executive
officer for the holding company and the bank. He has over 25
years of banking experience in the Spartanburg area. Until he
began preparations to open First National Bank of Spartanburg,
he served as regional manager of American Federal Bank in
Spartanburg.
o Kitty B. Payne, CPA, is the proposed senior vice president and
chief financial officer for the holding company and the bank.
She most recently served as a senior tax manager with KPMG
Peat Marwick, where she was employed from 1992 until November
1999.
We are in the process of assembling the rest of our management team. We
are looking for individuals who reside in the Spartanburg area and have
significant local banking experience and a history of service to the community.
PRODUCTS AND SERVICES
We plan to offer most of the products and services offered by larger
banks by utilizing modern delivery systems coupled with personalized service.
Our lending services will include consumer loans and lines of credit, commercial
and business loans and lines of credit, residential and commercial real estate
loans, and construction loans. We will competitively price our deposit products,
which will include checking accounts, savings accounts, money market accounts,
certificates of deposit, commercial checking accounts, and IRAs. We will also
provide cashier's checks, credit cards, home mortgage brokerage services, tax
deposits, safe deposit boxes, traveler's checks, direct deposit, and special
bank club packages. We intend to deliver our services though a variety of
methods, including ATMs, banking by mail, and drive-through banking, and we are
considering providing internet banking services to our customers.
THE OFFERING AND OWNERSHIP BY MANAGEMENT
We are offering 1,200,000 shares of our common stock for $10.00 per
share. Our organizers and executive officers intend to purchase 455,000 shares,
which represent 37.9% of the shares outstanding after the offering. To
compensate them for their financial risk and efforts in organizing the bank, our
organizers will receive warrants to purchase two shares of common stock for
$10.00 per share for every three shares they purchase in this offering. We hope
to sell most of the remaining shares to individuals and businesses in
Spartanburg County who share our desire to support a new local community bank.
FUNDS RECEIVED WILL BE PLACED IN ESCROW
We cannot open the bank without regulatory approvals. Therefore, we
will place all of the proceeds from investors in this offering with an
independent escrow agent, The Bankers Bank. The escrow agent will hold these
funds until we raise $12,000,000 and obtain preliminary regulatory approvals to
open the bank. We expect to receive all preliminary regulatory approvals by the
first quarter of 2000. We currently intend to close the offering on May 31,
2000, but may extend the offering up to October 31, 2000. If we fail to meet
these
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conditions by the close of the offering, we will refund your subscription in
full, without interest, and will use the investments by our founding
shareholders to pay expenses and liquidate the company.
SHARES WILL BE SOLD BY OFFICERS, DIRECTORS, AND A SALES AGENT
Our officers and directors will handle the sale of most of the shares
in this offering, except for C. Dan Adams who may not participate in our stock
sales effort because he is currently an affiliate of a licensed securities
dealer. We will not pay them any fees or commissions for their efforts.
Additionally, we have engaged J.C. Bradford & Co. as our sales agent to use its
best efforts to sell a minimum of 150,000 shares, and up to 240,000 shares. We
will pay J.C. Bradford a commission of $0.57 for each share it sells.
USE OF PROCEEDS
We will use the first $11,000,000 we raise in this offering to
capitalize First National Bank of Spartanburg. This is the amount of capital we
believe our banking regulators will require for us to open the bank. Of this
amount, the bank will use approximately $4,000,000 of the funds it receives to
construct its main and branch offices, purchase furniture, fixtures, and
equipment, and pay pre-opening expenses of the bank. The bank will use its
remaining funds for working capital necessary for its operations. We will use
the remaining net proceeds of the offering to pay expenses of this offering and
of organizing the holding company and the bank, and to provide general working
capital for the holding company. For more detailed information see "Use of
Proceeds" beginning on page 13.
WE DO NOT INITIALLY PLAN TO PAY DIVIDENDS
Because we are a new business, we will not pay dividends in the
foreseeable future. We intend to use all available earnings to fund the
continued operation and growth of the bank.
LOCATION OF OFFICES
Our temporary executive offices are located at 248 N. Church Street,
Spartanburg, South Carolina 29306. Our telephone number is (864) 948-9001. Our
main office will be located at 215 N. Pine Street, Spartanburg, South Carolina
29302, one block north of the intersection of Main Street and Pine Street in
downtown Spartanburg. The site is approximately 2.0 acres in size, and the
building will be approximately 15,000 square feet. We expect to complete
construction of this facility in January 2001. In the interim period, we will
operate out of a temporary modular facility located on the same site. We also
plan to open a 3,000 square foot branch office on the west side of Spartanburg
on a one acre outparcel of the Oak Grove Shopping Center at 2660 Reidville Road,
Spartanburg, South Carolina 29301. We expect to open this branch office upon
completion of construction, which we believe will be in the first or second
quarter of 2000.
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RISK FACTORS
THE FOLLOWING IS A SUMMARY OF SOME OF THE RISKS THAT WE WILL ENCOUNTER
IN STARTING AND OPERATING THE NEW BANK. WE MAY FACE OTHER RISKS AS WELL, WHICH
WE HAVE NOT ANTICIPATED. AN INVESTMENT IN OUR COMMON STOCK INVOLVES A
SIGNIFICANT DEGREE OF RISK AND YOU SHOULD NOT INVEST IN THE OFFERING UNLESS YOU
CAN AFFORD TO LOSE SOME OR ALL OF YOUR INVESTMENT. PLEASE READ THE ENTIRE
PROSPECTUS FOR A MORE THOROUGH DISCUSSION OF THE RISKS OF AN INVESTMENT IN OUR
COMMON STOCK.
WE ARE A NEW BUSINESS AND THERE IS A RISK WE MAY NOT BE SUCCESSFUL.
Neither First National Bancshares nor First National Bank of
Spartanburg has any operating history. The operations of new businesses are
always risky. Because First National Bank of Spartanburg has not yet opened, we
do not have historical financial data and similar information that would be
available for a financial institution that has been operating for several years.
WE EXPECT TO INCUR LOSSES FOR MORE THAN ONE YEAR AND THERE IS A RISK WE MAY
NEVER BECOME PROFITABLE.
In order for us to become profitable, we will need to attract a large
number of customers to deposit and borrow money. This will take time. We expect
to incur large initial expenses and may not be profitable for more than one
year, if at all. Our future profitability is dependent on numerous factors
including the continued success of the economy of the community and favorable
government regulation. While the economy in this area has been strong in recent
years, an economic downturn in the area would hurt our business. We are also a
highly regulated institution. Our ability to grow and achieve profitability may
be adversely affected by state and federal regulations that limit a bank's right
to make loans, purchase securities, and pay dividends. Although we expect to
become profitable in our second year, there is a risk that a deterioration of
the local economy or adverse government regulation could affect our plans. If
this happens, we may never become profitable and you will lose part or all of
your investment.
WE CANNOT OPEN THE BANK FOR BUSINESS UNTIL WE RECEIVE REGULATORY APPROVALS,
WHICH ARE AT THE DISCRETION OF OUR REGULATORY AGENCIES.
We cannot begin operations until we receive all required regulatory
approvals. We will not receive these approvals until we satisfy all requirements
for new banks imposed by state and federal regulatory agencies. We have already
filed applications with the FDIC and the Office of the Comptroller of the
Currency, and we will file an application with the Federal Reserve prior to
opening the bank. We expect to receive our preliminary regulatory approvals by
the first quarter of 2000. We expect to receive final approvals by the first or
second quarter of 2000, but it may take longer. If we ultimately do not open, we
anticipate that we will dissolve the company, and return to our investors all
funds remaining after paying the expenses incurred through this time.
ANY DELAY IN OPENING FIRST NATIONAL BANK OF SPARTANBURG WILL RESULT IN
ADDITIONAL LOSSES.
We intend to open the bank in the first or second quarter of 2000. If
we do not receive all necessary regulatory approvals as planned, the bank's
opening will be delayed or may not occur at all. If the bank's opening is
delayed, our organizational and pre-opening expenses will increase. Because the
bank would not be open and generating revenue, these additional expenses would
cause our accumulated losses to increase.
WE WILL DEPEND HEAVILY ON JERRY CALVERT, AND OUR BUSINESS WOULD SUFFER IF
SOMETHING WERE TO HAPPEN TO HIM OR IF HE WERE TO LEAVE.
Jerry Calvert will be our president and chief executive officer. He
will provide valuable services to us, and he would be difficult to replace. We
have an employment agreement with Mr. Calvert and carry $500,000 of insurance on
his life payable to the bank. Nevertheless, if he were to leave, our business
would suffer.
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WE DETERMINED THE OFFERING PRICE OF $10.00 ARBITRARILY AND IT WILL FLUCTUATE
ONCE THE SHARES BECOME FREELY TRADABLE AFTER THE OFFERING.
Because we do not have any history of operations, we determined the
price arbitrarily. The offering price is essentially the book value of the
shares prior to deduction for expenses of the offering and the organization of
the bank. The offering price may not be indicative of the present or future
value of the common stock. As a result, the market price of the stock after the
offering may be more susceptible to fluctuations than it otherwise might be. The
market price will be affected by our operating results, which could fluctuate
greatly. These fluctuations could result from expenses of operating and
expanding the bank, trends in the banking industry, economic conditions in our
market area, and other factors that are beyond our control. If our operating
results are below expectations, the market price of the common stock would
probably fall.
WE WILL NOT HAVE A LARGE NUMBER OF SHAREHOLDERS OR A LARGE NUMBER OF SHARES
OUTSTANDING AFTER THE OFFERING, WHICH MAY LIMIT YOUR ABILITY TO SELL OR TRADE
THE SHARES AFTER THE OFFERING.
Initially, there will be no established market for our common stock.
After the offering, we will encourage broker-dealers to match buy and sell
orders for our common stock on the OTC Bulletin Board. However, the trading
markets on the OTC Bulletin Board lack the depth, liquidity, and orderliness
necessary to maintain a liquid market. We do not expect a liquid market for our
common stock to develop for several years, if at all. A public market having
depth and liquidity depends on having enough buyers and sellers at any given
time. Because this a relatively small offering, we do not expect to have enough
shareholders or outstanding shares to support an active trading market.
Accordingly, investors should consider the potential illiquid and long-term
nature of an investment in our common stock.
OUR ORGANIZERS WILL PURCHASE A LARGE PERCENTAGE OF OUR STOCK IN THE OFFERING,
WHICH MAY ALLOW THEM TO CONTROL THE COMPANY AND AFFECT OUR SHAREHOLDERS' ABILITY
TO RECEIVE A PREMIUM FOR THEIR SHARES.
Our organizers intend to purchase 455,000 shares in this offering, for
a total investment of $4,550,000. As a result, they will own approximately 37.9%
of the common stock outstanding upon completion of the offering. Additionally,
each of the organizers will receive a warrant to purchase two shares of common
stock at $10.00 per share for every three shares they purchase in the offering.
If each organizer exercises his warrant in full, the organizers' ownership of
First National Bancshares will increase to 50.4%. As a result, the organizers as
a group will have significant influence over our affairs and policies. Their
voting power may be sufficient to control the outcome of director elections or
block significant transactions affecting First National Bancshares, including
acquisitions. This could prevent shareholders from receiving a premium for their
shares, which may be offered by a potential acquirer. In addition, the
organizers may purchase additional shares in the offering, especially if
necessary to meet the minimum offering amount. See "The Offering - General"
on page 10.
WE WILL FACE STRONG COMPETITION FOR CUSTOMERS FROM LARGER AND MORE ESTABLISHED
BANKS, WHICH COULD PREVENT US FROM OBTAINING CUSTOMERS, AND MAY CAUSE US TO HAVE
TO PAY HIGHER INTEREST RATES TO ATTRACT CUSTOMERS.
We will encounter strong competition from existing banks and other
types of financial institutions operating in the Spartanburg County area and
elsewhere. Some of these competitors have been in business for a long time and
have already established their customer base and name recognition. Most are
larger than we will be and have greater financial and personnel resources than
we will have. Some are large super-regional and regional banks, like BB&T, Bank
of America, Regions, and Wachovia. These institutions offer services, including
extensive and established branch networks and trust services, that we either do
not expect to provide or will not provide for some time. Due to this
competition, we may have to pay higher rates of interest to attract deposits. In
addition, competitors that are not depository institutions are generally not
subject to the extensive regulations that will apply to our bank. See "Proposed
Business - Marketing Opportunities- Competition" on page 19 and "Supervision and
Regulation" starting on page 26.
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WE MAY NOT BE ABLE TO COMPETE WITH OUR LARGER COMPETITORS FOR LARGER CUSTOMERS
BECAUSE OUR LENDING LIMITS WILL BE LOWER THAN THEIRS.
We will be limited in the amount we can loan a single borrower by the
amount of the bank's capital. The legal lending limit is 15% of the bank's
capital and surplus. We expect that our initial legal lending limit will be
approximately $1,590,000 immediately following the offering, but we intend to
impose an internal limit on the bank of 80% of this amount, or approximately
$1,270,000. Until the bank is profitable, our capital will continue to decline
and therefore our lending limit. Our lending limit will be significantly less
than the limit for most of our competitors and may affect our ability to seek
relationships with larger businesses in our market area. We intend to
accommodate larger loans by selling participations in those loans to other
financial institutions.
WE ARE AUTHORIZED TO ISSUE PREFERRED STOCK WHICH, IF ISSUED, MAY ADVERSELY
AFFECT YOUR VOTING RIGHTS AND REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
We are authorized by our articles of incorporation to issue shares of
preferred stock without the consent of our shareholders. Preferred stock, when
issued, may rank senior to common stock with respect to voting rights, payment
of dividends, and amounts received by shareholders upon liquidation,
dissolution, or winding up. The existence of rights which are senior to common
stock may reduce the price of our shares. We do not have any plans to issue any
shares of preferred stock at this time.
THE EXERCISE OF WARRANTS AND STOCK OPTIONS WILL CAUSE STOCK DILUTION AND MAY
ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK.
