<PAGE>
FIVE YEAR FINANCIAL HISTORY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                1996        1995        1994        1993        1992
<S>                                                           <C>         <C>         <C>         <C>         <C>
SUMMARY OF OPERATIONS
Interest income............................................   $ 22,248    $ 20,606    $ 17,688    $ 17,507    $ 18,594
Interest expense...........................................      9,612       9,002       6,979       6,945       8,083
Net interest income........................................     12,636      11,604      10,709      10,562      10,511
Provision for loan losses..................................        490         515         220         370         575
Net interest income after provision for loan losses........     12,146      11,089      10,489      10,192       9,936
Losses on sales of securities..............................         --        (415)         --          --          --
Other operating income.....................................      2,444       2,241       2,075       1,810       1,609
Restructuring charges......................................         --         460          --          --          --
Other operating expense....................................      9,077       8,654       8,578       8,306       7,536
Income before income taxes.................................      5,513       3,801       3,986       3,696       4,009
Income taxes...............................................      1,676       1,101       1,159       1,006       1,100
Net income.................................................   $  3,837    $  2,700    $  2,827    $  2,690    $  2,909

PER SHARE DATA (1)
Net income.................................................   $   2.13    $   1.50    $   1.57    $   1.49    $   1.62
Cash dividends declared....................................        .66         .52         .47         .45         .44
Book value.................................................      15.92       14.46       12.99       12.35       11.22

BALANCE SHEET INFORMATION
Total assets...............................................   $307,134    $283,678    $261,616    $249,698    $245,205
Investment securities......................................     90,316      84,536      76,983      78,488      81,020
Loans......................................................    195,273     179,923     168,328     157,302     147,032
Deposits...................................................    271,380     250,144     229,925     224,260     223,478
Shareholders' equity.......................................     28,767      25,995      23,379      22,223      20,204

RATIOS (AVERAGES)
Return on assets...........................................       1.32%       1.00%       1.11%       1.09%       1.24%
Return on shareholders' equity.............................      13.97       10.93       12.33       12.62       15.16
Shareholders' equity to assets.............................       9.41        9.17        8.98        8.65        8.19
Dividend payout ratio......................................      31.02       34.62       29.71       30.34       27.23
Loans to deposits..........................................      72.87       73.10       70.67       66.76       64.47
Net yield on earning assets, taxable equivalent basis......       4.90        4.84        4.73        4.86        5.17
</TABLE>

(1) All per share data in 1995 and prior years has been retroactively adjusted
    to reflect the three-for-two common stock split effected in the form of a
    50% stock dividend paid in the second quarter of 1995.

                                       4

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                      The purpose of this discussion and analysis is to assist
                      in the understanding and evaluation of
                      the financial condition, changes in financial condition
                      and results of operations of FNB Corp. (the "Parent
                      Company") and its wholly-owned subsidiary, First National
                      Bank and Trust Company (the "Bank"), collectively referred
                      to as the "Corporation". This discussion should be read in
                      conjunction with the consolidated financial statements and
                      supplemental financial information appearing elsewhere in
                      this report.

                      The Corporation earned $3,837,304 in 1996, a 42.1%
                      increase in net income from 1995. Earnings
OVERVIEW
                      per share, adjusted for the three-for-two common stock
                      split in 1995, increased from $1.50 in 1995 to $2.13 in
                      1996. The 1995 results were impacted by restructuring
                      charges and losses on sales of investment securities
                      discussed in more detail in the "Earnings Review" and in
                      "Business Development Matters". Total assets were
                      $307,134,477 at December 31, 1996, up 8.3% from year-end
                      1995. Loans amounted to $195,272,683 at December 31, 1996,
                      up 8.5% from the prior year. Total deposits grew 8.5% to
                      $271,380,065 in 1996.

                      On December 30, 1993, the Corporation entered into
                      definitive agreements to acquire two mutual savings banks
                      in merger/conversion transactions, pursuant to which the
                      savings banks would convert from mutual to stock form and
                      the Corporation would simultaneously acquire the shares
                      issued in the conversions. In 1995, the agreements expired
                      without the acquisitions having been completed due to
                      changes in federal and state regulatory policies which
                      strictly limited the circumstances under which such
                      transactions would be permitted.

                      The Corporation's net income increased $1,136,847 in 1996,
                      up 42.1% over 1995. Earnings were
EARNINGS REVIEW
                      positively impacted in 1996 by an increase of $1,032,830
                      or 8.9% in net interest income. The comparison to 1995
                      results is affected by the fact that there were certain
                      nonrecurring changes in 1995, including restructuring
                      charges of $460,457 and losses on sales of investment
                      securities of $414,596, which were charges taken for the
                      strategic purposes discussed in "Business Development
                      Matters". The 1995 results were further negatively
                      affected by a $295,000 increase in the provision for loan
                      losses. Additionally, certain costs, amounting to
                      $186,350, that had been deferred in connection with the
                      proposed acquisitions discussed in the "Overview" were
                      charged to expense in 1995.

                      In 1995, earnings declined $126,409 or 4.5% from 1994. The
                      negative factors affecting net income in 1995, as noted
                      above, more than offset the benefit of an increase of
                      $894,160 or 8.3% in net interest income.

                      Return on average assets, affected in 1995 by the negative
                      factors noted above, increased from 1.00% in 1995 to 1.32%
                      in 1996. Return on average assets declined in 1995 from
                      1.11% in 1994, again reflecting the effect of the negative
                      factors in 1995. Similarly, return on average
                      shareholders' equity, increased to 13.97% in 1996 after
                      declining to 10.93% in 1995 from 12.33% in 1994.

                                       5

<PAGE>
                      NET INTEREST INCOME

                      Net interest income is the difference between interest
                      income, principally from loans and investments, and
                      interest expense, principally on customer deposits.
                      Changes in net interest income result from changes in
                      interest rates and in the volume, or average dollar level,
                      and mix of earning assets and interest-bearing
                      liabilities.

                      Net interest income was $12,636,312 in 1996 compared to
                      $11,603,482 in 1995. The increase of $1,032,830 or 8.9%
                      resulted from an improvement in the net yield on earning
                      assets, or net interest margin, from 4.84% in 1995 to
                      4.90% in 1996 coupled with a 8.3% increase in the level of
                      average earning assets. In 1995, there was a $894,160 or
                      8.3% increase in net interest income reflecting both an
                      improvement in the net interest margin from 4.73% in 1994
                      and a 5.5% increase in average earning assets. Following a
                      period of generally lower interest rates, which had
                      ultimately resulted in a reduction in the net interest
                      margin, interest rates began to increase significantly in
                      1994, influenced by actions taken by the Federal Reserve
                      to combat a possible resurgence in inflation. The interest
                      rate increases in 1994 and early 1995, later offset to
                      some extent by Federal Reserve action to reduce rates in
                      the second half of 1995 and first quarter of 1996, have
                      resulted in an improvement in the net interest margin.
                      Additionally, there had been a continuing negative impact
                      on the margin from certain variable-rate time deposits
                      with rate floors above the current market rates. Such
                      variable-rate time deposits were phased out over a
                      two-year period that commenced in January 1994. On a
                      taxable equivalent basis, the increases in net interest
                      income in 1996 and 1995 were $1,183,000 and $918,000,
                      respectively, reflecting changes in the relative mix of
                      taxable and non-taxable earning assets in each year.

                      Table 1 sets forth for the periods indicated information
                      with respect to the Corporation's average balances of
                      assets and liabilities, as well as the total dollar
                      amounts of interest income (taxable equivalent basis) from
                      earning assets and interest expense on interest-bearing
                      liabilities, resultant rates earned or paid, net interest
                      income, net interest spread and net yield on earning
                      assets. Net interest spread refers to the difference
                      between the average yield on earning assets and the
                      average rate paid on interest-bearing liabilities. Net
                      yield on earning assets, or net interest margin, refers to
                      net interest income divided by average earning assets and
                      is influenced by the level and relative mix of earning
                      assets and interest-bearing liabilities.

                                       6

<PAGE>
TABLE 1
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                         1996                           1995                      1994
                                                                  Average                        Average
                                                        Interest   Rates               Interest   Rates               Interest
                                             Average    Income/   Earned/   Average    Income/   Earned/   Average    Income/
                                             Balance    Expense    Paid     Balance    Expense    Paid     Balance    Expense
<S>                                          <C>        <C>       <C>       <C>        <C>       <C>       <C>        <C>
EARNING ASSETS
Loans (1)(2)................................ $186,937   $16,777     8.96%   $174,139   $15,698     9.01 %  $161,121   $13,299
Investment securities (1):
  Taxable income............................   71,297    4,985      6.99      65,397    4,418      6.76      66,679    3,911
  Non-taxable income........................   14,282    1,205      8.44      10,610      970      9.14      10,042    1,021
Federal funds sold..........................    1,688       89      5.27       3,042      177      5.82       2,174       91
      Total earning assets..................  274,204   23,056      8.40     253,188   21,263      8.40     240,016   18,322
Cash and due from banks.....................    9,423                          9,226                          8,625
Other assets, net...........................    8,161                          6,884                          6,631
      TOTAL ASSETS.......................... $291,788                       $269,298                       $255,272
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
  NOW accounts.............................. $ 35,021      666      1.90    $ 32,442      695      2.14    $ 32,521      658
  Savings deposits..........................   30,147      756      2.50      29,945      845      2.82      31,820      830
  Money market accounts.....................   16,067      444      2.76      16,659      508      3.05      21,261      543
  Certificates and other time deposits......  138,993    7,525      5.40     122,743    6,773      5.52     106,759    4,850
Retail repurchase agreements................    4,118      178      4.32       3,358      167      4.97       2,101       84
Federal funds purchased.....................      764       43      5.63         239       14      5.77         307       14
      Total interest-bearing liabilities....  225,110    9,612      4.26     205,386    9,002      4.38     194,769    6,979
Noninterest-bearing demand deposits.........   36,296                         36,444                         35,614
Other liabilities...........................    2,921                          2,765                          1,964
Shareholders' equity........................   27,461                         24,703                         22,925
      TOTAL LIABILITIES AND SHAREHOLDERS'
        EQUITY.............................. $291,788                       $269,298                       $255,272
NET INTEREST INCOME AND SPREAD..............            $13,444     4.14%              $12,261     4.02 %             $11,343
NET YIELD ON EARNING ASSETS.................                        4.90%                          4.84 %

<CAPTION>
                                              Average
                                               Rates
                                              Earned/
                                               Paid
<S>                                           <C>
EARNING ASSETS
Loans (1)(2)................................    8.25 %
Investment securities (1):
  Taxable income............................    5.87
  Non-taxable income........................   10.17
Federal funds sold..........................    4.19
      Total earning assets..................    7.63
Cash and due from banks.....................
Other assets, net...........................
      TOTAL ASSETS..........................
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
  NOW accounts..............................    2.02
  Savings deposits..........................    2.61
  Money market accounts.....................    2.55
  Certificates and other time deposits......    4.54
Retail repurchase agreements................    4.00
Federal funds purchased.....................    4.64
      Total interest-bearing liabilities....    3.58
Noninterest-bearing demand deposits.........
Other liabilities...........................
Shareholders' equity........................
      TOTAL LIABILITIES AND SHAREHOLDERS'
        EQUITY..............................
NET INTEREST INCOME AND SPREAD..............    4.05 %
NET YIELD ON EARNING ASSETS.................    4.73 %
</TABLE>

(1) Interest income and yields related to certain investment securities and
    loans exempt from both federal and state income tax or from state income tax
    alone are stated on a fully taxable equivalent basis, assuming a 34% federal
    tax rate and applicable state tax rate, reduced by the nondeductible portion
    of interest expense.

(2) Nonaccrual loans are included in the average loan balance. Loan fees and the
    incremental direct costs associated with making loans are deferred and
    subsequently recognized over the life of the loan as an adjustment of
    interest income.

                      Changes in the net interest margin and net interest spread
                      tend to correlate with movements in
                      the prime rate of interest. There are variations, however,
                      in the degree and timing of rate changes, compared to
                      prime, for the different types of earning assets and
                      interest-bearing liabilities.

                      The prime rate, which had been 6.00% at December 31, 1993,
                      moved up significantly in 1994 to close the year at 8.50%
                      and, after certain changes during 1995, remained at that
                      level at December 31, 1995. In 1996, after one reduction,
                      the prime rate closed the year at 8.25%. The average prime
                      for 1994, 1995 and 1996 amounted to 7.09%, 8.82% and
                      8.28%, respectively. The prime rate had declined
                      significantly from 1991 to 1993, but began to increase in
                      1994 following steps taken by the Federal Reserve to
                      combat a possible resurgence in inflation. The prime rate
                      increased towards the end of the first quarter in 1994 and
                      an additional four times during the remainder of that
                      year. In the first quarter of 1995, it increased again to
                      9.00% and remained at that level until the second half of
                      the year when, in response to actions taken by the Federal
                      Reserve, it decreased twice, followed by one further
                      reduction in the first quarter of 1996. In 1996, the net
                      interest spread increased by 12 basis points from 4.02% in
                      1995 to 4.14% in 1996, reflecting a decrease in the
                      average rate paid on interest-bearing liabilities, or cost
                      of funds. In

                                       7

<PAGE>
                      1995, the net interest spread declined modestly by 3 basis
                      points due to the fact that the average total yield on
                      earning assets increased by slightly less than the cost of
                      funds. The yield on earning assets increased by 77 basis
                      points from 7.63% in 1994 to 8.40% in 1995, while the cost
                      of funds increased by 80 basis points in moving from 3.58%
                      to 4.38%.

                      The 1996 and 1995 changes in net interest income on a
                      taxable equivalent basis, as measured by volume and rate
                      variances, are analyzed in Table 2. Volume refers to the
                      average dollar level of earning assets and
                      interest-bearing liabilities.

TABLE 2
VOLUME AND RATE VARIANCE ANALYSIS
(TAXABLE EQUIVALENT BASIS, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      1996 Versus 1995                  1995 Versus 1994
                                                                   Variance                          Variance
                                                                  due to (1)                        due to (1)
                                                               Volume     Rate     Net Change    Volume     Rate     Net Change
<S>                                                            <C>       <C>       <C>           <C>       <C>       <C>
INTEREST INCOME
  Loans (2).................................................   $1,165    $  (86)     $1,079      $1,121    $1,278      $2,399
  Investment securities (2):
    Taxable income..........................................     412        155         567        (76 )      583         507
    Non-taxable income......................................     314        (79)        235         55       (106)        (51)
  Federal funds sold........................................     (72 )      (16)        (88)        44         42          86
      Total interest income.................................   1,819        (26)      1,793      1,144      1,797       2,941
INTEREST EXPENSE
  Interest-bearing deposits:
    NOW accounts............................................      53        (82)        (29)        (2 )       39          37
    Savings deposits........................................       6        (95)        (89)       (50 )       65          15
    Money market accounts...................................     (17 )      (47)        (64)      (130 )       95         (35)
    Certificates and other time deposits....................     899       (147)        752        788      1,135       1,923
  Retail repurchase agreements..............................      35        (24)         11         59         24          83
  Federal funds purchased...................................      30         (1)         29         (3 )        3          --
      Total interest expense................................   1,006       (396)        610        662      1,361       2,023
NET INTEREST INCOME.........................................   $ 813     $  370      $1,183      $ 482     $  436      $  918
</TABLE>

(1) The mix variance, not separately stated, has been proportionally allocated
    to the volume and rate variances based on their absolute dollar amount.

(2) Interest income related to certain investment securities and loans exempt
    from both federal and state income tax or from state income tax alone is
    stated on a fully taxable equivalent basis, assuming a 34% federal tax rate
    and applicable state tax rate, reduced by the nondeductible portion of
    interest expense.

                      PROVISION FOR LOAN LOSSES

                      This provision is the charge against earnings to provide
                      an allowance or reserve for possible future losses on
                      loans. The amount of each year's charge is affected by
                      several considerations including management's evaluation
                      of various risk factors in determining the adequacy of the
                      allowance (see "Asset Quality"), actual loan loss
                      experience and loan portfolio growth. In 1996, earnings
                      were positively impacted by a decrease in the provision of
                      $25,000, while in 1995 there was a negative impact from a
                      $295,000 provision increase.

                      OTHER OPERATING INCOME

                      Total other operating income, or noninterest income,
                      increased $617,351 or 33.8% in 1996 and decreased $248,712
                      or 12.0% in 1995 due principally to the effect on 1995
                      results from the recognition of losses on sales of
                      investment securities in the 1995 first quarter of
                      $414,596 (see

                                       8

<PAGE>
                      "Business Development Matters"). The 1996 increase
                      reflected in part the general increase in the volume of
                      business, a factor that also affected the 1995 results,
                      exclusive of the losses on sales of securities. The 1996
                      gain in annuity and brokerage commissions reflected
                      increased brokerage commissions. In 1995, there was a
                      $136,218 decrease in annuity and brokerage commissions due
                      to a reduction in the sales of tax deferred annuity
                      products, a situation that reflected the competition from
                      the higher interest rates available on deposit accounts in
                      1995 compared to 1994. The significant increase in credit
                      card income in 1995 was due to the implementation in 1994
                      of the new credit card operation discussed in "Business
                      Development Matters". The level of other service charges,
                      commissions and fees was higher in 1996 due primarily to
                      the implementation in the 1996 third quarter of a fee
                      charged to noncustomers for usage of the Bank's automated
                      teller machines.

                      The increase in service charges on deposit accounts in
                      1996 resulted primarily from the implementation of daily
                      charges on overdraft balances in the second quarter of
                      1995. The 1995 increase in service charges on deposit
                      accounts was primarily due to a change in the 1994 fourth
                      quarter in the method of collecting fees on returned
                      checks and overdraft items and to the selected increases
                      in service charge rates that became effective in the 1995
                      second quarter and included the initial implementation of
                      daily charges on overdraft balances. Partially offsetting
                      these earnings improvement factors in 1995 was the
                      negative effect of higher interest rates on the
                      calculation of the earnings credit that is used to offset
                      service charges that would otherwise be assessed on
                      commercial accounts.

                      OTHER OPERATING EXPENSE

                      Total other operating, or noninterest, expense decreased
                      $36,552 or 0.4% in 1996 and increased $535,678 or 6.2% in
                      1995 due primarily to the effect on 1995 results of
                      restructuring charges of $460,457 (see "Business
                      Development Matters") and of certain costs charged to
                      "other expense", amounting to $186,350, that had been
                      deferred in connection with proposed acquisitions (see
                      "Overview"). Additionally, the 1995 results, and those in
                      1996 also, were generally impacted by the continuing
                      effects of inflation. Noninterest expense was favorably
                      affected in 1995 by a $221,485 reduction in FDIC insurance
                      expense, reflecting the effect of a rate reduction as
                      discussed below. In 1996, noninterest expense was
                      favorably affected by a further reduction in FDIC
                      insurance expense, amounting to $180,273 despite a special
                      one-time assessment of $74,845 related to new legislation
                      enacted on September 30, 1996. This cost improvement
                      factor was more than offset in 1996, however, by increases
                      in personnel expense and data processing services and by a
                      higher level of equipment costs related to the expanded
                      use of personal computer networks.