The organizers and officers may exercise warrants and options to
purchase common stock, which would result in the dilution of your proportionate
interests in First National Bancshares. Upon completion of the offering, we will
issue to the organizers warrants to purchase two shares of common stock at
$10.00 per share for every three shares they purchase in the offering. If the
organizers purchase 455,000 shares in the offering, we will issue warrants to
purchase an additional 303,333 shares of common stock to them. In addition,
after the offering, we expect to adopt a stock option plan which will permit us
to grant options to our officers, directors, and employees. We anticipate that
we will initially authorize the issuance of a number of shares under the stock
option plan equal to 15% of the shares outstanding after the offering. We do not
intend to issue stock options with an exercise price less than the fair market
value of the common stock on the date of grant.
IT IS POSSIBLE THAT OUR COMPUTER SYSTEMS OR THOSE OF OUR PROCESSING VENDORS OR
LOAN CUSTOMERS COULD FAIL TO OPERATE ON JANUARY 1, 2000.
Like many financial institutions, we will rely upon computers for
conducting our business and for information systems processing. There is concern
among industry experts that on January 1, 2000, computers will be unable to read
or interpret the new year and there may be widespread computer malfunctions. We
will generally rely on software and hardware developed by independent third
parties to provide our information systems. We will request warranties about
Year 2000 compliance from the primary third party hardware and software system
providers we use. We believe that our other internal systems and software,
including our network connections, will be programmed to comply with Year 2000
requirements, although there is a risk they may not comply. Based on information
currently available, we believe that we will not incur significant expenses in
connection with the Year 2000 issue.
The Year 2000 issue may also negatively affect the business of our
customers. We intend to include Year 2000 readiness in our lending criteria to
minimize this risk. However, we cannot be certain that this will eliminate the
issue, and any financial difficulties our customers experience as a result of
Year 2000 issues could impair their ability to repay loans to the bank.
We do not plan to open the bank until after January 1, 2000, at which
time we believe that most of the uncertainty surrounding the Year 2000 issue
should be resolved. In this event, our risks associated with computer
malfunctions should be greatly reduced, but we will still seek to ensure that
our computer systems and our major vendors' and clients' computer systems are in
compliance and functioning properly. For more information on Year 2000 issues,
please refer to page 17.
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FORWARD-LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements"
concerning First National Bancshares and First National Bank of Spartanburg and
their operations, performance, financial conditions, and likelihood of success.
These statements are based on many assumptions and estimates. Our actual results
will depend on many factors about which we are unsure, including those discussed
above. Many of these risks and factors are beyond our control. The words "may,"
"would," "could," "will," "expect," "anticipate," "believe," "intend," "plan,"
and "estimate," and similar expressions identify forward-looking statements. The
most significant of these risks, uncertainties, and other factors are discussed
under the heading "Risk Factors" beginning on page 6 of this prospectus. We urge
you to carefully consider these factors prior to making an investment.
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THE OFFERING
GENERAL
We are offering 1,200,000 shares of our common stock at a price of
$10.00 per share to raise $12,000,000. The minimum purchase for any investor is
100 shares and the maximum purchase is 5% of the offering, although we may
accept subscriptions for more or less.
The organizers intend to purchase 455,000 shares in this offering, for
a total investment of $4,550,000. As a result, they will own approximately 37.9%
of the common stock outstanding upon completion of the offering. Additionally,
each of the organizers will receive a warrant to purchase two shares of common
stock at $10.00 per share for every three shares purchased in the offering,
exercisable for ten years after the completion of the offering. If each
organizer exercises his warrant in full, the organizers' ownership of First
National Bancshares will increase to 50.4%. Although they have not promised to
do so, the organizers may purchase additional shares in the offering, including
up to 100% of the offering. All shares purchased by the organizers will be for
investment and not intended for resale. Because purchases by the organizers may
be substantial, you should not assume that the sale of a specified minimum
offering amount indicates the merits of this offering.
We must receive your subscription for shares before midnight, Eastern
Standard Time, on May 31, 2000, unless all of the shares are sold earlier or the
offering is terminated or extended. We reserve the right to terminate the
offering at any time or to extend the expiration date up to October 31, 2000.
Extension of the expiration date might cause an increase in our expenses. We do
not have to give you any prior written notice of an extension. If we extend the
offering, subscriptions we have already accepted will still be binding. We do,
however, intend to communicate quarterly with all subscribers and inform you of
any extensions of the offering.
Accepted subscriptions will be binding and may not be revoked except
with our consent. We reserve the right to cancel or reject any or all of any
subscription before or after acceptance until the proceeds of this offering are
released from escrow. We may also allocate shares among subscribers if the
offering is oversubscribed. In deciding which subscriptions to accept, we may
take into account any factors, including:
o the order in which subscriptions are received;
o a subscriber's potential to do business with or to direct
customers to the bank; and
o our desire to have a broad distribution of stock ownership.
If we reject any subscription, or accept a subscription but subsequently elect
to cancel all or part of that subscription, we will refund the amount remitted
for shares for which a subscription is rejected or canceled. We will issue
certificates for shares which have been subscribed and paid for promptly after
we receive the funds out of escrow.
CONDITIONS TO THE OFFERING AND RELEASE OF FUNDS
We will place all subscription proceeds with The Bankers Bank, which
will serve as an independent escrow agent. The escrow agent will hold these
funds, and no shares will be issued, until:
o We have accepted subscriptions and payment in full for
1,200,000 shares at $10.00 per share;
o We have received preliminary approval from the Office of the
Comptroller of the Currency to grant us a national bank
charter;
o We have received preliminary approval of the bank's
application for deposit insurance from the FDIC; and
o We have obtained preliminary approval from the Federal Reserve
to acquire the stock of the bank.
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If First National Bancshares terminates the offering or if the offering period
expires before these conditions are satisfied, then:
o We will cancel accepted subscription agreements and
subscribers in the offering will not become shareholders;
o The funds held in the escrow account will not be subject to
the claims of any of our creditors or available to defray the
expenses of this offering; and
o We will return the full amount of all subscription funds
promptly to subscribers, without interest earned.
The escrow agent has not investigated the desirability, advisability,
or merits of a purchase of the shares. The escrow agent will invest escrowed
funds in interest-bearing savings accounts, short-term United States Treasury
securities, FDIC-insured bank deposits, or other similar investments as we agree
on with the escrow agent. We do not intend to invest the subscription proceeds
held in escrow in instruments that would mature after the expiration date of the
offering.
If the conditions for releasing subscription funds from escrow are met
and the funds are released but we do not receive final regulatory approval to
operate the bank, or if the bank does not open for any other reason, our board
of directors intends to propose that the shareholders approve a plan to
liquidate First National Bancshares. First National Bancshares would be
dissolved and First National Bancshares's net assets, consisting primarily of
the funds received in this offering, less the costs and expenses we have
incurred, would be distributed to the shareholders other than the organizers,
who will not receive any distribution until all other shareholders have received
their initial investments.
PLAN OF DISTRIBUTION
Offers and sales of the common stock will be made primarily by our
officers and directors, except for C. Dan Adams who may not participate in our
stock sales effort because he is currently an affiliate of a licensed securities
dealer. First National Bancshares believes these officers and directors, other
than C. Dan Adams, will not be deemed to be brokers or dealers under the
Securities Exchange Act of 1934 due to Rule 3a4-1. Our organizers who
participate in our stock sales effort will be reimbursed for their reasonable
expenses but will not receive commissions or other remuneration.
We have also entered into an agreement with J.C. Bradford & Co. to sell
up to 240,000 of the shares offered. First National Bancshares must reserve a
minimum of 150,000 shares for sale by the sales agent, which is required to use
its best efforts through the expiration date to sell the shares. The sales agent
will receive a commission of $0.57 on each share it sells. The sales agent will
not receive any commission on the shares purchased by the organizers in the
offering and will not receive commissions on sales made by the officers or
directors of First National Bancshares.
The sales agency agreement provides for reciprocal indemnification
between First National Bancshares and the sales agent against certain
liabilities in connection with this offering, including liabilities under the
Securities Act of 1933. The SEC has advised us that it believes this type of
indemnification is against public policy as expressed by the Securities Act of
1933 and is, therefore, unenforceable.
Prior to this offering there has been no public market for the shares.
We established the initial offering price of the shares based upon our
assessment of the capital needs of First National Bancshares and the commercial
potential of the services to be offered by First National Bank of Spartanburg.
We have discussed the establishment and maintenance of a market for the shares
after the offering with the sales agent. Based upon these discussions, we expect
that a secondary market may eventually develop for the shares, although we can
not be sure. In general, if a secondary market develops, the shares other than
those held by affiliates will be freely transferable in the market. See
"Description of the Capital Stock of First National Bancshares, Inc. Shares
Eligible for Future Sale" on page 41.
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HOW TO SUBSCRIBE
If you desire to purchase shares of the common stock of First National
Bancshares, Inc., you should:
1. Complete, date, and execute the subscription agreement which
you received with this prospectus;
2. Make a check, bank draft, or money order payable to "The
Bankers Bank, Escrow Account for First National Bancshares,
Inc.," in the amount of $10.00 times the number of shares you
wish to purchase; and
3. Deliver the completed subscription agreement and check to
First National Bancshares or the sales agent at the following
address:
Mr. Jerry Calvert Mr. Ed Medlin
First National Bancshares, Inc. or J. C. Bradford & Co.
P.O. Box 3508 233 S. Pine Street
Spartanburg, South Carolina 29304 Post Office Box 2869
Spartanburg, South Carolina
29304
If you have any questions about the offering or how to subscribe,
please call Mr. Calvert at (864) 948-9001 (or any of the other organizers) or
Mr. Ed Medlin with J.C. Bradford at (864) 573-9141. If you subscribe, you should
retain a copy of the completed subscription agreement for your records. You must
pay the subscription price at the time you deliver the subscription agreement.
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<PAGE> 13
USE OF PROCEEDS
We estimate that we will receive net proceeds of $11,743,200 from the
sale of 1,200,000 shares of common stock in the offering, after deducting sales
agency commissions and estimated organizational and offering expenses. We have
established a line of credit in the amount of $500,000 with The Banker's Bank at
the prime rate minus 0.5% to pay pre-opening expenses of the holding company and
the bank prior to the completion of the offering. We intend to pay off this line
of credit with proceeds that we receive from this offering. The following two
paragraphs describe our proposed use of proceeds based on our present plans and
business conditions.
USE OF PROCEEDS BY FIRST NATIONAL BANCSHARES
The following table shows the anticipated use of the proceeds by First
National Bancshares. We describe the bank's anticipated use of proceeds in the
following section. As shown, we will use $11,000,000 to capitalize the bank. We
will initially invest the remaining proceeds in United States government
securities or deposit them with First National Bank of Spartanburg. In the
long-term, we will use these funds for operational expenses and other general
corporate purposes, including the provision of additional capital to the bank,
if necessary. We may also use the proceeds to expand, for example by opening
additional facilities or acquiring other financial institutions. In addition to
our main office and initial branch office, we currently plan to open two
additional branch offices in the Spartanburg area in the next five years. We do
not have any other definitive plans for expansion.
TOTAL
-----------
Gross proceeds from offering ....................... $12,000,000
Less:
Sales agency expense ............................... $ 136,800
Expense of organizing First National Bancshares .... $ 120,000
Investment in capital stock of the bank ............ $11,000,000
-----------
Remaining proceeds ................................. $ 743,200
===========
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USE OF PROCEEDS BY FIRST NATIONAL BANK OF SPARTANBURG
The following table shows the anticipated use of the proceeds by First
National Bank of Spartanburg. All proceeds received by the bank will be in the
form of an investment in the bank's capital stock by First National Bancshares
as described above. We anticipate purchasing a site and constructing a permanent
main office. We expect our main office to be completed by January 2001. During
the period between the opening of the bank and the completion of our permanent
main facility, we will conduct operations from a modular facility located on the
site where we will construct our main office. This temporary facility will
require an estimated initial payment of $12,000 and an estimated monthly lease
payment of $5,500. We also plan to open a branch office. We will lease the land
for this office and construct a permanent facility on the site that we
anticipate completing in the first or second quarter of 2000. The table shows
the cost of the temporary and permanent facilities for a period of twelve months
from the completion of the offering. Furniture, fixtures, and equipment will be
capitalized and amortized over the life of the lease or over the estimated
useful life of the asset. The bank will use the remaining proceeds to make
loans, purchase securities, and otherwise conduct the business of the bank.
TOTAL
-----------
Investment by First National Bancshares in the
bank's capital stock ................................ $11,000,000
Less:
Organizational and pre-opening expenses of the bank .... $ 407,000
Furniture, fixtures and equipment ...................... $ 792,000
Cost of main office and site ........................... $ 2,250,000
Construction cost of branch office ..................... $ 500,000
Initial payment and lease of temporary facility (10
months) ................................................ $ 67,000
Lease of branch facility land (12 months) .............. $ 48,000
-----------
Remaining proceeds ..................................... $ 6,936,000
===========
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<PAGE> 15
CAPITALIZATION
The following table shows First National Bancshares' capitalization as
of July 31, 1999, and the pro forma consolidated capitalization of First
National Bancshares' and the bank as adjusted to give effect to the sale of
1,200,000 shares in this offering, after deducting the expenses of the offering.
First National Bancshares' capitalization as of July 31, 1999 reflects the
purchase of ten shares by Jerry Calvert for $10.00 per share. These shares will
be redeemed after the offering. After the offering, we will have 1,200,000
shares outstanding. The "As Adjusted" column reflects the estimated cost of
organizing First National Bancshares and organizing and preparing to open First
National Bank of Spartanburg through the expected opening date, which should be
in the first or second quarter of 2000. See "Use of Proceeds" above.
<TABLE>
<CAPTION>
AS ADJUSTED
FOR
JULY 31, 1999 THE OFFERING
------------- -------------
<S> <C> <C>
SHAREHOLDERS' EQUITY:
Common Stock, par value $.01 per share; 10,000,000
shares authorized; 10 shares issued and outstanding;
1,200,000 shares issued and outstanding as adjusted.... $ 0 $ 12,000
Preferred Stock, par value $.01 per share; 10,000,000
shares authorized; no shares issued and outstanding.... 0 0
Additional paid-in capital ............................ $ 100 $ 11,731,200
Deficit accumulated during the pre-opening stage ...... $(108,282) $ (407,000)
--------- ------------
Total shareholders' equity (deficit) .................. $(108,182) $ 11,336,200
========= ============
Book value per share .................................. $ N/A $ 9.45
========= ============
</TABLE>
DIVIDEND POLICY
We expect initially to retain all earnings to operate and expand the
business. It is unlikely that we will pay any cash dividends in the near future.