                      The components of other operating expense have been
                      significantly changed by the Bank's decision in 1994 to
                      outsource its data processing operations (see "Business
                      Development Matters"). The conversion of data processing
                      operations to a service bureau arrangement was completed
                      in the 1994 fourth quarter. Consequently, the level of
                      expense for data processing services, which includes trust
                      and credit card processing costs in addition to basic data
                      processing operations, increased significantly in 1995.
                      Personnel and equipment costs were reduced, however, as a
                      result of the outsourcing decision. A change in the credit
                      card operation (see "Business Development Matters") has
                      also contributed to a higher cost of data processing
                      services.

                      The levels of certain expenses are being favorably
                      affected by the comprehensive project undertaken in 1995
                      for the reengineering of Bank operations (see "Business
                      Development Matters"). Despite an increase in the volume
                      of business, the average number of full-time equivalent
                      employees in 1996 was approximately equal to that for
                      1995. As is the situation for other operating expenses,
                      however, personnel expense is subject to the continuing
                      effects of inflation through normal salary adjustments and
                      higher costs of fringe benefits. Personnel expense was
                      also impacted in 1996 by changes in the incentive
                      compensation program. Furniture and equipment expense
                      increased in 1996 due to a higher level of depreciation

                                       9

<PAGE>
                      charges associated primarily with equipment purchases in
                      1995 and 1996 related to personal computer networks (see
                      "Business Development Matters").

                      Because of the Federal Deposit Insurance Corporation
                      Improvement Act (FDICIA) enacted in 1989, FDIC insurance
                      expense was increased substantially, with the Bank's
                      expense amounting to $503,379 in the year ended December
                      31, 1994. The FDIC has two separate insurance funds, which
                      are the Bank Insurance Fund (BIF) and the Savings
                      Association Insurance Fund (SAIF). As provided by FDICIA,
                      the insurance assessment rate could be lowered once a fund
                      had reached a mandated 1.25 percent reserve ratio. While
                      the SAIF fund did not reach the mandated reserve ratio,
                      the BIF fund was found in the third quarter of 1995 to
                      have reached this level by the end of May 1995.
                      Accordingly, the BIF rate was reduced effective June 1,
                      1995, resulting in only a minimum annual charge of $2,000
                      for the majority of financial institutions with
                      BIF-insured deposits. Since most of the Bank's deposits
                      are insured through BIF, the Bank experienced a
                      significant reduction in FDIC insurance expense commencing
                      in the 1995 third quarter when the effect of the rate
                      adjustment was initially recorded. Consequently, FDIC
                      insurance expense for the entire 1995 year amounted to
                      only $281,894, with total 1996 expense, including the
                      one-time assessment of $74,845, amounting to $101,621.

                      The Deposit Insurance Funds Act of 1996 (DIFA) was enacted
                      on September 30, 1996 and has three main components. The
                      first included a one-time assessment on SAIF deposits to
                      capitalize the SAIF fund to the mandated 1.25 percent
                      ratio. The second is a requirement that the repayment of
                      the Financing Corporation (FICO) bonds be shared by both
                      banks and thrifts. The third is the ultimate elimination
                      of the BIF and SAIF funds by merging them into a new
                      Deposit Insurance Fund. The one-time assessment on the
                      Bank's SAIF deposits, which amounted to $74,845, was
                      determined on the date of enactment and expensed at that
                      time. Beginning January 1, 1997, FDIC insurance premiums
                      will be assessed for FICO bond repayment purposes at an
                      estimated rate of $.0648 per $100 for SAIF deposits and a
                      rate equal to one-fifth of that, or $.01296 per $100, for
                      BIF deposits. Additional premiums could be assessed in
                      order to maintain the BIF and SAIF funds at the required
                      1.25 percent reserve ratio. Based on the Bank's deposits
                      at December 31, 1996, the total annual assessment for FICO
                      bond repayment purposes would amount to approximately
                      $42,000 in 1997.

                      INCOME TAXES

                      The effective income tax rate increased from 29.0% in 1995
                      to 30.4% in 1996 due principally to an increase in the
                      ratio of taxable to tax-exempt income. The effective
                      income tax rate of 29.0% in 1995 did not significantly
                      change from the 29.1% rate in 1994.

                      Liquidity refers to the continuing ability of the Bank to
                      meet deposit withdrawals, fund loan and
LIQUIDITY
                      capital expenditure commitments, maintain reserve
                      requirements, pay operating expenses and provide funds to
                      the Parent Company for payment of dividends, debt service
                      and other operational requirements. Liquidity is
                      immediately available from three major sources: (a) cash
                      on hand and on deposit at other banks, (b) the outstanding
                      balance of federal funds sold and (c) the
                      available-for-sale securities portfolio. While additional
                      liquidity is readily obtainable by purchasing federal
                      funds from other banks, the Bank has not found it
                      necessary to utilize this resource to any substantial
                      extent in recent years. Further, while available-for-sale
                      securities are intended to be a source of immediate
                      liquidity, the entire investment securities portfolio is
                      managed to provide both income and a ready source of
                      liquidity. The average portfolio life of debt securities
                      is approximately five years, resulting in a substantial
                      level of maturities each year. All debt securities are of
                      investment grade quality and, if the need arises, can be
                      promptly liquidated on the open market or pledged as
                      collateral for short-term borrowing.

                      In line with its approach to liquidity, the Bank as a
                      matter of policy does not solicit or accept brokered
                      deposits for funding asset growth. Instead, loans and
                      other assets are based on a core of local deposits and the
                      Bank's capital position. To date, the steady increase in
                      deposits, retail repurchase agreements and capital has
                      been adequate to fund loan demand in the Bank's

                                       10

<PAGE>
                      market area, while maintaining the desired level of
                      immediate liquidity and a substantial investment
                      securities portfolio available for both immediate and
                      secondary liquidity purposes.

                      One of the primary objectives of asset/liability
                      management is to maximize net interest margin
ASSET/LIABILITY
MANAGEMENT AND INTEREST
RATE SENSITIVITY      while minimizing the earnings risk associated with changes
                      in interest rates. One method used to manage interest
                      rate sensitivity is to measure, over various time
                      periods, the interest rate sensitivity positions, or
                      gaps; however, this method addresses only the magnitude
                      of timing differences and does not address earnings or
                      market value. Therefore, management uses an earnings
                      simulation model to prepare, on a regular basis,
                      earnings projections based on a range of interest rate
                      scenarios in order to more accurately measure interest
                      rate risk.

                      The Bank's balance sheet is liability-sensitive, meaning
                      that in a given period there will be more liabilities than
                      assets subject to immediate repricing as market rates
                      change. Because immediately rate sensitive
                      interest-bearing liabilities exceed rate sensitive assets,
                      the earnings position could improve in a declining rate
                      environment and could deteriorate in a rising rate
                      environment, depending on the correlation of rate changes
                      in these two categories. Included in interest-bearing
                      liabilities subject to rate changes within 90 days is a
                      portion of the NOW, savings, and money market deposits.
                      These types of deposits historically have not repriced
                      coincidentally with or in the same proportion as general
                      market indicators.

                      As a specific asset/liability management tool and as
                      further discussed in Note 13 to Consolidated Financial
                      Statements, the Bank, at December 31, 1996, had entered
                      into an interest rate floor agreement with a correspondent
                      bank to protect certain variable-rate loans from the
                      downward effects of their repricing in the event of a
                      decreasing rate environment. The notional amount of the
                      agreement is $10,000,000. The agreement requires the
                      correspondent bank to pay to the Bank the difference
                      between the floor rate of interest of 7.50% and the prime
                      rate of interest in the event that the prime rate is less.
                      Any payments received under the agreement, net of premium
                      amortization, will be treated as an adjustment of interest
                      income on loans.

                                       11

<PAGE>
                      Table 3 presents information about the periods in which
                      the interest-sensitive assets and liabilities at December
                      31, 1996 will either mature or be subject to repricing in
                      accordance with market rates, and the resulting
                      interest-sensitivity gaps. This table shows the
                      sensitivity of the balance sheet at one point in time and
                      is not necessarily indicative of what the sensitivity will
                      be on other dates. As a simplifying assumption concerning
                      repricing behavior, 50% of the NOW, savings and money
                      market deposits are assumed to reprice immediately and 50%
                      are assumed to reprice beyond one year.

TABLE 3
INTEREST RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        December 31, 1996
                                                                          Rate Maturity In Days           Beyond
                                                                      1-90       91-180      181-365     One Year     Total
<S>                                                                 <C>         <C>         <C>          <C>         <C>
EARNING ASSETS
  Loans..........................................................   $ 86,677    $  8,851    $  11,762    $87,983     $195,273
  Investment securities..........................................      2,594         948        2,628     84,146       90,316
  Federal funds sold.............................................         --          --           --         --           --
    Total earning assets.........................................     89,271       9,799       14,390    172,129      285,589
INTEREST-BEARING LIABILITIES
  NOW accounts...................................................     18,069          --           --     18,070       36,139
  Savings deposits...............................................     14,567          --           --     14,567       29,134
  Money market accounts..........................................      8,652          --           --      8,652       17,304
  Time deposits of $100,000 or more..............................     31,584       7,050        8,723      1,588       48,945
  Other time deposits............................................     25,782      21,594       40,807     12,870      101,053
  Retail repurchase agreements...................................      3,725          --           --         --        3,725
  Federal funds purchased........................................        575          --           --         --          575
    Total interest-bearing liabilities...........................    102,954      28,644       49,530     55,747      236,875
INTEREST SENSITIVITY GAP.........................................   $(13,683)   $(18,845)   $ (35,140)   $116,382    $ 48,714
Cumulative gap...................................................   $(13,683)   $(32,528)   $ (67,668)   $48,714     $ 48,714
Ratio of interest-sensitive assets to interest-sensitive
  liabilities....................................................         87%         34%          29%       309 %        121%
</TABLE>

                      Under guidelines established by the Board of Governors of
                      the Federal Reserve System, capital
CAPITAL ADEQUACY
                      adequacy is currently measured for regulatory purposes by
                      certain risk-based capital ratios, supplemented by a
                      leverage capital ratio. The risk-based capital ratios are
                      determined by expressing allowable capital amounts,
                      defined in terms of Tier I and Tier II, as a percentage of
                      risk-weighted assets, which are computed by measuring the
                      relative credit risk of both the asset categories on the
                      balance sheet and various off-balance sheet exposures.
                      Tier I capital consists primarily of common shareholders'
                      equity and qualifying perpetual preferred stock, net of
                      goodwill and other disallowed intangible assets. Tier II
                      capital, which is limited to the total of Tier I capital,
                      includes allowable amounts of subordinated debt, mandatory
                      convertible securities, preferred stock and the allowance
                      for loan losses. Under current requirements, the minimum
                      total capital ratio, consisting of both Tier I and Tier II
                      capital, is 8.00% and the minimum Tier I ratio is 4.00%.
                      At December 31, 1996, FNB Corp. and the Bank had total
                      capital ratios of 14.79% and 14.46%, respectively, and
                      Tier I capital ratios of 13.84% and 13.50%.

                      The leverage capital ratio, which serves as a minimum
                      capital standard, considers Tier I capital only and is
                      expressed as a percentage of average total assets for the
                      most recent quarter, after

                                       12

<PAGE>
                      reduction of those assets for goodwill and other
                      disallowed intangible assets at the measurement date. As
                      currently required, the minimum leverage capital ratio is
                      4.00%. At December 31, 1996, FNB Corp. and the Bank had
                      leverage capital ratios of 9.41% and 9.18%, respectively.

                      The Bank is also required to comply with prompt corrective
                      action provisions established by the Federal Deposit
                      Insurance Corporation Improvement Act. To be categorized
                      as well-capitalized, the Bank must have a minimum ratio
                      for total capital of 10.00%, for Tier I capital of 6.00%
                      and for leverage capital of 5.00%. As noted above, the
                      Bank met all of those ratio requirements at December 31,
                      1996 and, accordingly, is well-capitalized under the
                      regulatory framework for prompt corrective action.

                      Asset and deposit growth was comparable in 1996 to 1995.
                      Total assets increased $23,456,000 or
BALANCE SHEET REVIEW
                      8.3% in 1996 compared to $22,062,000 or 8.4% in 1995.
                      Deposits grew $21,236,000 or 8.5% and $20,219,000 or 8.8%,
                      respectively, in the same periods. The average asset
                      growth rates were 8.4% in 1996 and 5.5% in 1995. The
                      corresponding average deposit growth rates were 7.7% and
                      4.5%.

                      Investments are carried on the consolidated balance sheet
                      at estimated fair value for available-
INVESTMENT SECURITIES
                      for-sale securities and at amortized cost for
                      held-to-maturity securities. Table 4 presents information,
                      on the basis of selected maturities, about the composition
                      of the investment securities portfolio for each of the
                      last three years. As discussed in Note 1 to Consolidated
                      Financial Statements and permitted on a one-time basis by
                      the Financial Accounting Standards Board in an
                      implementation guide to Statement of Financial Accounting
                      Standards No. 115, certain investment securities that had
                      been included in the held-to-maturity category were
                      transferred in December 1995 to the available-for sale
                      category.

                                       13

<PAGE>
TABLE 4
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       December 31
                                                                               1996
                                                                            Estimated     Taxable        1995        1994
                                                               Amortized      Fair       Equivalent    Carrying    Carrying
                                                                 Cost         Value      Yield (1)      Value       Value
<S>                                                            <C>          <C>          <C>           <C>         <C>
AVAILABLE FOR SALE
  U.S. Treasury:
    One to five years.......................................    $ 2,577      $ 2,589          6.74%    $ 5,038     $ 7,256
    Five to ten years.......................................      2,108        2,114          6.43       4,526         509
      Total.................................................      4,685        4,703          6.59       9,564       7,765
  U.S. Government agencies and corporations:
    Within one year.........................................        500          500          6.57       2,060          --
    One to five years.......................................      9,959        9,939          7.03       6,129          --
    Five to ten years.......................................      8,825        8,844          7.50         452          --
      Total.................................................     19,284       19,283          7.24       8,641          --
  Mortgage-backed securities................................      4,760        4,787          6.67      10,020      12,108
  Total debt securities.....................................     28,729       28,773          7.04      28,225      19,873
  Equity securities.........................................        147          156                       150       4,696
      Total available-for-sale securities...................    $28,876      $28,929                   $28,375     $24,569
HELD TO MATURITY
  U.S. Treasury:
    Within one year.........................................    $    --      $    --            --     $    --     $ 4,954
    One to five years.......................................         --           --            --          --       2,748
      Total.................................................         --           --            --          --       7,702
  U.S. Government agencies and corporations:
    Within one year.........................................      1,348        1,356          6.92       2,854       3,151
    One to five years.......................................     24,480       24,380          6.70      23,800      26,294
    Five to ten years.......................................     18,108       17,873          7.27      17,022       4,916
    Over ten years..........................................         --           --            --         300          --
      Total.................................................     43,936       43,609          6.95      43,976      34,361
  State, county and municipal:
    Within one year.........................................        325          327         11.67       1,203       2,081
    One to five years.......................................      3,104        3,196          9.19       2,590       3,017
    Five to ten years.......................................      5,930        6,038          7.80       4,959       4,909
    Over ten years..........................................      8,092        8,105          7.96       3,433         344
      Total.................................................     17,451       17,666          8.20      12,185      10,351
      Total held-to-maturity securities.....................    $61,387      $61,275                   $56,161     $52,414
</TABLE>

(1) Yields are stated on a fully taxable equivalent basis, assuming a 34%
    federal income tax rate and applicable state income tax rate, reduced by the
    nondeductible portion of interest expense.

                                       14

<PAGE>
                      Additions to the investment securities portfolio depend to
                      a large extent on the availability of
                      investable funds that are not otherwise needed to satisfy
                      loan demand. Because the growth in total assets exceeded
                      that for loans, the level of investment securities was
                      increased $5,780,00 or 6.8% in 1996 and $7,553,000 or 9.8%
                      in 1995. Investable funds not otherwise utilized are
                      temporarily invested on an overnight basis as federal
                      funds sold, the level of which is affected by such
                      considerations as near-term loan demand and liquidity
                      needs. Based on funds requirements, the Bank was a net
                      purchaser of funds at December 31, 1996.

                      The Corporation's primary source of revenue and largest
                      component of earning assets is the
LOANS
                      loan portfolio. Loans experienced growth of $15,350,000 or
                      8.5% in 1996 and $11,595,000 or 6.9% in 1995. Average
                      loans increased $12,798,000 or 7.3% and $13,018,000 or
                      8.1%, respectively. The ratio of average loans to average
                      deposits decreased slightly from 73.1% in 1995 to 72.9% in
                      1996. The ratio of loans to deposits at December 31, 1996
                      was 72.0%.

                      Table 5 sets forth the major categories of loans for each
                      of the last five years. The maturity distribution and
                      interest sensitivity of selected loan categories at
                      December 31, 1996 are presented in Table 6.

TABLE 5
LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                              December 31
                                                1996               1995               1994               1993           1992
                                           Amount      %      Amount      %      Amount      %      Amount      %      Amount
<S>                                       <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>     <C>
Commercial and agricultural.............  $ 62,678    32.1   $ 47,317    26.3     41,777    24.8     40,858    26.0     34,630
Real estate -- construction.............     4,348     2.2        759      .4      1,331      .8      2,163     1.4      1,313
Real estate -- mortgage:
  1-4 family residential................    68,887    35.3     57,664    32.0     50,575    30.0     42,302    26.9     37,833
  Commercial and other..................    24,257    12.4     27,803    15.5     28,594    17.0     27,480    17.4     23,436
Consumer................................    35,103    18.0     46,380    25.8     46,051    27.4     44,499    28.3     49,820
  Total loans...........................  $195,273   100.0   $179,923   100.0   $168,328   100.0   $157,302   100.0   $147,032

<CAPTION>
                                            %
<S>                                       <C>
Commercial and agricultural.............   23.5
Real estate -- construction.............     .9
Real estate -- mortgage:
  1-4 family residential................   25.7
  Commercial and other..................   16.0
Consumer................................   33.9
  Total loans...........................  100.0
</TABLE>

TABLE 6
SELECTED LOAN MATURITIES
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            December 31, 1996
                                                                             One Year      One to         Over
                                                                             or Less     Five Years    Five Years     Total
<S>                                                                          <C>         <C>           <C>           <C>
Commercial and agricultural...............................................   $22,563      $ 36,436      $  3,679     $62,678
Real estate -- construction...............................................     1,606         2,298           444       4,348
  Total selected loans....................................................   $24,169      $ 38,734      $  4,123     $67,026
Sensitivity to rate changes:
  Fixed interest rates....................................................   $ 4,742      $  7,019      $  4,123     $15,884
  Variable interest rates.................................................    19,427        31,715            --      51,142
  Total...................................................................   $24,169      $ 38,734      $  4,123     $67,026
</TABLE>

                                       15

<PAGE>
                      Loan growth and the composition of the loan portfolio are
                      being affected by management's
                      decision in March 1996 to discontinue the purchase of
                      retail installment loan contracts from automobile and
                      equipment dealers (see "Business Development Matters").
                      The outstanding balance of these loan contracts, which are
                      primarily included in consumer loans, experienced a net
                      1996 decrease of $13,169,776. Consequently, total consumer
                      loans declined significantly during that period. Other
                      consumer loan elements, including credit cards and home
                      equity lines of credit, have continued to grow. Changes in
                      the credit card operation are discussed in "Business
                      Development Matters". The commercial loan portfolio and
                      the residential construction and mortgage loan portfolio
                      each experienced strong gains during 1996.