Our ability to pay any cash dividends will depend primarily on First National
Bank of Spartanburg's ability to pay dividends to First National Bancshares,
which depends on the profitability of the bank. In order to pay dividends, the
bank must comply with the requirements of all applicable laws and regulations.
See "Supervision and Regulation - The Bank - Dividends" on page 29 and
"Supervision and Regulation - The Bank - Capital Regulations" on page 30. In
addition to the availability of funds from the bank, our dividend policy is
subject to the discretion of our board of directors and will depend upon a
number of factors, including future earnings, financial condition, cash needs,
and general business conditions.
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<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
GENERAL
First National Bancshares was formed to organize and own all of the
capital stock of First National Bank of Spartanburg. In July 1999, the
organizers filed applications with the Office of the Comptroller of the Currency
to charter the bank as a national bank and with the FDIC to receive federal
deposit insurance. Whether the charter is issued and deposit insurance is
granted will depend upon, among other things, compliance with legal requirements
imposed by the Office of the Comptroller of the Currency and the FDIC, including
capitalization of the bank with at least a specified minimum amount of capital
which we believe will be $11,000,000. Upon preliminary approval from the Office
of the Comptroller of the Currency and the FDIC, we will file an application
with the Federal Reserve to become a bank holding company, which must be
approved before we can acquire the capital stock of the bank. We expect to
receive all final regulatory approvals by the second quarter of 2000.
FINANCIAL RESULTS
As of July 31, 1999, First National Bancshares had total assets of
$20,818, consisting primarily of cash, deferred organization costs, furniture
and equipment, prepaid expenses, and escrow deposits. First National Bancshares
incurred a net loss of $108,282 for the period from its inception on April 1,
1999 through July 31, 1999.
EXPENSES
On completion of the offering and opening of the bank, we expect we
will have incurred the following expenses:
o $136,800 in commissions to the sales agent, which will be
deducted from the proceeds of the offering.
o $120,000 in other expenses of the offering, which will be
subtracted from the proceeds of the offering.
o $407,000 in expenses to organize and prepare to open First
National Bank of Spartanburg, consisting principally of
salaries, overhead and other operating costs, which will be
charged against the income of First National Bank of
Spartanburg.
Prior to our completion of this offering, these expenses will be funded
by a $500,000 line of credit at the prime rate minus 0.5%. We will use the
proceeds of this offering to repay amounts due under our line of credit. We
anticipate that the proceeds of the offering will be sufficient to satisfy the
corporation's financial needs for at least the next twelve months.
OFFICES AND FACILITIES
Our temporary executive offices are located at 248 N. Church Street,
Spartanburg, South Carolina 29306. Our main office will be located at 215 N.
Pine Street, Spartanburg, South Carolina 29302, one block north of the
intersection of Main Street and Pine Street in downtown Spartanburg. The site is
approximately 2.0 acres in size and the building will be approximately 15,000
square feet. We will purchase this site for $500,000 and construction of the
building is expected to cost an additional $1,750,000. We also plan to open a
3,000 square foot branch office on the west side of Spartanburg on a one acre
outparcel of the Oak Grove Shopping Center at 2660 Reidville Road, Spartanburg,
South Carolina 29301. We intend to lease the land for approximately $4,000 per
month, and we will construct the branch office on the property for approximately
$500,000. We expect to open the bank in a temporary modular facility on the site
of the main office and complete construction of our branch office in the first
or second quarter of 2000 and our main office in the first quarter of
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<PAGE> 17
2001. In the interim period, we will operate the bank out of a temporary modular
facility located on the site of the future main office.
We plan to open for business in the first or second quarter of 2000.
Within the first five years of operation, we also plan to open two additional
branches located strategically in our service area. We believe that these
branches will expand our market presence and provide additional convenience to
our customers. We will need to obtain regulatory approval before we can open
these branches. We believe that these facilities will adequately serve the
bank's needs for its first five years of operation.
LIQUIDITY AND INTEREST RATE SENSITIVITY
First National Bank of Spartanburg, like most banks, will depend on its
net interest income for its primary source of earnings. Net interest income is
roughly the difference between the interest we charge on our loans and receive
from our investments, our assets, and the interest we pay on deposits, our
liabilities. Movements in interest rates will cause our earnings to fluctuate.
To lessen the impact of these margin swings, we intend to structure our balance
sheets so that we can reprice the rates applicable to our assets and liabilities
in roughly equal amounts at approximately the same time. We will manage the
bank's asset mix by regularly evaluating the yield, credit quality, funding
sources, and liquidity of its assets. We will manage the bank's liability mix by
expanding our deposit base and converting assets to cash as necessary. If there
is an imbalance in our ability to reprice assets and liabilities at any point in
time, our earnings may increase or decrease with changes in the interest rate,
creating interest rate sensitivity. Interest rates have historically varied
widely, and we cannot control or predict them. Despite the measures we plan to
take to lessen the impact of interest rate fluctuations, large moves in interest
rates may decrease or eliminate our profitability.
Liquidity refers to our ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. We will manage our liquidity by actively monitoring the bank's
sources and uses of funds to meet cash flow requirements and maximize profits.
If the bank is open before January 1, 2000, we expect to increase our
cash on hand because consumer uncertainty about the Year 2000 may cause a higher
than normal rate of deposit withdrawal.
CAPITAL ADEQUACY
Capital adequacy for banks and bank holding companies is regulated by
the Office of the Comptroller of the Currency, the Federal Reserve Board of
Governors, and the FDIC. The primary measures of capital adequacy are (i)
risk-based capital guidelines and (ii) the leverage ratio. Changes in these
guidelines or in our levels of capital can affect our ability to expand and pay
dividends. Please see "Capital Regulations" on page 30 for a more detailed
discussion.
YEAR 2000 ISSUES
Like most financial institutions, we will rely upon computers for the
daily conduct of our business and for information systems processing. There is
concern among industry experts that on January 1, 2000 some computers will be
unable to "read" the new year resulting in computer malfunctions.
We do not intend to open the bank until after January 1, 2000, at which
time we believe that most of the uncertainty surrounding the Year 2000 issue
should be clarified. In this event, our risks associated with computer
malfunctions should be greatly reduced, but we will still seek to ensure that
our computer systems and our major vendors' and clients' computer systems are in
compliance and functioning properly.
We will be generally relying on independent third parties for our
information processing needs. We have not entered into an agreement with a
software servicing company to process our daily account and transactional data;
to provide our teller, accounting, and internet computer systems; and to provide
our ATM switching and processing services, but we plan to prior to opening the
bank. We plan to request and review Year 2000 testing
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<PAGE> 18
protocols and results from our software servicing company and each of our
primary vendors. We will receive Year 2000 warranties from each vendor
confirming their Year 2000 compliance, although the remedies available under
such agreements generally include standard disclaimers of and limitations of
liability and specifically exclude special, incidental, indirect, and
consequential damages. We intend to retain a software servicing company which is
an established provider of bank processing and software services to existing
financial institutions. These existing financial institutions are in the process
of investigating their Year 2000 compliance in accordance with regulatory
mandates. Because of this scrutiny, we do not believe that the software
servicing company that we select will have any material Year 2000 issues related
to the products or services we will receive from them.
Our customers may also have Year 2000 issues. We may incur losses if
these issues affect our loan customer's ability to repay their loans or if they
suffer material harm to their businesses as a result. We intend to request
certification from each commercial borrower that their systems are Year 2000
compliant and that they have not been adversely affected by the year change.
Although these certifications will be helpful, it would be very difficult for us
to accurately assess the Year 2000 readiness of any borrower.
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<PAGE> 19
PROPOSED BUSINESS
GENERAL
We initiated activity to form First National Bank of Spartanburg in
April 1999 and incorporated First National Bancshares as a South Carolina
corporation in July 1999, to function as a holding company to own and control
all of the capital stock of First National Bank of Spartanburg. We initially
will engage in no business other than owning and managing the bank.
We have chosen this holding company structure because we believe it
will provide flexibility that would not otherwise be available. Subject to
Federal Reserve Board debt guidelines, the holding company structure can assist
the bank in maintaining its required capital ratios by borrowing money and
contributing the proceeds to the bank as primary capital. Additionally, a
holding company may engage in certain non-banking activities that the Federal
Reserve Board has deemed to be closely related to banking. Although we do not
presently intend to engage in other activities, we will be able to do so with a
proper notice or filing to the Federal Reserve if we believe that there is a
need for these services in our market area and that the activities could be
profitable.
We filed an application with the Office of the Comptroller of the
Currency on July 26, 1999, to organize the bank as a national bank under the
laws of the United States. We have also filed an application with the FDIC for
deposit insurance. Upon preliminary approval from the Office of the Comptroller
of the Currency and the FDIC, we will file an application with the Board of
Governors of the Federal Reserve System for approval to become a bank holding
company. Subject to receiving regulatory approval from these agencies, we plan
to open the bank in the first or second quarter of 2000, and will engage in a
general commercial and consumer banking business as described below. Final
approvals will depend on compliance with regulatory requirements, including our
capitalization of the bank with at least $11,000,000 from the proceeds of this
offering.
MARKETING OPPORTUNITIES
SERVICE AREA. Our primary service area will consist of Spartanburg
County, South Carolina, with a focus on the ten mile radius of our main office
and our initial branch office. Our main office will be located in downtown
Spartanburg and will provide excellent visibility for the bank. We will
simultaneously open a branch on the west side of Spartanburg, the fastest
growing area of the county. Our anticipated expansion plans include opening two
additional branches strategically located within our service area in the third
and fifth years of operation. These branches will extend the market reach of our
bank, and they will increase our personal service delivery capabilities to all
of our customers. We plan to take advantage of existing contacts and
relationships with individuals and companies in this area to more effectively
market the services of the bank.
ECONOMIC AND DEMOGRAPHIC FACTORS. Spartanburg County is located in the
northwest portion of South Carolina along the I-85 corridor between Atlanta,
Georgia and Charlotte, North Carolina. The county is a business and high
technology manufacturing center. Major employers in the metropolitan area
include; BMW, Springs Industries, Michelin Tire Company, Advantica, Milliken &
Company, and Spartanburg Regional Medical Center. Spartanburg's strategic
location and skilled labor force have helped it attract major international
manufacturing companies. BMW recently located its North American manufacturing
facility to the county employing almost 2,000 workers. Successes like this have
resulted in Spartanburg County having the highest per capita international
investment of any area in the United States in 1995. Spartanburg County had over
$884 million in business and industrial capital investment in 1998. In November
1998, the unemployment rate in the area was 3.1%. This growth in the
manufacturing base is complemented by Spartanburg County's population growth
which is expected to increase from 247,000 in 1998 to 282,000 in 2010.
Ultimately, the success of the bank will depend on the economy of the community
and an economic downturn would hurt our business. We believe that the
demographic factors in Spartanburg make it a desirable market in which to form
our bank.
COMPETITION. The banking business is highly competitive. The bank will
compete as a financial intermediary with other commercial banks, savings and
loan associations, credit unions, finance companies, and money market mutual
funds operating in the Spartanburg County area and elsewhere. In 1998, there
were 75
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<PAGE> 20
banking offices, representing 18 financial institutions, operating in
Spartanburg County and holding over $2.1 billion in deposits. Many of these
competitors are well established in the Spartanburg County area. Most of them
have substantially greater resources and lending limits than our bank will have,
and many of these competitors offer services, including extensive and
established branch networks and trust services, that we either do not expect to
provide or will not provide initially. Our competitors include large financial
institutions like Regions Bank, Bank of America, BB&T, American Federal Bank,
and Wachovia, super-community banks like Palmetto Bank, community banks like
First South Bank and Carolina Southern Bank, and thrifts like First Federal
Bank. We believe that the opportunity created by recent mergers, our management
team, and the economic and demographic dynamics of our service area combined
with our business strategy will allow us to gain a meaningful share of the
area's deposits.
BUSINESS STRATEGY
MANAGEMENT PHILOSOPHY. First National Bank of Spartanburg will position
itself as a locally-owned and operated bank organized to serve consumers and
small-to mid-size businesses and professional concerns. Because there are few
locally owned banks left in Spartanburg, we believe we can offer a unique
banking alternative for the market by offering a higher level of customer
service and a management team more focused on the needs of the community than
most of our competitors. We believe that this approach will be enthusiastically
supported by the community.
OPERATING STRATEGY. In order to achieve the level of prompt, responsive
service that we believe will be necessary to attract customers and to develop
First National Bank of Spartanburg's image as a local bank with an individual
focus, we will employ the following operating strategies:
o EXPERIENCED SENIOR MANAGEMENT. We have retained Jerry Calvert
to lead the management team as the president and chief
executive officer for both First National Bancshares and First
National Bank of Spartanburg. He is a native of Spartanburg
and has over 25 years of banking experience. Mr. Calvert
previously served as the regional manager of American Federal
Bank having responsibility for all banking activities in a
three county area, including Spartanburg County, as well as
two branches in Greenville County. He left American Federal
Bank in March 1999 to organize First National Bank of
Spartanburg.
o OTHER EXECUTIVES. We are in the process of assembling a
management team with significant banking experience. We have
hired Kitty Payne as our proposed chief financial officer. She
has significant experience working with community banks over
the past seven years in her capacity as a senior tax manager
with KPMG Peat Marwick. We expect these officers to be
individuals who reside in the Spartanburg area and have local
banking experience and a history of service to the community.
Because of the recent merger and acquisition activity in the
market and excitement surrounding the organization of our
bank, we believe there is an abundance of local experienced
banking executives who would be interested in joining our
community banking effort.
o COMMUNITY-ORIENTED BOARD OF DIRECTORS. Our management team
will operate under the direction of our board of directors. As
described in the Management section beginning on page 33, most
of our directors are long time residents and businessmen in
the Spartanburg area, with significant community involvement.
These directors are dedicated to the success of the bank, and
will play a key part in marketing the new bank in the
community.
o CONVENIENT BRANCH LOCATIONS. Within the first five years of
operation, we plan to open three branch offices located
strategically in our primary service area. We believe these
branches will expand our market presence and provide
convenience to our customers.