                      Management considers the Bank's asset quality to be of
                      primary importance. A formal loan
ASSET QUALITY
                      review function, independent of loan origination, is used
                      to identify and monitor problem loans. As part of the loan
                      review function, a third party assessment group is
                      employed to review the underwriting documentation and risk
                      grading analysis. In determining the allowance for loan
                      losses and any resulting provision to be charged against
                      earnings, particular emphasis is placed on the results of
                      the loan review process. Consideration is also given to
                      historical loan loss experience, the value and adequacy of
                      collateral, and economic conditions in the Bank's market
                      area. This evaluation is inherently subjective as it
                      requires material estimates, including the amounts and
                      timing of future cash flows expected to be received on
                      impaired loans that may be susceptible to significant
                      change.

                      Management's policy in regard to past due loans is
                      conservative and normally requires a prompt charge-off to
                      the allowance for loan losses following timely collection
                      efforts and a thorough review. Further efforts are then
                      pursued through various means available. Loans carried in
                      a nonaccrual status are generally collateralized and the
                      possibility of future losses is considered minimal.

                                       16

<PAGE>
                      Table 7 presents an analysis of the changes in the
                      allowance for loan losses and of the level of
                      nonperforming assets for each of the last five years.
                      Information about management's allocation of the allowance
                      for loan losses by loan category is presented in Table 8.

TABLE 7
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                1996      1995      1994      1993      1992
<S>                                                                            <C>       <C>       <C>       <C>       <C>
ALLOWANCE FOR LOAN LOSSES
  Balance at beginning of year..............................................   $1,903    $1,720    $1,745    $1,766    $1,484
  Charge-offs:
    Commercial and agricultural.............................................       24        84        16        57       159
    Real estate -- construction.............................................       --        --        --        --        --
    Real estate -- mortgage.................................................       12        --         1        24        34
    Consumer................................................................      532       393       419       486       228
      Total charge-offs.....................................................      568       477       436       567       421
  Recoveries:
    Commercial and agricultural.............................................       12         8         6         8        24
    Real estate -- construction.............................................       --        --        --        --        --
    Real estate -- mortgage.................................................        3         3         5         7         1
    Consumer................................................................      146       134       180       161       103
      Total recoveries......................................................      161       145       191       176       128
  Net loan charge-offs......................................................      407       332       245       391       293
  Provision for loan losses.................................................      490       515       220       370       575
  Balance at end of year....................................................   $1,986    $1,903    $1,720    $1,745    $1,766
NONPERFORMING ASSETS, AT END OF YEAR
  Nonaccrual loans..........................................................   $   65    $   26    $   --    $   --    $   68
  Accruing loans past due 90 days or more...................................      231       317       118       136       388
      Total nonperforming loans.............................................      296       343       118       136       456
  Foreclosed assets.........................................................       38        64        78       134       159
  Other real estate owned...................................................       --        --        --        --        52
      Total nonperforming assets............................................   $  334    $  407    $  196    $  270    $  667
RATIOS
  Net loan charge-offs to average loans.....................................      .22%      .19%      .15%      .26%      .21%
  Net loan charge-offs to allowance for loan losses.........................    20.49     17.45     14.25     22.43     16.59
  Allowance for loan losses to year-end loans...............................     1.02      1.06      1.02      1.11      1.20
  Total nonperforming loans to year-end loans...............................      .15       .19       .07       .09       .31
</TABLE>

TABLE 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                December 31
                                                                                1996      1995      1994      1993      1992
<S>                                                                            <C>       <C>       <C>       <C>       <C>
Commercial and agricultural.................................................   $  650    $  572    $  490    $  451    $  418
Real estate -- construction.................................................       10         9        14        25        23
Real estate -- mortgage.....................................................      439       384       346       281       261
Consumer....................................................................      727       695       651       569       343
Unallocated.................................................................      160       243       219       419       721
  Total allowance for loan losses...........................................   $1,986    $1,903    $1,720    $1,745    $1,766
</TABLE>

                                       17

<PAGE>
                      The level and mix of deposits is affected by various
                      factors, including general economic
DEPOSITS
                      conditions, the particular circumstances of local markets
                      and the specific deposit strategies employed. In general,
                      broad interest rate declines tend to encourage customers
                      to consider alternative investments such as mutual funds
                      and tax-deferred annuity products, while interest rate
                      increases tend to have the opposite effect.

                      The Bank's level and mix of deposits has been specifically
                      affected by the following factors. A promotion that
                      offered premium-rate certificates of deposit, based on
                      selected maturities, has resulted in a significant portion
                      of the $17,173,000 increase in time deposits during 1996.
                      Certain variable-rate time deposits with minimum rates in
                      excess of current market rates were phased out over a
                      two-year period that commenced in January 1994. A retail
                      repurchase agreements program, established in the second
                      quarter of 1994, has tended to transfer funds away from
                      deposits. The balance of retail repurchase agreements was
                      $3,725,000 at December 31, 1996 and $4,642,000 at December
                      31, 1995. Further, the level of time deposits obtained
                      from governmental units fluctuates, amounting to
                      $21,602,000, $17,820,000 and $4,898,000 at December 31,
                      1996, 1995 and 1994, respectively.

                      Table 9 shows the year-end and average deposit balances
                      for the years 1996, 1995 and 1994 and the changes in 1996
                      and 1995.

TABLE 9
ANAYLSIS OF DEPOSITS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     1996                            1995
                                                                       Change from                     Change from
                                                                        Prior Year                      Prior Year         1994
                                                         Balance     Amount       %      Balance     Amount       %      Balance
<S>                                                      <C>         <C>        <C>      <C>         <C>        <C>      <C>
YEAR-END BALANCES
  Interest-bearing deposits:
    NOW accounts......................................   $ 36,139    $3,732      11.5    $ 32,407    $  505       1.6    $ 31,902
    Savings deposits..................................     29,134      (958 )    (3.2)     30,092      (828 )    (2.7)     30,920
    Money market accounts.............................     17,304     1,075       6.6      16,229    (3,350 )   (17.1)     19,579
      Total...........................................     82,577     3,849       4.9      78,728    (3,673 )    (4.5)     82,401
    Certificates and other time deposits..............    149,998    17,173      12.9     132,825    22,583      20.5     110,242
      Total interest-bearing deposits.................    232,575    21,022       9.9     211,553    18,910       9.8     192,643
  Noninterest-bearing demand deposits.................     38,805       214        .6      38,591     1,309       3.5      37,282
      Total deposits..................................   $271,380    $21,236      8.5    $250,144    $20,219      8.8    $229,925
AVERAGE BALANCES
  Interest-bearing deposits:
    NOW accounts......................................   $ 35,021    $2,579       7.9    $ 32,442    $  (79 )     (.2)   $ 32,521
    Savings deposits..................................     30,147       202        .7      29,945    (1,875 )    (5.9)     31,820
    Money market accounts.............................     16,067      (592 )    (3.6)     16,659    (4,602 )   (21.6)     21,261
      Total...........................................     81,235     2,189       2.8      79,046    (6,556 )    (7.7)     85,602
    Certificates and other time deposits..............    138,993    16,250      13.2     122,743    15,984      15.0     106,759
      Total interest-bearing deposits.................    220,228    18,439       9.1     201,789     9,428       4.9     192,361
  Noninterest-bearing demand deposits.................     36,296      (148 )     (.4)     36,444       830       2.3      35,614
      Total deposits..................................   $256,524    $18,291      7.7    $238,233    $10,258      4.5    $227,975
</TABLE>

                                       18

<PAGE>
                      As discussed in the "Overview" and in Note 16 to
                      Consolidated Financial Statements, the
BUSINESS DEVELOPMENT  Corporation had entered into definitive agreements to
MATTERS               acquire two mutual savings banks. In 1995, the
                      agreements expired without the acquisitions having
                      been completed due to changes in federal and state
                      regulatory policies which strictly limited the
                      circumstances under which such transactions would be
                      permitted.

                      During 1994, a new credit card operation was established
                      in which the Bank carries its own credit card receivables
                      as opposed to the former fee-based arrangement under which
                      accounts were generated for and owned by a correspondent
                      bank. As part of the new credit card strategy, extensive
                      marketing efforts were undertaken in 1995, primarily to
                      Bank customers. Credit card receivables amounted to
                      $2,257,204 and $1,524,718 at December 31, 1996 and 1995,
                      respectively. Additionally, the merchant aspect of credit
                      card operations has been shifted to an in-house basis from
                      the prior correspondent arrangement.