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<PAGE> 21
o LOCAL SERVICES AND DECISION MAKING. Clients will enjoy a
professional and consistent banking environment with local
decision-making and personal access to a banker that strives
to understand their financial needs. We will seek to be
identified as "the hometown bank" that "cares about its
customers." In order to accomplish this, we will attempt to
hire local bankers who are recognized for their community
involvement and successful banking background.
o CAPITALIZE ON NEED FOR COMMUNITY BANKS. The current trend of
consolidation in the banking industry has led to the recent
acquisition of Spartanburg National Bank by Regions Bank,
which left only one community bank in Spartanburg under $50
million in assets. According to the FDIC, in 1998 over 53% of
the total deposits were controlled by large financial
institutions headquartered outside of the area. Despite the
market-share presence of these banks, from 1995 through 1998
total annual deposit growth for five of the largest regional
institutions, Bank of America, BB&T, American Federal Bank,
First Union, and Wachovia was 2.1%, while total annual deposit
growth in Spartanburg County during the same period was 5%.
The two community banks and a local thrift in the area,
Carolina Southern Bank, First South Bank, and First Federal
Bank have experienced average annual growth rates of over 10%
during this same period. We believe that these statistics
reflect the desire of the residents of this area for a
community bank relationship, and that they will support our
new local bank as a result.
o FOCUS ON SMALL- TO MID-SIZED COMMERCIAL MARKET SECTOR.
Although size gives larger banks certain advantages in
competing for business from large corporations, including
higher lending limits and the ability to offer services in
other areas of South Carolina, we believe that there is a void
in the community banking market in the Spartanburg County
area, and that we can successfully fill this void. We will not
compete with large institutions for the primary banking
relationships of large corporations, but will compete for
niches in this business and for the consumer business of their
employees. We will also focus on small- to medium-sized
businesses and their employees. This includes retail, service,
wholesale distribution, manufacturing, and international
businesses with annual revenues of less than $15 million. We
believe that these organizations desire a consistent banking
relationship. We intend to attract these types of businesses
based on relationships and contacts which the bank's directors
and management have outside our core service area.
LENDING ACTIVITIES
GENERAL. We intend to emphasize a range of lending services, including
real estate, commercial, and equity-line and consumer loans to individuals,
small- to medium-sized businesses with annual revenue of less than $15 million,
and professional concerns that are located in or conduct a substantial portion
of their business in the bank's primary market area. We will compete for these
loans with competitors who are well established in the Spartanburg County area
and have greater resources and lending limits. As a result, we may have to
charge lower interest rates to attract borrowers.
The well established banks in the Spartanburg County area will make
proportionately more loans to medium- to large-sized businesses than we will.
Many of the bank's anticipated commercial loans will likely be made to small- to
medium-sized businesses which may be less able to withstand competitive,
economic, and financial conditions than larger borrowers.
LOAN APPROVAL AND REVIEW. The bank's loan approval policies will
provide for various levels of officer lending authority. When the amount of
aggregate loans to a single borrower exceeds that individual officer's lending
authority, the loan request will be considered and approved by an officer with a
higher lending limit or the board of directors' loan committee. The bank will
not make any loans to any director, officer, or employee of the bank unless the
loan is approved by the board of directors of the bank and is made on terms not
more favorable to the person than would be available to a person not affiliated
with the bank. The bank currently intends to adhere to Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation guidelines in its
mortgage loan review process, but may choose to alter this policy in the future.
The bank expects to sell residential mortgage loans that it originates on the
secondary market.
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LOAN DISTRIBUTION. We estimate that our initial percentage distribution
of our loans for the first year will be as follows:
Real Estate 50%
Commercial Loans 24%
Equity Line and Consumer Loans 20%
Residential Mortgage Loans 6%
------
Total 100%
======
These are estimates only. Our actual deposit and loan distribution will depend
on our customers and vary initially and over time.
ALLOWANCE FOR LOAN LOSSES. We will maintain an allowance for loan
losses, which we will establish through a provision for loan losses charged
against income. We will charge loans against this allowance when we believe that
the collectibility of the principle is unlikely. The allowance will be an
estimated amount that we believe will be adequate to absorb losses inherent in
the loan portfolio based on evaluations of its collectibility. We anticipate
that initially our allowance for loan losses will equal approximately 1% of the
average outstanding balance of our loans. Over time, we will base the loan loss
reserves on our evaluation of factors including; changes in the nature and
volume of the loan portfolio, overall portfolio quality, specific problem loans
and commitments, and current anticipated economic conditions that may affect the
borrower's ability to pay.
LENDING LIMITS. The bank's lending activities will be subject to a
variety of lending limits imposed by federal law. In general, the bank will be
subject to a legal limit on loans to a single borrower equal to 15% of the
bank's capital and unimpaired surplus. Different limits may apply in certain
circumstances based on the type of loan or the nature of the borrower, including
the borrower's relationship to the bank. These limits will increase or decrease
as the bank's capital increases or decreases. The bank will initially have a
self-imposed loan limit of $1,270,000, which represents approximately 80% of our
legal lending limit of $1,590,000. Unless the bank is able to sell
participations in its loans to other financial institutions, the bank will not
be able to meet all of the lending needs of loan customers requiring aggregate
extensions of credit above these limits.
CREDIT RISK. The principal credit risk associated with each category of
loans is the creditworthiness of the borrower. Borrower creditworthiness is
affected by general economic conditions and the strength of the manufacturing,
services, and retail market segments. General economic factors affecting a
borrower's ability to repay include interest, inflation, and employment rates
and the strength of local and national economy, as well as other factors
affecting a borrower's customers, suppliers, and employees.
REAL ESTATE LOANS. We expect that loans secured by first or second
mortgages on real estate will make up 50% of the bank's loan portfolio. These
loans will generally fall into one of two categories: commercial real estate
loans or construction and development loans. We also expect to make residential
real estate loans secured by first or second mortgages on real estate that will
make up 6% of the bank's loan portfolio. Each of these categories is discussed
in more detail below, including their specific risks. Interest rates for all
categories may be fixed or adjustable, and will more likely be fixed for
shorter-term loans. The bank will generally charge an origination fee for each
loan.
Real estate loans are subject to the same general risks as other loans.
They are particularly sensitive to fluctuations in the value of real estate,
which is generally the underlying security for real estate loans. On first and
second mortgage loans we would typically not advance more than 80% of the lesser
of the cost or appraised value of the property. We will require a valid mortgage
lien on all real property loans along with a title lien policy which insures the
validity and priority of the lien. We will also require borrowers to obtain
hazard insurance policies and flood insurance if applicable.
We will have the ability to originate some real estate loans for sale
into the secondary market. We can limit our interest rate and credit risk on
these loans by locking the interest rate for each loan with the secondary
investor and receiving the investor's underwriting approval prior to originating
the loan.
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o COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans
will generally have terms of five years or less, although
payments may be structured on a longer amortization basis. We
will evaluate each borrower on an individual basis and attempt
to determine its business risks and credit profile. We will
attempt to reduce credit risk in the commercial real estate
portfolio by emphasizing loans on owner-occupied office and
retail buildings where the loan-to-value ratio, established by
independent appraisals, does not exceed 80%. We will also
generally require that debtor cash flow exceed 115% of monthly
debt service obligations. We will typically review all of the
personal financial statements of the principal owners and
require their personal guarantees. These reviews generally
reveal secondary sources of payment and liquidity to support a
loan request.
o CONSTRUCTION AND DEVELOPMENT REAL ESTATE LOANS. We will offer
adjustable and fixed rate residential and commercial
construction loans to builders and developers and to consumers
who wish to build their own home. The term of construction and
development loans will generally be limited to eighteen
months, although payments may be structured on a longer
amortization basis. Most loans will mature and require payment
in full upon the sale of the property. Construction and
development loans generally carry a higher degree of risk than
long term financing of existing properties. Repayment depends
on the ultimate completion of the project and usually on the
sale of the property. Specific risks include:
o cost overruns;
o mismanaged construction;
o inferior or improper construction techniques;
o economic changes or downturns during construction;
o a downturn in the real estate market;
o rising interest rates which may prevent sale of the
property; and
o failure to sell completed projects in a timely
manner.
We will attempt to reduce risk by obtaining personal
guarantees where possible, and by keeping the loan-to-value
ratio of the completed project below specified percentages. We
may also reduce risk by selling participations in larger loans
to other institutions when possible.
o RESIDENTIAL REAL ESTATE LOANS. These loans will generally have
longer terms up to 30 years. We will offer fixed and
adjustable rate mortgages, and we intend to sell some or all
of the residential real estate loans that we generate in the
secondary market. By selling these loans in the secondary
market, we can significantly reduce our exposure to credit
risk because the loans will be underwritten through a third
party agent without any recourse against the bank.
COMMERCIAL LOANS. The bank will make loans for commercial purposes in
various lines of businesses. Equipment loans will typically be made for a term
of five years or less at fixed or variable rates, with the loan fully amortized
over the term and secured by the financed equipment and with a loan-to-value
ratio of 80% or less. We will focus our efforts on commercial loans of less than
$500,000. Working capital loans will typically have terms not exceeding one year
and will usually be secured by accounts receivable, inventory, or personal
guarantees of the principals of the business. For loans secured by accounts
receivable or inventory, principal will typically be repaid as the assets
securing the loan are converted into cash, and in other cases principal will
typically be due at maturity. Trade letters of credit, standby letters of
credit, and foreign exchange will be handled through a correspondent bank as
agent for the bank.
We expect to also offer small business loans utilizing government
enhancements such as the Small Business Administration's 7(a) program and SBA's
504 programs, and Appalachian Development Council. These loans will typically be
partially guaranteed by the government which may help to reduce the bank's risk.
Government guarantees of SBA loans will not exceed 80% of the loan value, and
will generally be less.
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CONSUMER LOANS. The bank will make a variety of loans to individuals
for personal and household purposes, including secured and unsecured installment
loans and revolving lines of credit such as credit cards. Installment loans
typically will carry balances of less than $50,000 and be amortized over periods
up to 60 months. Consumer loans may be offered on a single maturity basis where
a specific source of repayment is available. Revolving loan products will
typically require monthly payments of interest and a portion of the principal.
Consumer loans are generally considered to have greater risk than first or
second mortgages on real estate.
We will also offer home equity loans. Our underwriting criteria for
and the risks associated with home equity loans and lines of credit will
generally be the same as those for first mortgage loans. Home equity lines of
credit will typically have terms of 15 years or less, will typically carry
balances less than $125,000, and may extend up to 100% of the available equity
of each property.
DEPOSIT SERVICES
We intend to offer a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, commercial accounts, savings accounts, and other time
deposits of various types, ranging from daily money market accounts to
longer-term certificates of deposit. The transaction accounts and time
certificates will be tailored to our principal market area at rates competitive
to those offered in the Spartanburg County area. In addition, we intend to offer
certain retirement account services, including IRAs. We intend to solicit these
accounts from individuals, businesses, and other organizations.
DEPOSIT DISTRIBUTION. We estimate that our initial percentage
distribution of our deposits for the first year will be as follows:
Demand Deposit 15%
Savings & Money Market 28%
Time and Savings Deposits 7%
CD's under $100,000 36%
CD's over $100,000 14%
------
Total 100%
======
OTHER BANKING SERVICES
We anticipate that the bank will offer other bank services including
cash management services such as sweep accounts for commercial businesses. In
addition, lines of credit, 24-hour telephone banking and PC/internet delivery
are being considered for development. We will offer safe deposit boxes, direct
deposit of payroll and social security checks, U.S. Savings Bonds, travelers
checks, and automatic drafts for various accounts. We plan for the bank to
become associated with the Honor and Cirrus ATM networks that may be used by the
bank's customers throughout the country. We believe that by being associated
with a shared network of ATMs, we will be better able to serve our clients and
will be able to attract clients who are accustomed to the convenience of using
ATMs, although we do not believe that maintaining this association will be
critical to our success. We intend to begin offering these services shortly
after opening the bank. We also plan to offer a debit card and VISA credit card
services through a correspondent bank as an agent for the bank. We do not expect
the bank to exercise trust powers during its initial years of operation.
MARKET SHARE
In 1998, deposits in Spartanburg County exceeded $2.1 billion. The
average annual growth rate in deposits in Spartanburg County over the last five
years was 5.0%. Based on a growth rate of 4%, the deposits in Spartanburg County
will grow to approximately $2.73 billion by 2004. Our plan over the next five
years is to reach a 5.5% market share with deposits in excess of $150 million.
Of course, there can be no assurances that we will accomplish these objectives.
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EMPLOYEES
We anticipate that, upon commencement of operations, the bank will have
approximately 22 full time employees and one part time employee operating out of
the bank's permanent facilities. First National Bancshares, as the holding
company for the bank, will not have any employees other than its officers.
LEGAL PROCEEDINGS
Neither First National Bancshares, First National Bank of Spartanburg,
nor any of their properties are subject to any material legal proceedings.
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SUPERVISION AND REGULATION
Both First National Bancshares and First National Bank of Spartanburg
are subject to extensive state and federal banking laws and regulations which
impose specific requirements or restrictions on and provide for general
regulatory oversight of virtually all aspects of 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 Institution Report Recovery and Enforcement Act in 1989 and
following with the FDIC Improvement Act in 1991, numerous additional regulatory
requirements have been placed on the banking industry in the past several years,
and additional changes have been proposed. On November 4, 1999, the U.S. Senate
and House of Representatives each passed the Gramm-Leach-Bliley Act, previously
known as the Financial Services Modernization Act of 1999. This Act is expected
to be signed into law by President Clinton in early November 1999. Among other
things, the Gramm-Leach-Bliley Act repeals the restrictions on banks affiliating
with securities firms contained in sections 20 and 32 of the Glass-Steagall Act.
This Act also creates a new "financial holding company" under the Bank Holding
Company Act, which will permit 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. This Act also authorizes activities that are
"complementary" to financial activities. The Gramm-Leach-Bliley Act is intended
to grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this Act may
have the result of increasing the amount of competition that First National
Bancshares faces from larger institutions and other types of companies. In fact,
it is not possible to predict the full effect that the Gramm-Leach-Bliley Act
will have on the First National Bancshares. Our operations may be also affected
by other 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 in the future on our business and
earnings.
FIRST NATIONAL BANCSHARES
Because it will own the outstanding capital stock of the bank, First
National Bancshares will be a bank holding company under the federal Bank
Holding Company Act of 1956 and the South Carolina Banking and Branching
Efficiency Act. Subject to the enactment of the Gramm-Leach-Bliley Act, our
activities will also be governed by the Glass-Steagall Act of 1933.