                      In a significant 1994 development, the Bank elected to
                      outsource all of its data processing, item capture and
                      statement rendering operations. The conversion to a
                      service bureau arrangement was completed in the 1994
                      fourth quarter. The major items of data processing
                      equipment that were no longer needed by the Bank were
                      acquired by the new processor. While the Bank does not
                      currently plan to resume any major data processing
                      operations, the level of computer equipment was
                      significantly increased in 1995 through expanded use of
                      personal computer networks. The new networks allow for a
                      more direct input of basic loan and deposit account
                      information to the data files maintained by the service
                      bureau. Capital expenditures in 1995, which totaled
                      $1,302,230, related primarily to the increase in computer
                      equipment. Since most of this equipment was not placed
                      into service until late in 1995, the full effect on annual
                      depreciation expense was not recognized until 1996.
                      Approximately one-third of 1996 capital expenditures,
                      which totaled $1,019,109, also related to personal
                      computer networks.

                      In 1995, as discussed in Note 15 to Consolidated Financial
                      Statements, management adopted a comprehensive
                      restructuring project for the purpose of reengineering
                      Bank operations to become more competitive and
                      cost-effective in developing business and servicing
                      customers and to improve long-term profitability. In
                      connection with this project, certain positions within the
                      Bank were either realigned or eliminated. Total
                      restructuring charges, all of which were incurred and paid
                      in 1995, amounted to $460,457, of which $301,116 related
                      to personnel costs and $159,341 to professional fees. The
                      Bank also decided in March 1995 to recognize losses of
                      $414,596 from the sales of certain investment securities
                      held in the available-for-sale portfolio in order to gain
                      favorable tax treatment for the losses and to take
                      advantage of reinvestment opportunities at higher coupon
                      rates. While these actions had a significant adverse
                      impact on 1995 earnings, management believes these
                      decisions will enhance the long-term value of the
                      Corporation and strengthen the competitive position of its
                      community banking operations.

                      Management decided in March 1996 that the Bank would
                      discontinue the purchase of retail installment loan
                      contracts from automobile and equipment dealers, due
                      largely to the declining yields being experienced in this
                      loan program. Contracts of this nature included in loans
                      at December 31, 1996 and 1995 amounted to $20,355,367 and
                      $33,525,143, respectively. While there will be no
                      purchases of new contracts, current plans call for the
                      collection of outstanding loans based on their contractual
                      terms. It is expected that the funds previously invested
                      in this loan program will be redeployed, as loan payments
                      occur, to other loan programs or to the investment
                      securities portfolio.

                      In March 1995, the Financial Accounting Standards Board
                      (the "FASB") issued Statement of
ACCOUNTING
PRONOUNCEMENT         Financial Accounting Standards (SFAS) No. 121, "Accounting
MATTERS               for Impairment of Long-Lived Assets and for Long-Lived
                      Assets to be Disposed Of", which establishes accounting
                      standards for the impairment of long-lived assets, certain
                      identifiable intangibles, and goodwill related to those
                      assets to be held and used and for those to be disposed
                      of. This statement requires that long-lived assets and
                      certain intangibles be reviewed for impairment whenever
                      events or changes in circumstances indicate that the
                      carrying value may not be recoverable. SFAS No. 121

                                       19

<PAGE>
                      is effective for fiscal years beginning after December 15,
                      1995. The Corporation adopted the provisions of SFAS No.
                      121 in 1996 without any effect on the consolidated
                      financial statements.

                      In May 1995, the FASB issued SFAS No. 122, "Accounting for
                      Mortgage Servicing Rights, an amendment of FASB Statement
                      No. 65". SFAS No. 122 amends FASB Statement No. 65 to
                      require that the rights to service mortgage loans for
                      others, however those servicing rights are acquired, be
                      recognized as separate assets, eliminating the previously
                      existing accounting distinction between servicing rights
                      acquired through purchase transactions and those acquired
                      through loan originations. SFAS No. 122 is required to be
                      adopted and applied prospectively for fiscal years
                      beginning after December 15, 1995 to transactions
                      involving the sale or securitization of mortgage loans
                      with servicing rights retained. The Corporation adopted
                      the provisions of SFAS No. 122 without any significant
                      effect on the consolidated financial statements.

                      In October 1995, the FASB issued SFAS No. 123, "Accounting
                      for Stock-Based Compensation". SFAS No. 123 defines a fair
                      value based method of accounting for an employee stock
                      option or similar equity instrument. However, it also
                      allows an entity to continue to measure compensation cost
                      for those plans using the intrinsic value based method of
                      accounting prescribed by Accounting Principles Board (APB)
                      Opinion No. 25, "Accounting for Stock Issued to
                      Employees". Entities electing to remain with the
                      accounting in APB Opinion No. 25 must make pro forma
                      disclosures of net income and, if presented, earnings per
                      share, as if the fair value based method of accounting
                      defined in SFAS No. 123 had been applied. The accounting
                      requirements of SFAS No. 123 are effective for
                      transactions entered into in fiscal years that begin after
                      December 15, 1995, though they may be adopted on issuance.
                      The Corporation adopted the provisions of SFAS No. 123 in
                      1996, resulting in the disclosures presented in Note 12 to
                      the consolidated financial statements.

                      In June 1996, the FASB issued SFAS No. 125 "Accounting for
                      Transfers and Servicing of Financial Assets and
                      Extinguishments of Liabilities". SFAS No. 125 provides
                      accounting and reporting standards for transfers and
                      servicing of financial assets and extinguishments of
                      liabilities using a financial-components approach that
                      focuses on control of the asset or liability. It requires
                      that an entity recognize only assets it controls and
                      liabilities it has incurred and should derecognize assets
                      only when control has been surrendered and derecognize
                      liabilities only when they have been extinguished. SFAS
                      No. 125 is effective for transfers and servicing of
                      financial assets and extinguishments of liabilities
                      occurring after December 31, 1996 and is to be applied
                      prospectively. The Corporation adopted the provisions of
                      SFAS No. 125 on January 1, 1997 without any effect on the
                      consolidated financial statements.

                      The operations of the Bank and therefore of the
                      Corporation are subject to the effects of
EFFECTS OF INFLATION
                      inflation through interest rate fluctuations and changes
                      in the general price level of noninterest operating
                      expenses. Such costs as salaries, fringe benefits and
                      utilities have tended to increase at a rate comparable to
                      or even greater than the general rate of inflation.
                      Broadly speaking, all operating expenses have risen to
                      higher levels as inflationary pressures have increased.
                      Management has responded to this situation by evaluating
                      and adjusting fees charged for specific services and by
                      emphasizing operating efficiencies.

                      The level of interest rates is also considered to be
                      influenced by inflation, rising whenever inflationary
                      expectations and the actual level of inflation increase
                      and declining whenever the inflationary outlook appears to
                      be improving. Management constantly monitors this
                      situation, attempting to adjust both rates received on
                      earning assets and rates paid on interest-bearing
                      liabilities in order to maintain the desired net yield on
                      earning assets.

                                       20

<PAGE>
TABLE 10
QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                      First     Second    Third     Fourth
<S>                                                                                   <C>       <C>       <C>       <C>
1996
Interest income....................................................................   $5,436    $5,443    $5,538    $5,831
Interest expense...................................................................    2,380    2,346      2,357     2,529
Net interest income................................................................    3,056    3,097      3,181     3,302
Provision for loan losses..........................................................      100       95        110       185
Net interest income after provision for loan losses................................    2,956    3,002      3,071     3,117
Other operating income.............................................................      586      589        592       677
Other operating expense............................................................    2,186    2,222      2,305     2,364
Income before income taxes.........................................................    1,356    1,369      1,358     1,430
Income taxes.......................................................................      411      417        419       429
Net income.........................................................................   $  945    $ 952     $  939    $1,001
Per share data:
  Net income.......................................................................   $  .53    $ .53     $  .52    $  .56
  Cash dividends declared..........................................................      .15      .15        .15       .21
  Common stock price (1):
    High...........................................................................    26.50    26.50      26.00     30.00
    Low............................................................................    22.50    22.63      23.50     25.50
1995
Interest income....................................................................   $4,870    $5,062    $5,230    $5,444
Interest expense...................................................................    2,079    2,193      2,317     2,413
Net interest income................................................................    2,791    2,869      2,913     3,031
Provision for loan losses..........................................................       95      125        130       165
Net interest income after provision for loan losses................................    2,696    2,744      2,783     2,866
Losses on sales of securities......................................................     (415)      --         --        --
Other operating income.............................................................      531      552        561       597
Restructuring charges..............................................................      460       --         --        --
Other operating expense............................................................    2,227    2,128      2,083     2,216
Income before income taxes.........................................................      125    1,168      1,261     1,247
Income taxes (benefit).............................................................       (8)     368        375       366
Net income.........................................................................   $  133    $ 800     $  886    $  881
Per share data (2):
  Net income.......................................................................   $  .07    $ .44     $  .49    $  .49
  Cash dividends declared..........................................................      .12      .12        .13       .15
  Common stock price (1):
    High...........................................................................    16.67    18.00      21.00     24.00
    Low............................................................................    15.33    15.33      16.50     18.50
</TABLE>

(1) FNB Corp. common stock is traded on the NASDAQ National Market System under
    the symbol FNBN.