THE BANK HOLDING COMPANY ACT. Under the Bank Holding Company Act, First
National Bancshares will be subject to periodic examination by the Federal
Reserve and required to file periodic reports of its operations and any
additional information that the Federal Reserve may require. Our activities at
the bank and holding company level will be limited to:
o Banking and managing or controlling banks;
o furnishing services to or performing services for its
subsidiaries; and
o engaging in other activities that the Federal Reserve
determines to be so closely related to banking and managing or
controlling banks as to be a proper incident thereto.
INVESTMENTS, CONTROL, AND ACTIVITIES. With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:
o acquiring substantially all the assets of any bank;
o acquiring direct or indirect ownership or control of any
voting shares of any bank if after the acquisition it would
own or control more than 5% of the voting shares of such bank
(unless it already owns or controls the majority of such
shares); or
o merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with regulations
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 the 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 First National Bancshares 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. We will register our common stock under the Securities Exchange Act
of 1934. The regulations provide a procedure for challenge of the rebuttable
control presumption.
Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, 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
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activities that the Federal Reserve Board has determined by regulation to be
proper incidents to the business of a bank holding company include:
o making or servicing loans and certain types of leases;
o engaging in certain insurance and discount brokerage
activities;
o performing certain data processing services;
o acting in certain circumstances as a fiduciary or investment
or financial adviser;
o owning savings associations; and
o making investments in certain corporations or projects
designed primarily to promote community welfare.
The Federal Reserve Board imposes certain capital requirements on First
National Bancshares under the Bank Holding Company Act, including a minimum
leverage ratio and a minimum ratio of "qualifying" capital to risk-weighted
assets. These requirements are described below under "Capital Regulations."
Subject to its capital requirements and certain other restrictions, First
National Bancshares is able to borrow money to make a capital contribution to
the bank, and these loans may be repaid from dividends paid from the bank to
First National Bancshares. Our ability to pay dividends will be subject to
regulatory restrictions as described below in "The Bank - Dividends." First
National Bancshares is 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, First National Bancshares will be expected to act as a source of
financial strength to the bank and to commit resources to support the bank in
circumstances in which First National Bancshares might not otherwise do so.
Under the Bank Holding Company Act, the Federal Reserve Board may require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve
Board's determination that such activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository institution
of the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
GLASS-STEAGALL ACT. Subject to the enactment of the Gramm-Leach-Bliley
Act, we will also be restricted by the provisions of the Glass-Steagall Act,
which prohibits First National Bancshares from owning subsidiaries that are
engaged principally in the issue, flotation, underwriting, public sale, or
distribution of securities. The interpretation, scope, and application of the
provisions of the Glass-Steagall Act currently are being considered and reviewed
by regulators and legislators, and the interpretation and application of those
provisions have been challenged in the federal courts.
SOUTH CAROLINA STATE REGULATION. As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. Prior to acquiring the capital stock of a national bank,
we are not required to obtain the approval of the Board, but we must notify them
at least 15 days prior to doing so. We must receive the Board's approval prior
to engaging in the acquisition of banking or nonbanking institutions or assets,
and we must file periodic reports with respect to our financial condition and
operations, management, and intercompany relationships between First National
Bancshares and its subsidiaries.
THE BANK
The bank will operate as a national banking association incorporated
under the laws of the United States and subject to examination by the Office of
the Comptroller of the Currency. Deposits in the bank will be insured by the
FDIC up to a maximum amount, which is generally $100,000 per depositor subject
to aggregation rules.
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The Office of the Comptroller of the Currency and the FDIC will
regulate or monitor virtually all areas of the bank's operations, including:
o security devices and procedures;
o adequacy of capitalization and loss reserves;
o loans;
o investments;
o borrowings;
o deposits;
o mergers;
o issuances of securities;
o payment of dividends;
o interest rates payable on deposits;
o interest rates or fees chargeable on loans;
o establishment of branches;
o corporate reorganizations;
o maintenance of books and records; and
o adequacy of staff training to carry on safe lending and
deposit gathering practices.
The Office of the Comptroller of the Currency requires 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 will also require the bank to
prepare quarterly 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:
o internal controls;
o information systems and audit systems;
o loan documentation;
o credit underwriting;
o interest rate risk exposure; and
o asset quality.
National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Office of the Comptroller of the Currency or the
Federal Reserve Board to be troubled institutions must give the Office of the
Comptroller of the Currency or the Federal Reserve Board 30 days prior notice of
the appointment of any senior executive officer or director. Within the 30 day
period, the Office of the Comptroller of the Currency or the Federal Reserve
Board, as the case may be, may approve or disapprove any such appointment.
DEPOSIT INSURANCE. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund and Savings Association Insurance Fund are
maintained for commercial banks and savings associations with insurance premiums
from the industry used to
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offset losses from insurance payouts when banks and thrifts fail. In 1993, the
FDIC adopted a rule which establishes a risk-based deposit insurance premium
system for all insured depository institutions. Under this system, until
mid-1995 depository institutions paid to Bank Insurance Fund or Savings
Association Insurance Fund from $0.23 to $0.31 per $100 of insured deposits
depending on its capital levels and risk profile, as determined by its primary
federal regulator on a semiannual basis. Once the Bank Insurance Fund reached
its legally mandated reserve ratio in mid-1995, the FDIC lowered premiums for
well-capitalized banks, eventually eliminating premiums for well-capitalized
banks, with a minimum semiannual assessment of $1,000. However, in 1996 Congress
enacted the Deposit Insurance Funds Act of 1996, which eliminated even this
minimum assessment. It also separated the Financial Corporation assessment to
service the interest on its bond obligations. The amount assessed on individual
institutions, including the bank, by Financial Corporation assessment is in
addition to the amount paid for deposit insurance according to the risk-related
assessment rate schedule. Increases in deposit insurance premiums or changes in
risk classification will increase the bank's cost of funds, and we may not be
able to pass these costs on to our customers.
TRANSACTIONS WITH AFFILIATES AND INSIDERS. The bank will be 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 will also be 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 will be subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
DIVIDENDS. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the Office of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
BRANCHING. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current South Carolina law, the bank may open
branch offices throughout South Carolina with the prior approval of the Office
of the Comptroller of the Currency. In addition, with prior regulatory approval,
the bank will be able to acquire existing banking operations in South Carolina.
Furthermore, federal legislation has recently been passed which permits
interstate branching. The new law permits out-of-state acquisitions by bank
holding companies, interstate branching by banks if allowed by state law, and
interstate merging by banks.
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 the bank.
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OTHER REGULATIONS. Interest and other charges collected or contracted
for by the bank are subject to state usury laws and federal laws concerning
interest rates. The bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
o the federal Truth-In-Lending Act, governing disclosures of
credit terms to consumer borrowers;
o the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution
is fulfilling its obligation to help meet the housing needs of
the community it serves;
o the Equal Credit Opportunity Act, prohibiting discrimination
on the basis of race, creed or other prohibited factors in
extending credit;
o the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
o the Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and
o the rules and regulations of the various federal agencies
charged with the responsibility of implementing such federal
laws.
The deposit operations of the bank also are subject to:
o the Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative
subpoenas of financial records; and
o the Electronic Funds Transfer Act and Regulation E issued by
the Federal Reserve Board to implement that act, which governs
automatic deposits to and withdrawals from deposit accounts
and customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking
services.
CAPITAL REGULATIONS. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not
received any notice indicating that either First National Bancshares or First
National Bank of Spartanburg is subject to higher capital requirements. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. Tier 1 capital includes common shareholders'
equity, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt
and intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
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guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
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. Initially, we
will qualify as "well capitalized."
Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:
o submit a capital restoration plan;
o raise additional capital;
o restrict their growth, deposit interest rates, and other
activities;
o improve their management;
o eliminate management fees; or
o divest themselves of all or a part of their operations.
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.
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
the holding company may be necessary, which could impact our ability to pay
dividends. Our capital levels will initially be more than 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.
The FDIC Improvement Act requires the federal banking regulators to
revise the risk-based capital standards to provide for explicit consideration of
interest-rate risk, concentration of credit risk, and the risks of untraditional
activities. We are uncertain what effect these regulations would have.
Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a 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 the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
ENFORCEMENT POWERS. The Financial Institution Reform Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties." Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institution's affairs. These practices can include the failure of an institution
to timely file required reports or the filing of false or misleading information
or the submission of inaccurate reports. Civil penalties may be as high as
$1,000,000 a day for such
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<PAGE> 32
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.
RECENT LEGISLATIVE DEVELOPMENTS. From time to time, various bills are
introduced in the United States Congress with respect to the regulation of
financial institutions. Recently, some of these proposals, including the
Gramm-Leach-Bliley Act, which is described under "Supervision and Regulation" on
page 26, if adopted, could significantly change the regulation of banks and the
financial services industry. We cannot predict whether any of these proposals
will be adopted or, if adopted, what effect these would have.
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.
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MANAGEMENT
GENERAL
The following table sets forth the number and percentage of outstanding
shares of common stock we expect to be beneficially owned by the organizers and
executive officers after the completion of this offering. All of our organizers
will serve as directors. The addresses of our organizers are the same as the
address of the bank. Prior to the offering, Jerry Calvert purchased ten shares
of common stock for $10.00 per share. We will redeem this stock after the
offering. This table includes shares based on the "beneficial ownership"
concepts as defined by the SEC. Beneficial ownership includes spouses, minor
children, and other relatives residing in the same household, and trusts,
partnerships, corporations or deferred compensation plans which are affiliated
with the principal. This table does not reflect warrants that will be granted to
each organizer to purchase two shares of common stock for every three shares of
common stock purchased by the organizers during the offering because these
warrants will not be exercisable within 60 days of the date of this prospectus.
Kitty B. Payne is not an organizer of the bank, and she is not eligible to
receive warrants.
<TABLE>
<CAPTION>
SHARES ANTICIPATED TO BE OWNED
FOLLOWING THE OFFERING
NAME OF BENEFICIAL OWNER ------------------------------
DIRECTORS AND EXECUTIVE OFFICERS Number Percent
-------------------------------- ------------- ------------
<S> <C> <C>
C. Dan Adams 50,000 4.17%
Mellnee G. Buchheit 30,000 2.50%
Jerry L. Calvert 30,000 2.50%
Martha C. Chapman 20,000 1.67%
W. Russel Floyd, Jr 30,000 2.50%
Dr. C. Tyrone Gilmore, Sr 10,000 0.83%
Dr. Gaines W. Hammond, Jr 60,000 5.00%
Benjamin R. Hines 35,000 2.92%
William A. Hudson 60,000 5.00%
Kitty B. Payne 1,500 0.13%
Norman F. Pulliam 60,000 5.00%
Peter E. Weisman 25,000 2.08%
Donald B. Wildman 20,000 1.67%
Coleman L. Young, Jr 25,000 2.08%
All directors and executive officers as a 456,500 38.04%
group (14 persons)
</TABLE>
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<PAGE> 34
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following sets forth certain information regarding First National
Bancshares, Inc.'s executive officers and directors as of the date of this
Prospectus. The Company's Articles of Incorporation provide for a classified
Board of Directors, so that, as nearly as possible, one-third of the directors
are elected each year to serve three-year terms. The terms of office of the
classes of directors expire as follows: Class I at the 2000 annual meeting of
shareholders, Class II at the 2001 annual meeting of shareholders, and Class III
at the 2002 annual meeting of shareholders. Executive officers of the Company
serve at the discretion of the Company's Board of Directors.
NAME AGE POSITION
- ---- --- --------
C. Dan Adams 39 Director
Mellnee G. Buchheit 51 Director
Jerry L. Calvert 51 Director, President, and
Chief Executive Officer
Martha Cloud Chapman 76 Director
W. Russel Floyd, Jr 49 Director
C. Tyrone Gilmore, Sr 56 Director
Gaines W. Hammond, Jr., M.D 50 Director
Benjamin R. Hines 43 Director
William A. Hudson 64 Director
Kitty B. Payne 29 Chief Financial Officer (proposed)
Norman F. Pulliam 56 Director, Chairman of the Board
Peter E. Weisman 62 Director
Donald B. Wildman 50 Director
Coleman L. Young, Jr 42 Director
C. DAN ADAMS, Class III director, has been the president and principal
owner of The Capital Corporation of America, Inc., a mortgage banking company
located in Spartanburg, since 1991. He is also president and owner of The
Capital Finance Group, Inc., a merger and acquisitions company located in
Spartanburg. From 1981 until 1991, he was an employee and vice president of C&S
National Bank. Mr. Adams maintains an active role in the business community with
ownership interests in several hotel, assisted living, and restaurant
businesses. Mr. Adams holds SEC Series 7 and SEC Series 63 licenses from the
NASD and is a certified business intermediary. He graduated from the University
of South Carolina-Spartanburg in 1983 with a degree in business administration.
He is a graduate of The Banking School of the South (Louisiana State University,
1989) and is a Certified Commercial Investment member. He is an active member of
the First Baptist Church of Spartanburg.
MELLNEE G. BUCHHEIT, Class I director, has been the president of
Buchheit News Management, Inc., a firm specializing in media investments, since
1993. From 1980 until 1993, Ms. Buchheit worked in the public relations
department for Mid-South Management Company, Inc., a media investment company.
She also serves as a director for Wayne Printing Co., Inc. and Hometown News,
Inc. Ms. Buchheit graduated from Winthrop University with a degree in education
in 1969. Ms Buchheit currently serves on the board of trustees for Spartanburg
Day School, Spartanburg Regional Medical Foundation, and Spartanburg Methodist
College. Ms. Buchheit is presently a member of Westminster Presbyterian Church,
the Lady Slipper Garden Club, and the Junior League of Spartanburg (sustainer).
JERRY L. CALVERT, Class I director, is the proposed chief executive
officer and president of First National Bancshares, Inc. and the First National
Bank of Spartanburg (proposed). He has over 25 years of experience in the
financial services industry. Mr. Calvert was the senior vice president and
regional manager for American Federal Bank from 1984 until March 1999, when he
resigned to help organize the First National Bank of Spartanburg. From 1977
until 1984, he was vice president and city executive for the Southern Bank &
Trust,
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<PAGE> 35
located in Gaffney, South Carolina. From 1974 until 1977, Mr. Calvert was a loan
officer with First National Bank of South Carolina. Mr. Calvert graduated from
Wofford College in 1974 with a bachelor of arts degree in economics. He is also
a graduate of The Bankers School of the South at Louisiana State University and
the National Commercial Lending School at the University of Oklahoma. Mr.
Calvert currently serves on the board of directors of the Spartanburg Area
Chamber of Commerce, the Cities and Schools of Spartanburg, the Spartanburg
Rotary Club, and the Spartanburg Urban League, and he serves on the board of
trustees for Spartanburg Methodist College. He was a former chairman of the
board of the Cities and Schools and a former director and chairman of the board
of the Big Brothers/Sisters of Spartanburg. He is a retired Lt. Colonel in the
U.S. Marine Reserves and a Vietnam veteran. Mr. Calvert was Rotarian of the Year
in 1998-1999, and he has been elected chairman of the board of the Spartanburg
Area Chamber of Commerce for the year 2000.
MARTHA CLOUD CHAPMAN, Class III director, graduated from the University
of North Carolina - Greensboro in 1942 with a degree in art. Ms. Chapman
previously was the first female board member of the Spartanburg County
Foundation, the South Carolina Development Board, and the South Carolina Mining
Council and the chairman of Governor Jim Edward's Inaugural Ball. She was also a
past board member of the Spartanburg Music Foundation, the South Carolina
Election Commission, South Carolina Health Coordinating Commission, Palmetto
Conservation Foundation, and Spartanburg Methodist College and a past member of
Clemson University's board of visitors. Ms. Chapman currently serves on the
board of directors for Queens College in Charlotte, North Carolina, the South
Carolina School Deaf & Blind Foundation, the Charles Lea Foundation, AWARE
(adult literacy), Mobile Meals, Ballet Spartanburg, and Converse College Alumnae
Associates. Ms. Chapman is currently an elder of the First Presbyterian Church,
moderator elect of the Presbyterian Women, a sustainer of the Junior League of
Spartanburg, and a trustee of the YMCA foundation.
W. RUSSEL FLOYD, JR., Class I director, has been the president of W. R.
Floyd Services, Inc., a funeral home and cemetery operation located in
Spartanburg, since 1978, the president of Westwood Memorial Gardens, Inc., a
cemetery located in Spartanburg, and the vice president of Piedmont Crematory
since 1980. He also serves as the president of Business Communications, Inc., a
local provider of telephone services and equipment since 1984. Mr. Floyd
graduated form the University of North Carolina - Chapel Hill in 1972 with a
bachelor of science degree in business administration, and he received a
bachelor of arts degree in psychology from the University of North Carolina -
Charlotte in 1977. He served on the advisory board for Wachovia of Spartanburg
from 1994 until April 1999 and was past president of the Spartanburg Boy's Home
for two terms while serving on the board from 1986 until 1999. Mr. Floyd
currently serves on the board of deacons at First Presbyterian Church of
Spartanburg and the board of trustees for the Spartanburg YMCA. Mr. Floyd is
also a member of the Spartanburg Rotary Club.
DR. C. TYRONE GILMORE, SR., Class III director, is the superintendent
of Spartanburg County School District 7, where he has served in numerous
capacities since 1965 including, principal, assistant principal, teacher, and
athletics coach. He graduated from Livingstone College in 1965 with a bachelor
of arts degree. Dr. Gilmore earned his Master's degree in 1971 from Converse
College and received his Ed. S. in post graduate studies in 1976 from the
University of South Carolina - Spartanburg. Dr. Gilmore has been an active
member of many organizations, serving in various capacities, including advisory
board member of BB&T, chairman of the local United Way Board, member of the
Lander University Board of Trustees, chairman of the South Carolina State
Election Commission, Grand Basileus of the Omega Psi Phi Fraternity, and member
of the Mary Black Foundation Board of Trustees.
DR. GAINES W. HAMMOND, JR., Class II director, is a physician
practicing with Mary Black Health Systems, LLC. Prior to joining Mary Black, Dr.
Hammond owned his own practice, Hammond and Bass, P.A., from 1980 until June
1996. He has an ownership interest in several lithotripsy partnerships, as well
as a publishing company and healthcare organization. Dr. Hammond graduated from
Washington and Lee University in 1971 with a bachelor of science degree, and
from the Medical University of South Carolina in 1974. He has served on the SCMA
legislative committee, the AMI medical advisory board, and several committees
for Doctors Memorial Hospital and Spartanburg Regional Medical Center. He
currently serves as chairman of Mary Black Physicians Group of Mary Black
Hospital and is a member of First Presbyterian Church of Spartanburg.
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<PAGE> 36
BENJAMIN R. HINES, Class II director, has been president of
Spencer/Hines Properties, a commercial real estate firm located in Spartanburg
since 1986. He has been involved in numerous real estate brokerage and
development projects including, retail, office, and industrial facilities. Mr.
Hines was also President of Palmetto Golf, Inc., a golf course management
company, and currently serves as a partner in Advance Business Funding, LLC., a
local company specializing in Factoring. He also holds South Carolina and North
Carolina real estate licenses, and he has been licensed as a Certified Financial
Planner since 1989. Mr. Hines graduated from Wofford College in 1978 with a
Bachelor's Degree in Economics. He has served on the Eastern Regional Advisory
Board of American Federal Bank from 1994 until April 1999. In addition, he has
acted as a Board Member for the Pine Street YMCA and the Mary Black Hospital
Advisory Committee and was Chairman of the Board for Child Evangelism
Fellowship, a non-profit Christian Ministry.
WILLIAM A. HUDSON, Class I director, is vice chairman of Diversco,
Inc., an outsourcing and contract services business located in Spartanburg.
Since 1969, Mr. Hudson has held various positions with Diversco, including
chairman and chief executive officer. He graduated from Clemson University in
1957 with a bachelor of science degree in education. Mr. Hudson played
professional football for the San Diego Chargers, Boston Patriots, and Montreal
Alouettes from 1957 until 1963. Mr. Hudson remains an active member of the
business community maintaining an ownership interest in several real estate
entities. He served on the Wachovia Bank advisory board from 1995 until May
1999. Mr. Hudson is a member St. Paul United Methodist Church, S.C. Athletic
Hall of Fame, and the Clemson University Athletic Hall of Fame. He currently
serves on the board of directors for the Spartanburg Regional Medical Center
Heart Center.
KITTY B. PAYNE, CPA, is the proposed senior vice president and chief
financial officer of First National Bancshares, Inc. and First National Bank of
Spartanburg (proposed). Because we will be a new bank, we must obtain approval
from the Office of the Comptroller of the Currency for the appointment of all
executive officers, and we have recently requested approval for Ms. Payne. Ms.
Payne was most recently employed with KPMG Peat Marwick, LLP as a senior tax
manager from 1992 until November 1999 where she worked extensively with
community banks in the Carolinas. Ms. Payne received her bachelors degree in
financial management and accounting from Clemson University in 1992. She has
been active with the United Way of Greenville, South Carolina and Junior
Achievement of Greenville, South Carolina.
NORMAN F. PULLIAM, Class I director and chairman of the board, has been
the owner and president of Pulliam Investment Company, Inc., a real estate
development and property management company, since 1971. Mr. Pulliam holds a
real estate broker's license in South Carolina and North Carolina. He has
extensive real estate experience and has developed, owned, and managed several
office buildings, apartments, condominiums, retirement communities, assisted
living facilities, and commercial land developments. He graduated from Clemson
University in 1964 with a bachelor of science degree in industrial management,
and received his Masters of Business Administration from Harvard University in
1967. Mr. Pulliam has served as chairman of the South Carolina Manufactured
Housing Board, co-chairman of the Spartanburg Development Council, chairman of
the Piedmont Chapter of the American Red Cross, chairman of the Spartanburg
Convention and Visitors Bureau, president of the Spartanburg Boy's Home, and was
a member of Clemson University's board of visitors. He was also a director for
Morgan Bank & Trust Company of Spartanburg and the Spartanburg Area Chamber of
Commerce. Mr. Pulliam currently serves as chairman of the board of commissioners
for the South Carolina School for the Deaf and Blind, and trustee of the
Foundation for the Multihandicapped, Blind, and Deaf of South Carolina.
PETER E. WEISMAN, Class II director, is an owner and managing member of
Peter Weisman/Kinney Hill Associates, LLC, a real estate development company
established in 1989 and located in Spartanburg. Mr. Weisman has also been a
general partner of P & J Realty Co., a real estate development company located
in New York, New York, since 1969. He graduated from the University of
Pennsylvania in 1961 with a degree in architecture. Mr. Weisman is an AIA
licensed architect and an active member of the Society of 1921 Spartanburg
Regional Foundation.
DONALD B. WILDMAN, Class II director, is a managing partner of the law
firm of Johnson, Smith, Hibbard, and Wildman, LLP. Mr. Wildman has been a
transactions attorney with the firm since 1974. He maintains an active role in
the business community with ownership interests in several real estate
properties in the Spartanburg
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area. He graduated from Wofford College in 1971 with a bachelor of arts degree,
and received his juris doctor from the University of South Carolina School of
Law in 1974. Mr. Wildman is licensed as an attorney and title insurance agent in
South Carolina. He served on the local advisory board for NationsBank from 1991
until April 1999, currently is an active member of the Spartanburg County Home
Builders Association, the Spartanburg County Historical Association, and a
member and elder of Westminster Presbyterian Church of Spartanburg. Mr. Wildman
is currently chairman of the City of Spartanburg Board of Architectural Design
and Historical Review.
COLEMAN L. YOUNG, JR., Class III director, has been the president of
CLY, Inc., a dry cleaning business located in Spartanburg, since 1994. Mr. Young
also serves as property manager for Coleman Young Family Limited Partnership, a
real estate development company, and chairman of Upward Unlimited, a non-profit
ministry. Mr. Young graduated from Clemson University in 1979 with a bachelor of
science degree. Mr. Young served on the advisory board of First Union Bank in
Spartanburg from 1995 until May 1999 and is a former board member of the Better
Business Bureau of the Foothills. He is currently an active member of First
Baptist Church of Spartanburg.
EMPLOYMENT AGREEMENT
We have entered into an employment agreement with Jerry Calvert for a
three-year term, pursuant to which he will serve as the president, the chief
executive officer, and a director of First National Bancshares and First
National Bank of Spartanburg. Mr. Calvert will be paid an initial salary of
$99,500, plus his yearly medical insurance premium. When the bank opens for
business, his annual salary will increase to $110,000. The board of directors
may increase Mr. Calvert's salary at its discretion. He is entitled to receive a
bonus of $10,000 upon the opening of the bank and will be eligible to receive an
annual bonus of up to 5% of the net pre-tax income of the bank, if the bank
meets performance goals set by the board. He will be eligible to participate in
any management incentive program of the bank or any long-term equity incentive
program and will be eligible for grants of stock options and other awards under
these plans. Upon the closing of the offering, or as soon thereafter as an
appropriate stock option plan is adopted by the company, Mr. Calvert will be
granted options to purchase a number of shares of common stock equal to 5% of
the number of shares sold in this offering. These options will vest over a
five-year period and will have a term of ten years. Additionally, Mr. Calvert
will participate in the bank's retirement, welfare, and other benefit programs
and is entitled to a life insurance policy and an accident liability policy, and
reimbursement for automobile expenses, club dues, and travel and business
expenses.
Mr. Calvert's employment agreement also provides that following
termination of his employment and for a period of twelve months thereafter, he
may not (a) compete with the company, the bank, or any of its affiliates by,
directly or indirectly, forming, serving as an organizer, director or officer
of, or consultant to, or acquiring or maintaining more than 1% passive
investment in, a depository financial institution or holding company of a
depository financial institution, if the depository institution or holding
company has one or more offices or branches within radius of 30 miles from the
main office of the company or any branch office of the company, (b) solicit
major customers of the bank for the purpose of providing financial services, or
(c) solicit employees of the bank for employment.
If Mr. Calvert terminates his employment following a change in control
and (i) the termination is for a good reason as that term is defined in the
employment agreement, or (ii) the termination notice is delivered within a 90
day period beginning on the one year anniversary of the change in control, he
will be entitled to severance compensation of his then current monthly salary
for a period of 12 months, plus accrued bonus, and all outstanding options and
incentives shall vest immediately. If the company terminates Mr. Calvert's
employment and the termination is not for cause as that term is defined in the
employment agreement, then he will be entitled to severance compensation of his
then current monthly salary each month for a period of 24 months, plus accrued
bonus, and all outstanding options and incentives shall vest according to the
stock option plan in place at that time. In the event of Mr. Calvert's death,
his salary shall continue through the month, plus his accrued bonus, and all
outstanding options shall vest according to the stock option plan in place at
that time. In the event the company terminates Mr. Calvert's employment because
of a disability which continues for more than 180 days, he shall receive his
salary until his insurance payments begin, plus his accrued bonus through the
disability date, and all outstanding options shall vest according to the stock
option plan in place at that time. Finally, if the effort to
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<PAGE> 38
organize the bank is abandoned, then he will be entitled to severance
compensation of his then current monthly salary each month for a period of three
months.
DIRECTOR COMPENSATION
We do not intend to pay our directors fees until the bank is
profitable. However, we reserve the right to pay directors' fees.
STOCK OPTION PLAN
After the offering, we expect to adopt a stock option plan which will
permit First National Bancshares to grant options to its officers, directors,
and employees. We anticipate that we will initially authorize the issuance of a
number of shares under the stock option plan equal to 15% of the shares
outstanding after the offering, including options granted to Jerry Calvert
pursuant to our employment agreement with him. We do not intend to issue stock
options at less than the fair market value of the common stock on the date of
grant.
STOCK WARRANTS
The organizers have invested significant time and effort to form First
National Bancshares and First National Bank of Spartanburg, and they have
individually guaranteed a $500,000 line of credit to the bank to cover
organizational expenses. In recognition of the financial risk and efforts they
have undertaken in organizing the bank, each organizer will also receive, for no
additional consideration, a warrant to purchase two shares of common stock at a
purchase price of $10.00 per share for every three shares purchased by that
organizer in the offering. The warrants, which will be represented by separate
warrant agreements, will vest over a five year period beginning one year from
the date of the completion of the offering and will be exercisable in whole or
in part during the ten year period following that date. The warrants will not be
transferable, except for estate planning purposes, and the warrants and the
shares issued pursuant to the exercise of such warrants will be subject to
transferability restrictions applicable to affiliates of First National
Bancshares. For more information on these restrictions see "Shares Eligible for
Future Sale" on page 41. If the Office of the Comptroller of the Currency or the
FDIC issues a capital directive or other order requiring the bank to obtain
additional capital, the warrants will be forfeited if not immediately exercised.