(2) All per share data in 1995 has been retroactively adjusted to reflect the
    three-for-two common stock split effected in the form of a 50% stock
    dividend paid in the second quarter of 1995.

                                       21

<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
FNB Corp.

We have audited the accompanying consolidated balance sheets of FNB Corp. and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FNB Corp. and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.

                                                KPMG PEAT MARWICK LLP

Greensboro, North Carolina
March 7, 1997

                                       22


<PAGE>
FNB CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                               December 31
<S>                                                                                    <C>             <C>
ASSETS                                                                                     1996            1995
Cash and due from banks.............................................................   $ 13,052,150    $  8,764,539
Federal funds sold..................................................................             --       2,600,000
Investment securities:
  Available for sale, at estimated fair value (amortized cost of $28,875,531 in 1996
    and $28,183,155 in 1995)........................................................     28,928,543      28,375,645
  Held to maturity (estimated fair value of $61,274,858 in 1996 and $57,008,236 in
    1995)...........................................................................     61,387,196      56,160,814
Loans...............................................................................    195,272,683     179,922,737
  Less: Allowance for loan losses...................................................     (1,985,581)     (1,902,640)
    Net loans.......................................................................    193,287,102     178,020,097
Premises and equipment..............................................................      6,290,471       6,029,541
Other assets........................................................................      4,189,015       3,727,476
    TOTAL ASSETS....................................................................   $307,134,477    $283,678,112

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest-bearing demand deposits...............................................   $ 38,805,364    $ 38,590,985
  Interest-bearing deposits:
    NOW, savings and money market deposits..........................................     82,576,792      78,728,366
    Time deposits of $100,000 or more...............................................     48,944,981      36,427,161
    Other time deposits.............................................................    101,052,928      96,397,964
      Total deposits................................................................    271,380,065     250,144,476
Retail repurchase agreements........................................................      3,724,929       4,641,527
Federal funds purchased.............................................................        575,000              --
Other liabilities...................................................................      2,687,241       2,897,038
      Total Liabilities.............................................................    278,367,235     257,683,041
Shareholders' Equity:
  Preferred stock, $10.00 par value; authorized 200,000 shares, none issued.........             --              --
  Common stock, $2.50 par value; authorized 5,000,000 shares, issued 1,806,994
    shares in 1996 and 1,797,995 shares in 1995.....................................      4,517,485       4,494,988
  Surplus...........................................................................        213,510          18,705
  Retained earnings.................................................................     24,001,259      21,354,335
  Net unrealized securities gains...................................................         34,988         127,043
      Total Shareholders' Equity....................................................     28,767,242      25,995,071
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................   $307,134,477    $283,678,112
Commitments (Note 13)
</TABLE>

See notes to consolidated financial statements.

                                       23

<PAGE>
FNB CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31
<S>                                                                         <C>            <C>            <C>
                                                                               1996           1995           1994
INTEREST INCOME
  Interest and fees on loans.............................................   $16,727,702    $15,638,486    $13,228,841
  Interest and dividends on investment securities:
    Taxable income.......................................................     4,661,250      4,170,724      3,722,957
    Non-taxable income...................................................       770,119        619,480        645,224
  Federal funds sold.....................................................        88,799        177,071         91,034
      Total interest income..............................................    22,247,870     20,605,761     17,688,056
INTEREST EXPENSE
  Deposits...............................................................     9,390,717      8,821,404      6,880,389
  Retail repurchase agreements...........................................       178,113        167,076         84,094
  Federal funds purchased................................................        42,728         13,799         14,251
      Total interest expense.............................................     9,611,558      9,002,279      6,978,734
NET INTEREST INCOME......................................................    12,636,312     11,603,482     10,709,322
  Provision for loan losses..............................................       490,000        515,000        220,000
Net Interest Income After Provision for Loan Losses......................    12,146,312     11,088,482     10,489,322
OTHER OPERATING INCOME
  Service charges on deposit accounts....................................     1,415,038      1,356,083      1,218,066
  Annuity and brokerage commissions......................................       217,766        182,091        318,309
  Credit card income.....................................................       315,641        263,678        100,816
  Other service charges, commissions and fees............................       314,097        284,994        270,280
  Losses on sales of investment securities...............................            --       (414,596)            --
  Other income...........................................................       180,975        153,916        167,407
      Total other operating income.......................................     2,443,517      1,826,166      2,074,878
OTHER OPERATING EXPENSE
  Personnel expense......................................................     4,733,429      4,479,773      4,902,442
  Net occupancy expense..................................................       485,357        461,992        447,645
  Furniture and equipment expense........................................       661,504        452,094        503,296
  Data processing services...............................................     1,006,405        881,757        297,670
  Restructuring charges..................................................            --        460,457             --
  Other expense..........................................................     2,190,379      2,377,553      2,426,895
      Total other operating expense......................................     9,077,074      9,113,626      8,577,948
Income Before Income Taxes...............................................     5,512,755      3,801,022      3,986,252
Income taxes.............................................................     1,675,451      1,100,565      1,159,386
NET INCOME...............................................................   $ 3,837,304    $ 2,700,457    $ 2,826,866
Net income per share.....................................................   $      2.13    $      1.50    $      1.57
Weighted average number of shares outstanding............................     1,801,933      1,798,717      1,800,000
</TABLE>

See notes to consolidated financial statements.

                                       24

<PAGE>
FNB CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                                                              NET
                                                                                                           UNREALIZED
                                                        COMMON STOCK                       RETAINED        SECURITIES
                                                    SHARES        AMOUNT      SURPLUS      EARNINGS      GAINS (LOSSES)
<S>                                                <C>          <C>           <C>         <C>            <C>
BALANCE, DECEMBER 31, 1993.......................  1,200,000    $3,000,000    $900,000    $18,247,517      $   75,916
Net income, 1994.................................         --            --          --      2,826,866              --
Cash dividends declared, $.467 per share.........         --            --          --       (840,000)             --
Change in net unrealized gains (losses) on
  available-for-sale securities..................         --            --          --             --        (831,169)
BALANCE, DECEMBER 31, 1994.......................  1,200,000     3,000,000     900,000     20,234,383        (755,253)
Net income, 1995.................................         --            --          --      2,700,457              --
Cash dividends declared, $.52 per share..........         --            --          --       (935,017)             --
Three-for-two stock split effected in the form of
  a 50% stock dividend...........................    599,968     1,499,920    (900,000)      (599,920)             --
Cash paid for fractional shares..................         --            --          --           (768)             --
Common stock issued through dividend reinvestment
  plan...........................................      1,227         3,068      18,705             --              --
Common stock repurchased.........................     (3,200)       (8,000)         --        (44,800)             --
Change in net unrealized gains (losses) on
  available-for-sale securities..................         --            --          --             --         882,296
BALANCE, DECEMBER 31, 1995.......................  1,797,995     4,494,988      18,705     21,354,335         127,043
Net income, 1996.................................         --            --          --      3,837,304              --
Cash dividends declared, $.66 per share..........         --            --          --     (1,190,380)             --
Common stock issued through:
  Dividend reinvestment plan.....................      6,574        16,435     150,356             --              --
  Stock option plan..............................      2,425         6,062      44,449             --              --
Change in net unrealized gains (losses) on
  available-for-sale securities..................         --            --          --             --         (92,055)
BALANCE, DECEMBER 31, 1996.......................  1,806,994    $4,517,485    $213,510    $24,001,259      $   34,988
</TABLE>

See notes to consolidated financial statements.

                                       25

<PAGE>
FNB CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31
<S>                                                                       <C>             <C>             <C>
                                                                              1996            1995            1994
OPERATING ACTIVITIES
  Net income...........................................................   $  3,837,304    $  2,700,457    $  2,826,866
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Depreciation and amortization of premises and equipment............        634,116         397,979         408,730
    Provision for loan losses..........................................        490,000         515,000         220,000
    Deferred income taxes (benefit)....................................        (65,999)         36,206         295,558
    Deferred loan fees and costs, net..................................        395,050        (130,477)       (504,202)
    Premium amortization and discount accretion of investment
      securities, net..................................................         39,357         157,127         417,395
    Losses on sales of investment securities...........................             --         414,596              --
    Amortization of intangibles........................................         43,876          59,115          78,107
    Net decrease (increase) in loans held for sale.....................        405,503        (405,503)      1,089,594
    Increase in other assets...........................................       (439,441)       (557,531)       (273,155)
    Increase (decrease) in other liabilities...........................       (160,153)        732,884         320,447
      Net Cash Provided By Operating Activities........................      5,179,613       3,919,853       4,879,340
INVESTING ACTIVITIES
  Available-for-sale securities:
    Proceeds from sales................................................             --       5,896,328              --
    Proceeds from maturities...........................................     20,000,719       2,659,634       6,690,357
    Purchases..........................................................    (20,765,272)       (249,405)     (3,400,725)
  Held-to-maturity securities:
    Proceeds from maturities...........................................     15,368,717      21,184,527      18,249,914
    Purchases..........................................................    (20,558,380)    (36,279,578)    (21,708,597)
  Net increase in loans................................................    (16,531,348)    (11,376,742)    (11,743,814)
  Proceeds from sales of premises and equipment........................         15,485           2,718         183,292
  Purchases of premises and equipment..................................     (1,019,109)     (1,302,230)       (239,939)
  Other, net...........................................................        (33,497)        (26,031)       (213,423)
      Net Cash Used In Investing Activities............................    (23,522,685)    (19,490,779)    (12,182,935)
FINANCING ACTIVITIES
  Net increase in deposits.............................................     21,235,589      20,219,164       5,665,256
  Increase (decrease) in retail repurchase agreements..................       (916,598)      1,115,301       3,526,226
  Increase (decrease) in federal funds purchased.......................        575,000      (3,050,000)      1,250,000
  Common stock issued..................................................        217,302          21,773              --
  Common stock repurchased.............................................             --         (52,800)             --
  Cash dividends and fractional shares paid............................     (1,080,610)       (666,086)       (840,000)
      Net Cash Provided By Financing Activities........................     20,030,683      17,587,352       9,601,482
NET INCREASE IN CASH AND CASH EQUIVALENTS..............................      1,687,611       2,016,426       2,297,887
Cash and cash equivalents at beginning of year.........................     11,364,539       9,348,113       7,050,226
CASH AND CASH EQUIVALENTS AT END OF YEAR...............................   $ 13,052,150    $ 11,364,539    $  9,348,113
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest...........................................................   $  9,746,990    $  8,233,042    $  6,911,446
    Income taxes.......................................................      1,911,293       1,075,350         749,993
Noncash investing and financing activity -- Transfer of investment
  securities to available-for-sale category............................             --      11,353,710              --
</TABLE>

See notes to consolidated financial statements.