The organizers plan to purchase approximately 455,000 shares of common
stock for a total investment of $4,550,000. As a result, the organizers will own
approximately 37.9% of the common stock outstanding upon completion of the
offering. If each organizer exercises his warrant in full, the organizers'
ownership of First National Bancshares will increase to 50.4% of the outstanding
common stock. Although they have not promised to do so, the organizers may
purchase additional shares in the offering, including up to 100% of the
offering. All shares purchased by the organizers will be for investment and not
intended for resale. Because purchases by the organizers may be substantial, you
should not assume that the sale of a specified offering amount indicates the
merits of this offering.
EXCULPATION AND INDEMNIFICATION
First National Bancshares's articles of incorporation contain a
provision which, subject to certain limited exceptions, limits the liability of
a director for any breach of duty as a director. There is no limitation of
liability for:
o a breach of duty involving appropriation of a business
opportunity;
o an act or omission which involves intentional misconduct or a
knowing violation of law;
o any transaction from which the director derives an improper
personal benefit; or
o as to any payments of a dividend or any other type of
distribution that is illegal under Section 33-8-330 of the
South Carolina Business Corporation Act of 1988.
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<PAGE> 39
In addition, if such act is amended to authorize further elimination or
limitation of the liability of director, then the liability of each director
shall be eliminated or limited to the fullest extent permitted by such
provisions, as so amended, without further action by the shareholders, unless
the law requires such action. The provision does not limit the right of the
company or its shareholders to seek injunctive or other equitable relief not
involving payments in the nature of monetary damages.
First National Bancshare's bylaws contain certain provisions which
provide that the company shall indemnify directors to the maximum extent
provided by South Carolina law. This protection is broader than the protection
expressly mandated in Sections 33-8-510 and 33-8-520 of the South Carolina
Business Corporation Act. These statutory sections provide that a company shall
indemnify a director or an officer only to the extent that he has been wholly
successful, on the merits or otherwise, in the defense of any action or
proceeding brought by reason of the fact that the person was a director or
officer. This requirement would include indemnifying directors against expenses,
including attorney's fees, actually and reasonably incurred in connection with
the matter. In addition to this mandatory indemnification right, our bylaws
provide additional mandatory protection that includes, but is not limited to,
situations where the director (a) conducted himself in good faith, (b)
reasonably believed that conduct in his official capacity with the corporation
was either in the corporation's best interest or was not opposed to the best
interest of the corporation; and (c) that he had no reasonable cause to believe
his conduct was unlawful.
Our board of directors also has the authority to extend to officers,
employees, and agents the same indemnification rights held by directors, subject
to all of the accompanying conditions and obligations. The board of directors
intends to extend indemnification rights to all of its executive officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
First National Bancshares pursuant to the foregoing provisions, or otherwise,
First National Bancshares has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
We expect to have banking and other transactions in the ordinary course
of business with the organizers, directors, and officers and their affiliates,
including members of their families or corporations, partnerships, or other
organizations in which such organizers, officers, or directors have a
controlling interest, on substantially the same terms, including price, or
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. These transactions are also restricted by
our regulatory agencies, including the Federal Reserve Board. For a discussion
of the Federal Reserve Board regulations, please see "Transactions with
Affiliates and Insiders" on page 29. These transactions are not expected to
involve more than the normal risk of collectibility or present other unfavorable
features. Loans to individual directors and officers must also comply with the
bank's lending policies, regulatory restrictions, and statutory lending limits,
and directors with a personal interest in any loan application will be excluded
from the consideration of such loan application. We intend for all of our
transactions with organizers or other affiliates to be on terms no less
favorable than could be obtained from an unaffiliated third party and to be
approved by a majority of our disinterested directors.
DESCRIPTION OF CAPITAL STOCK OF FIRST NATIONAL BANCSHARES
GENERAL
The authorized capital stock of First National Bancshares consists of
10,000,000 shares of common stock, par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share. The following summary
describes the material terms of First National Bancshares's capital stock.
Reference is made
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to the articles of incorporation of First National Bancshares which is filed as
an exhibit to the Registration Statement of which this prospectus forms a part,
for a detailed description of the provisions summarized below.
COMMON STOCK
Holders of shares of the common stock are entitled to receive such
dividends as may from time to time be declared by the board of directors out of
funds legally available for distribution. We do not plan to declare any
dividends in the immediate future. See "Dividend Policy" on page 15. Holders of
common stock are entitled to one vote per share on all matters on which the
holders of common stock are entitled to vote and do not have any cumulative
voting rights. Shareholders have no preemptive, conversion, redemption, or
sinking fund rights. In the event of a liquidation, dissolution, or winding-up
of the company, holders of common stock are entitled to share equally and
ratably in the assets of the company, if any, remaining after the payment of all
debts and liabilities of the company and the liquidation preference of any
outstanding preferred stock. The outstanding shares of common stock are, and the
shares of common stock offered by the company when issued will be, fully paid
and nonassessable. The rights, preferences and privileges of holders of common
stock are subject to any classes or series of preferred stock that the company
may issue in the future.
PREFERRED STOCK
First National Bancshares' articles of incorporation provide that the
board of directors is authorized, without further action by the holders of the
common stock, to provide for the issuance of shares of preferred stock in one or
more classes or series and to fix the designations, powers, preferences, and
relative, participating, optional and other rights, qualifications, limitations,
and restrictions, including the dividend rate, conversion rights, voting rights,
redemption price, and liquidation preference, and to fix the number of shares to
be included in any such classes or series. Any preferred stock so issued may
rank senior to the common stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding-up, or both. In addition, any
such shares of preferred stock may have class or series voting rights. Upon
completion of this offering, we will not have any shares of preferred stock
outstanding. Issuances of preferred stock, while providing the company with
flexibility in connection with general corporate purposes, may, among other
things, have an adverse effect on the rights of holders of common stock. For
example, the issuance of any preferred stock with voting or conversion rights
may adversely affect the voting power of the holders of common stock, and such
issuances could have the effect of decreasing the market price of the common
stock. We do not plan to issue any shares of preferred stock, and will not issue
preferred stock to organizers on terms more favorable than those on which we
issue preferred stock to shareholders other than organizers.
ANTI-TAKEOVER EFFECTS
The provisions of the articles, the bylaws, and South Carolina law
summarized in the following paragraphs may have anti-takeover effects and may
delay, defer, or prevent a tender offer or takeover attempt that a shareholder
might consider to be in such shareholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by shareholders, and may make removal of management more difficult.
RESTRICTION ON ACQUISITION. Sections 34-25-50 and 34-25-240 of the Code
of Laws of South Carolina prohibit a company from "acquiring" First National
Bancshares or First National Bank of Spartanburg until the bank has been in
existence and continuous operation for five years.
CONTROL SHARE ACT. First National Bancshares has specifically elected
to opt out of a provision of South Carolina law which may deter or frustrate
unsolicited attempts to acquire certain South Carolina corporations. This
statute, commonly referred to as the "Control Share Act" applies to public
corporations organized in South Carolina, unless the corporation specifically
elects to opt out. The Control Share Act generally provides that shares of a
public corporation acquired in excess of certain specific thresholds will not
possess any voting rights unless such voting rights are approved by a majority
vote of the corporation's disinterested shareholders.
40
<PAGE> 41
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
common stock and preferred stock will be available for future issuance without
shareholder approval. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, and employee benefit plans. The existence of
authorized but unissued and unreserved shares of common stock and preferred
stock may enable the board of directors to issue shares to persons friendly to
current management, which could render more difficult or discourage any attempt
to obtain control of First National Bancshares by means of a proxy contest,
tender offer, merger or otherwise, and thereby protect the continuity of the
company's management.
NUMBER OF DIRECTORS. The bylaws provide that the number of directors
shall be fixed from time to time by resolution by at least a majority of the
directors then in office, but may not consist of fewer than five nor more than
twenty-five members. Initially we will have 13 directors.
CLASSIFIED BOARD OF DIRECTORS. Our articles and bylaws divide the board
of directors into three classes of directors serving staggered three-year terms.
As a result, approximately one-third of the board of directors will be elected
at each annual meeting of shareholders. The classification of directors,
together with the provisions in the articles and bylaws described below that
limit the ability of shareholders to remove directors and that permit the
remaining directors to fill any vacancies on the board of directors, will have
the effect of making it more difficult for shareholders to change the
composition of the board of directors. As a result, at least two annual meetings
of shareholders may be required for the shareholders to change a majority of the
directors, whether or not a change in the board of directors would be beneficial
and whether or not a majority of shareholders believe that such a change would
be desirable.
NUMBER, TERM, AND REMOVAL OF DIRECTORS. We currently have 13 directors,
but our bylaws authorize this number to be increased or decreased by our board
of directors. Our directors are elected to three year terms by a plurality vote
of our shareholders. Our bylaws provide that our shareholders, by a majority
vote of those entitled to vote in an election of directors, or our board of
directors, by a unanimous vote, excluding the director in question, may remove a
director with or without cause. Our bylaws provide that all vacancies on our
board may be filled by a majority of the remaining directors for the unexpired
term.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The bylaws establish advance notice procedures with regard to
shareholder proposals and the nomination, other than by or at the direction of
the board of directors or a committee of the board of directors, of candidates
for election as directors. These procedures provide that the notice of
shareholder proposals must be in writing and delivered to the secretary of the
company no earlier than 30 days and no later than 60 days in advance of the
annual meeting. Shareholder nominations for the election of directors must be
made in writing and delivered to the secretary of the company no later than 90
days prior to the annual meeting, and in the case of election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of the meeting is
first given to shareholders. We may reject a shareholder proposal or nomination
that is not made in accordance with these procedures.
NOMINATION REQUIREMENTS. Pursuant to the bylaws, we have established
certain nomination requirements for an individual to be elected as a director,
including that the nominating party provide (i) notice that the party intends to
nominate the proposed director; (ii) the name of and certain biographical
information on the nominee; and (iii) a statement that the nominee has consented
to the nomination. The chairman of any shareholders' meeting may, for good cause
shown, waive the operation of these provisions. These provisions could reduce
the likelihood that a third party would nominate and elect individuals to serve
on the board of directors.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 1,200,000 shares of
common stock outstanding. The shares sold in this offering will be freely
tradable, without restriction or registration under the Securities Act of 1933,
except for shares purchased by "affiliates" of First National Bancshares, which
will be subject to resale restrictions under the Securities Act of 1933. An
affiliate of the issuer is defined in Rule 144 under the Securities Act of 1933
as a person that directly or indirectly, through one or more intermediaries,
controls, is controlled by,
41
<PAGE> 42
or is under common control with the issuer. Rule 405 under the Securities Act of
1933 defines the term "control" to mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of the
person whether through the ownership of voting securities, by contract or
otherwise. Directors will likely be deemed to be affiliates. These securities
held by affiliates may be sold without registration in accordance with the
provisions of Rule 144 or another exemption from registration.
In general, under Rule 144, an affiliate of the company or a person
holding restricted shares may sell, within any three-month period, a number of
shares no greater than 1% of the then outstanding shares of the common stock or
the average weekly trading volume of the common stock during the four calendar
weeks preceding the sale, whichever is greater. Rule 144 also requires that the
securities must be sold in "brokers' transactions," as defined in the Securities
Act of 1933, and the person selling the securities may not solicit orders or
make any payment in connection with the offer or sale of securities to any
person other than the broker who executes the order to sell the securities. This
requirement may make the sale of the common stock by affiliates of First
National Bancshares pursuant to Rule 144 difficult if no trading market develops
in the common stock. Rule 144 also requires persons holding restricted
securities to hold the shares for at least one year prior to sale.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
First National Bancshares by Nelson Mullins Riley & Scarborough, L.L.P.,
Atlanta, Georgia.
EXPERTS
First National Bancshares's financial statements dated August 30, 1999
and for the period from April 1, 1999 (inception), until July 31, 1999 have been
audited by Crisp Hughes Evans, LLP, as stated in their report appearing
elsewhere herein, and have been so included in reliance on the report of this
firm given upon their authority as an expert in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2
(together with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement"), under the Securities Act of 1933 and the rules and
regulations thereunder, for the registration of the common stock offered hereby.
This prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement. For
further information with respect to First National Bancshares, First National
Bank of Spartanburg, and the common stock, you should refer to the Registration
Statement and the exhibits thereto.
You can examine and obtain copies of the Registration Statement at the
Public Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a Web site at http://www.sec.gov that contains all of the reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC using the EDGAR filing system, including
First National Bancshares.
We have filed or will file various applications with the Office of the
Comptroller of the Currency and the FDIC. You should only rely on information in
this prospectus and in our related Registration Statement in making an
investment decision. If other available information is inconsistent with
information in this prospectus, including information in public files or
provided by the Office of the Comptroller of the Currency and the FDIC, then
this other information is superseded by the information in this prospectus.
Projections appearing in the applications to our regulatory agencies were based
on assumptions that the organizers believed were reasonable at the time, but
which may have changed or otherwise be wrong. First National Bancshares and
First National Bank of Spartanburg specifically disclaim all projections for
purposes of this prospectus and caution prospective
42
<PAGE> 43
investors against placing reliance on them for purposes of making an investment
decision. Statements contained in this prospectus regarding the contents of any
contract or other document referred to are not necessarily complete. If one of
these contracts or documents is an exhibit to the Registration Statement, you
may obtain and read the document or contract for more information.
As a result of this offering, First National Bancshares will become a
reporting company subject to the full informational requirements of the
Securities Exchange Act of 1934. We will fulfill our obligations with respect to
these requirements by filing periodic reports and other information with the
SEC. We will furnish our shareholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each fiscal year containing unaudited summary financial information. Our fiscal
year ends on December 31.
43
<PAGE> 44
FIRST NATIONAL BANCSHARES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Table of Contents
July 31, 1999
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report ................................................ F-2
Financial Statements:
Balance Sheet ............................................................ F-3
Statement of Operations .................................................. F-4
Statements of Changes in Organizers' Equity .............................. F-5
Statement of Cash Flows .................................................. F-6
Notes to Financial Statements ................................................ F-7
</TABLE>
F-1
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Directors
First National Bancshares, Inc.
Spartanburg, South Carolina
We have audited the accompanying balance sheet of First National Bancshares,
Inc. (a development stage enterprise) as of July 31, 1999, and the related
statements of operations, changes in organizers' deficit, and cash flows for the
period from July 14, 1999 (date of inception) through July 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First National Bancshares, Inc.
(a development stage enterprise) as of July 31, 1999, and the results of its
operations and its cash flows for the period from July 14, 1999 through July 31,
1999, in conformity with generally accepted accounting principles.
/s/ Crisp Hughes Evans, LLP
- ---------------------------
Crisp Hughes Evans, LLP
Spartanburg, South Carolina
August 30, 1999
F-2
<PAGE> 46
FIRST NATIONAL BANCSHARES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Balance Sheet
July 31, 1999
ASSETS
Cash and cash equivalents $ 517
Furniture and equipment, net 2,668
Deferred stock offering costs 5,000
Prepaid expenses 2,633
Other 10,000
---------
Total assets $ 20,818
=========
LIABILITIES AND ORGANIZERS' EQUITY
Liabilities:
Line of credit $ 128,000
Interest payable 1,000
---------
Total liabilities 129,000
---------
Commitments and contingencies (Notes 3 and 4)
Organizers' deficit:
Common stock, par value $.01 per share, 10,000,000 shares
authorized, 10 shares issued and outstanding --
Additional paid-in capital 100
Retained deficit accumulated during the development stage (108,282)
---------
Total organizers' deficit (108,182)
---------
Total liabilities and organizers' deficit $ 20,818
=========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 47
FIRST NATIONAL BANCSHARES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Operations
For the Period from July 14, 1999 (date of inception)
through July 31, 1999
Expenses:
Salaries and payroll taxes $ 38,501
Professional fees 45,872
Insurance 355
Rent 2,600
Telephone and supplies 3,959
Depreciation 125
Application fees 15,000
Interest 1,000
Other 870
---------
Loss before provision for income taxes (108,282)
Provision for income taxes --
---------
Net loss $(108,282)
=========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 48
FIRST NATIONAL BANCSHARES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Changes in Organizers' Deficit
For the Period from July 14, 1999 (date of inception)
through July 31, 1999
<TABLE>
<CAPTION>
RETAINED
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
-------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------ --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Proceeds from the sale of stock
to organizers 10 $ -- $ 100 $ -- $ 100
Net loss -- -- -- (108,282) (108,282)
------ --------- ------ --------- ---------
Balance, July 31, 1999 10 $ -- $ 100 $(108,282) $(108,182)
====== ========= ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 49
FIRST NATIONAL BANCSHARES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Cash Flows
For the Period from July 14, 1999 (date of inception)
through July 31, 1999
Net cash used for pre-operating activities:
Net loss $(108,282)
Depreciation 125
Deferred stock offering costs (5,000)
Prepaid expense (2,633)
Interest payable 1,000
---------
Net cash used for pre-operating activities (114,790)
---------
Investing activities:
Purchase of furniture and equipment (2,793)
Escrow deposits on land (10,000)
---------
Net cash used in Investing activities (12,793)
---------
Financing activities:
Proceeds from borrowings on line of credit 128,000
Loans from organizers 65,000
Repayment of organizers' loans (65,000)
Proceeds from the sale of stock to organizers 100
---------
Net cash provided by financing activities 128,100
---------
Net increase in cash and cash equivalents 517
Cash and cash equivalents, July 14, 1999 (date of inception) --
---------
Cash and cash equivalents, end of period $ 517
=========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 50
FIRST NATIONAL BANCSHARES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
July 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
First National Bancshares, Inc. (the "Company") is a South Carolina
corporation organized for the purpose of owning and controlling all of the
capital stock of First National Bank of Spartanburg (in organization) (the
"Bank"). The Bank is being organized as a national bank under the laws of the
United States with the purpose of becoming a new bank to be located in
Spartanburg County, South Carolina. The Company has filed a charter application
with the OCC and an application for deposit insurance with the FDIC. Provided
that the applications are timely approved and the necessary capital is raised,
it is expected that banking operations will commence in the first or second
quarter of 2000.
The Company was formally incorporated in July 1999. We have prepared
these financial statements including financial information from April 1, 1999,
the initial financial transaction date. It was on that date that the Company's
organizers began pre-organizational activities.
The Company is a development stage enterprise as defined by Statement of
Financial Accounting Standard No. 7, "Accounting and Reporting by Development
Stage Enterprises," as it devotes substantially all its efforts to establishing
a new business. The Company's planned principal operations have not commenced
and revenue has not been recognized from the planned principal operations.
The Company intends to sell 1,200,000 shares of its common stock at $10
per share. The offering will raise approximately $11,743,000, net of estimated
underwriting discounts and commissions and offering expenses. The organizers of
the Company plan to purchase 455,000 shares of common stock at $10 per share,
for a total of $4,550,000. Upon purchase of these shares, the Company will issue
stock warrants to the organizers to purchase up to an additional 303,333 shares
of common stock for $10 per share. The Company will use $11 million of the
proceeds to capitalize the proposed bank.
YEAR END - The Company has adopted a fiscal year ending on December 31,
effective for the period ending December 31, 1999. The transactions
occurred prior to the Company's incorporation have been combined in these
financial statements for ease of presentation.
ESTIMATES - The financial statements include estimates and assumptions
that effect the Company's financial position and results of operations
and disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
The Company places its temporary cash investments with high credit
quality financial institutions. At times, such investments may be in
excess of the FDIC insurance limits.
DEFERRED STOCK OFFERING COSTS - Deferred stock offering costs will be
incurred by the Company in connection with the offering and issuance of
its stock. The deferred stock offering costs will be deducted from the
Company's additional paid-in capital after the stock offering. If the
stock offering is deemed unsuccessful, all deferred stock offering costs
will be charged to operations during the period in which the offering is
deemed unsuccessful.
ORGANIZATION COSTS - Organization costs include incorporation, legal and
consulting fees incurred in connection with establishing the Company. In
accordance with Statement of Position (SOP) 98-5, "Reporting on the Costs
of Start-Up Activities," organization costs are expensed when incurred.
F-7
<PAGE> 51
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences
between the financial reporting and income tax bases of assets and
liabilities. At July 31, 1999, no taxable income has been generated and,
therefore, no tax provision has been included in these financial
statements.
2. LINE OF CREDIT
The Company has established a $500,000 line of credit with a financial
institution to fund operating expenses of the Company during the development
stage. The line is uncollateralized and is guaranteed by the organizers. The
line bears interest at the prime rate minus 1/2% and expires June 2000. As of
July 31, 1999, $128,000 was outstanding on this line of credit.
3. OTHER ASSETS
Included in other assets are two (2) $5,000 escrow deposits for
potential locations for the Bank's main office and a branch office.
4. COMMITMENTS AND CONTINGENCIES
The Company has engaged a law firm to assist in preparing the filing
all organizational, incorporation, and bank applications and to assist in
preparing stock offering documents and consummating the Company's initial
offering. The aggregate cost of the services is expected to approximate $40,000.
The Company leases temporary office space under a six month operating
lease requiring monthly payments of $650.
The Company has engaged a bank consultant to assist in establishing the
Bank and bank holding company. The consultant will also assist in the
application process. The aggregate cost of the services is expected to
approximate $60,000, plus expenses.
5. YEAR 2000 ISSUE
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The potential
effect of the Year 2000 issue on the Company will not be fully determinable
until the Year 2000 and thereafter. If Year 2000 modifications are not properly
completed either by the Company or entities with which the Company conducts
business, the Company's revenues and financial condition could be adversely
impacted.
F-8
<PAGE> 52
FIRST NATIONAL BANCSHARES, INC.
STOCK ORDER FORM/SUBSCRIPTION AGREEMENT
TO: First National Bancshares, Inc.
248 N. Church Street
Spartanburg, South Carolina 29304
Ladies and Gentlemen:
You have informed me that First National Bancshares, Inc., a South
Carolina corporation (the "Company"), is offering 1,200,000 shares of its common
stock, at a price of $10.00 per share payable as provided herein and as
described in and offered pursuant to the prospectus furnished with this
Subscription Agreement to the undersigned (the "prospectus").
1. SUBSCRIPTION. Subject to the terms and conditions included, the
undersigned tenders this subscription, together with payment in United States
currency by check, bank draft, or money order payable to "The Bankers Bank as
escrow agent for First National Bancshares, Inc." the amount indicated below
(the "Funds"), representing the payment of $10.00 per share for the number of
shares of common stock indicated below. The total subscription price must be
paid at the time the Subscription Agreement is executed.
2. ACCEPTANCE OF SUBSCRIPTION. It is understood and agreed that First
National Bancshares, Inc. shall have the right to accept or reject this
subscription in whole or in part, for any reason whatsoever. First National
Bancshares, Inc. may reduce the number of shares for which the undersigned has
subscribed, indicating acceptance of less than all of the shares subscribed on
its written form of acceptance.
3. ACKNOWLEDGMENTS. The undersigned acknowledges that he or she has
received a copy of the prospectus. This Subscription Agreement creates a legally
binding obligation and the undersigned agrees to be bound by the terms of this
Agreement.
4. REVOCATION. The undersigned agrees that once this Subscription
Agreement is tendered to First National Bancshares, Inc., it may not be
withdrawn and that this Agreement shall survive the death or disability of the
undersigned.
BY EXECUTING THIS AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY RIGHTS HE OR SHE
MAY HAVE UNDER FEDERAL SECURITIES LAWS, INCLUDING THE SECURITIES ACT OF 1933 AND
THE SECURITIES EXCHANGE ACT OF 1934.
THE SHARES OF COMMON STOCK OFFERED HERE ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
A-1
<PAGE> 53
Please indicate in the space provided below the exact name or names and
address in which the stock certificate representing shares subscribed for
hereunder should be registered.
<TABLE>
<S> <C>
- ---------------------------------------------- ----------------------------------------------
Number of Shares Subscribed Name or Names of Subscribers (Please Print)
for (at least 100 shares and no more than
5% of the minimum offering)
$_____________________________________________ _______________________________________________
Total Subscription Price at Please indicate form of ownership desired (individual,
$10.00 per share (funds must be enclosed) joint tenants with right of survivorship, tenants in
common, trust corporation, partnership, custodian, etc.)
Date: (L.S.)
----------------------------------------- -----------------------------------------
Signature of Subscriber(s)
(L.S.)
- ---------------------------------------------- -----------------------------------------
Social Security Number or Federal Signature of Subscriber(s)
Taxpayer Identification Number
Street (Residence) Address:
--------------------------------------
--------------------------------------
--------------------------------------
City, State and Zip Code
</TABLE>
When signing as attorney, trustee, administrator, or guardian, please
give your full title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. In the case of joint tenants or
tenants in common, each owner must sign.
TO BE COMPLETED BY FIRST NATIONAL BANCSHARES, INC.:
Accepted as of _______________, _______, as to ___________ shares.
FIRST NATIONAL BANCSHARES, INC.
--------------------------------------
By:
Title:
A-2
<PAGE> 54
FEDERAL INCOME TAX BACKUP WITHHOLDING
In order to prevent the application of federal income tax backup
withholding, each subscriber must provide the escrow agent with a correct
Taxpayer Identification Number ("TIN"). An individual's social security number
is his or her TIN. The TIN should be provided in the space provided in the
Substitute Form W-9 below.
Under federal income tax law, any person who is required to furnish his
or her correct TIN to another person, and who fails to comply with such
requirements, may be subject to a $50 penalty imposed by the IRS.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of taxes, a refund may
be obtained from the IRS. Certain taxpayers, including all corporations, are not
subject to these backup withholding and reporting requirements.
If the shareholder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future, "Applied For" should be
written in the space provided for the TIN on the Substitute Form W-9.
SUBSTITUTE FORM W-9
Under penalties of perjury, I certify that: (i) The number shown on
this form is my correct Taxpayer Identification Number (or I am waiting for a
Taxpayer Identification Number to be issued to me), and (ii) I am not subject to
backup withholding because: (a) I am exempt from backup withholding; or (b) I
have not been notified by the Internal Revenue Service ("IRS") that I am subject
to backup withholding as a result of a failure to report all interest or
dividends; or (c) the IRS has notified me that I am no longer subject to backup
withholding.
You must cross out item (ii) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from
the IRS that you are not longer subject to backup withholding, do not cross out
item (ii).
Each subscriber should complete this section.
- ----------------------------------- -----------------------------------
Signature of Subscriber Signature of Subscriber
- ----------------------------------- -----------------------------------
Printed Name Printed Name
- ----------------------------------- -----------------------------------
Social Security or Employer Social Security or Employer
Identification No. Identification No.
A-3
<PAGE> 55
<TABLE>
<S> <C>
=========================================================================================================================
TABLE OF CONTENTS 1,200,000 SHARES
COMMON STOCK
FIRST NATIONAL BANCSHARES, INC.
PAGE
Summary ........................................ 3 A PROPOSED BANK HOLDING COMPANY FOR
Risk Factors.................................... 6
Use of Proceeds ................................ 13
Capitalization.................................. 15
Dividend Policy ................................ 15 FIRST NATIONAL BANK OF
Management's Discussion and Analysis of SPARTANBURG (PROPOSED)
Financial Condition and Plan of Operation....... 16
Proposed Business............................... 19
Supervision and Regulation...................... 26
Management...................................... 33 -----------------------
Certain Relationships and Related Transactions.. 39
Description of Capital Stock.................... 39 PROSPECTUS
Legal Matters................................... 42
Experts......................................... 42 -----------------------
Additional Information ......................... 42
Index to Financial Statements .................. F-1
Subscription Agreement.......................... A-1
--------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN
THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO GIVE
ANY INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION IN THIS PROSPECTUS IS COMPLETE AND
ACCURATE AS OF THE DATE ON THE COVER, BUT THE
INFORMATION MAY CHANGE IN THE FUTURE.
UNTIL FEBRUARY 8, 2000, ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER, AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NOVEMBER 10, 1999
=========================================================================================================================
</TABLE>