                                       26

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   NATURE OF OPERATIONS/CONSOLIDATION
   FNB Corp. is a one-bank holding company whose wholly-owned subsidiary is the
   First National Bank and Trust Company (the "Bank"). The Bank is an
   independent community bank that offers full banking and trust services to
   consumer and business customers primarily in the region of North Carolina
   that includes Randolph, Montgomery and Chatham counties.

   The consolidated financial statements include the accounts of FNB Corp. and
   the Bank (collectively the "Corporation"). All significant intercompany
   balances and transactions have been eliminated.

   The preparation of the consolidated financial statements in conformity with
   generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the date
   of the consolidated financial statements and the reported amounts of revenues
   and expenses during the reporting periods. Actual results could differ from
   those estimates.

   CASH AND CASH EQUIVALENTS
   For purposes of reporting cash flows, cash and cash equivalents include cash
   on hand, amounts due from banks, and federal funds sold. Generally, federal
   funds are purchased and sold for one-day periods.

   INVESTMENT SECURITIES
   Under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
   for Certain Investments in Debt and Equity Securities" , investment
   securities are to be categorized and accounted for as follows:

   (Bullet) Held-to-maturity securities -- Debt securities that the Corporation
            has the positive intent and ability to hold to maturity. Reported at
            amortized cost.

   (Bullet) Trading securities -- Debt and equity securities bought and held
            principally for the purpose of being sold in the near future.
            Reported at fair value, with unrealized gains and losses included in
            earnings.

   (Bullet) Available-for-sale securities -- Debt and equity securities not
            classified as either held-to-maturity securities or trading
            securities. Reported at fair value, with unrealized gains and
            losses, net of related tax effect, excluded from earnings and
            reported as a separate component of shareholders' equity.

   The Corporation intends to hold its securities classified as
   available-for-sale securities for an indefinite period of time but may sell
   them prior to maturity. All other securities, which the Corporation has the
   positive intent and ability to hold to maturity, are classified as
   held-to-maturity securities.

   In November 1995, the Financial Accounting Standards Board (the "FASB")
   issued an implementation guide for SFAS No. 115. The FASB stated that the
   transition provisions included in the guide permit a one-time opportunity for
   companies to reconsider their ability and intent to hold the securities
   accounted for under SFAS No. 115 to maturity and allow entities to transfer
   securities from the held-to-maturity category without tainting their
   remaining held-to-maturity securities. The FASB emphasized that this would be
   a one-time event and that any transfers from the held-to-maturity category to
   the available-for-sale category under this provision must be made by December
   31, 1995. The Corporation transferred $11,353,710 in investment securities
   from the held-to-maturity category to the available-for-sale category as
   allowed under the provisions of the implementation guide. On the date of the
   transfer, the held-to-maturity securities were recorded as available-for-sale
   securities at their current fair value, which resulted in the recognition of
   an unrealized gain of $54,908 being recorded, net of the related tax effect,
   as an addition to shareholders' equity.

   Interest income on debt securities is adjusted using the level yield method
   for the amortization of premiums and accretion of discounts. The adjusted
   cost of the specific security is used to compute gains or losses on the
   disposition of securities.

   LOANS
   Effective January 1, 1995, the Corporation adopted Statement of Financial
   Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment
   of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a
   Loan -- Income Recognition and Disclosures". Commencing in 1995 under the
   provisions of SFAS No. 114, the allowance for loan losses relating to loans
   that are determined to be impaired is based on discounted cash flows using
   the loan's initial effective interest rate or the fair value of the
   collateral for certain collateral dependent loans. The Corporation previously
   measured loan impairment in a method generally comparable to the methods
   prescribed in SFAS No. 114. Accordingly, no additional provisions for loan
   losses were required as a result of the adoption of SFAS No. 114.

                                       27

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Unearned income on certain installment loans is recognized as income over the
   life of the loans by the sum-of-the-months'-digits method which is not
   materially different from the interest method. Interest on all other loans is
   calculated by using the constant yield method based on the daily outstanding
   balance. The recognition of interest revenue, including interest income on
   impaired loans, is discontinued when, in management's opinion, the collection
   of all or a portion of interest becomes doubtful.

   Loan fees and the incremental direct costs associated with making loans are
   deferred and subsequently recognized over the life of the loan as an
   adjustment of interest income. Residential mortgage loans held for sale are
   valued at the lower of cost or market as determined by outstanding
   commitments from investors or current investor yield requirements, calculated
   on the aggregate loan basis.

   ALLOWANCE FOR LOAN LOSSES
   The allowance for loan losses represents an amount considered adequate to
   absorb loan losses inherent in the portfolio. Management's evaluation of the
   adequacy of the allowance is based on a review of individual loans,
   historical loan loss experience, the value and adequacy of collateral, and
   economic conditions in the Bank's market area. Losses are charged and
   recoveries are credited to the allowance for loan losses. This evaluation is
   inherently subjective as it requires material estimates, including the
   amounts and timing of future cash flows expected to be received on impaired
   loans that may be susceptible to significant change.

   In addition, various regulatory agencies, as an integral part of their
   examination process, periodically review the Bank's allowance for loan
   losses. Such agencies may require the Bank to recognize changes to the
   allowance based on their judgments about information available to them at the
   time of their examination.

   PREMISES AND EQUIPMENT
   Premises and equipment are stated at cost less accumulated depreciation and
   amortization. Depreciation is computed using both straight-line and
   accelerated methods based on the estimated useful lives of the assets as
   follows: buildings and components, 10 to 50 years and furniture and
   equipment, 3 to 10 years. Leasehold improvements are amortized on a
   straight-line basis over the shorter of the estimated life of the improvement
   or the term of the lease.

   INTANGIBLE ASSETS
   Deposit base premiums, arising from deposit and branch purchase acquisitions,
   amounted to $99,703 and $143,579 at December 31, 1996 and 1995, respectively,
   and are included in other assets. The premium amounts are amortized on an
   accelerated basis over ten-year periods.

   INCOME TAXES
   Income tax expense includes both a current provision based on the amounts
   computed for income tax return purposes and a deferred provision that results
   from application of the asset and liability method of accounting for deferred
   taxes. Under the asset and liability method, deferred tax assets and
   liabilities are established for the temporary differences between the
   financial reporting basis and the tax basis of the Corporation's assets and
   liabilities at enacted tax rates expected to be in effect when such amounts
   are realized or settled. The effect on deferred tax assets and liabilities of
   a change in tax rates is recognized in income in the period that includes the
   enactment date.

   EMPLOYEE BENEFIT PLANS
   The Corporation has a defined benefit pension plan covering substantially all
   full-time employees. Pension costs, which are actuarially determined using
   the projected unit credit method, are charged to current operations. Annual
   funding contributions are made up to the maximum amounts allowable for
   Federal income tax purposes.

   Medical and life insurance benefits are provided by the Corporation on a
   postretirement basis under defined benefit plans covering substantially all
   full-time employees. Postretirement benefit costs, which are actuarially
   determined using the attribution method and recorded on an unfunded basis,
   are charged to current operations and credited to a liability account on the
   consolidated balance sheet.

   RESTATEMENTS
   Share and per share information in the consolidated financial statements and
   related notes thereto have been restated, where appropriate, to reflect the
   three-for-two common stock split effected in the form of a 50% stock dividend
   paid to shareholders on May 26, 1995.

                                       28

<PAGE>
                                                        FNB CORP. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. INVESTMENT SECURITIES

   Summaries of the amortized cost and estimated fair value of investment
   securities and the related gross unrealized gains and losses are presented
   below:

<TABLE>
<CAPTION>
                                                                            Gross         Gross        Estimated
                                                            Amortized     Unrealized    Unrealized       Fair
                                                              Cost          Gains         Losses         Value
<S>                                                        <C>            <C>           <C>           <C>
AVAILABLE FOR SALE
  DECEMBER 31, 1996
    U.S. Treasury.......................................   $ 4,685,376     $ 33,154     $   15,432    $ 4,703,098
    U.S. Government agencies and corporations...........    19,283,516       63,259         63,882     19,282,893
    Mortgage-backed securities..........................     4,759,750       43,187         15,799      4,787,138
    Equity securities...................................       146,889        8,525         --            155,414
      Total.............................................   $28,875,531     $148,125     $   95,113    $28,928,543
  DECEMBER 31, 1995
    U.S. Treasury.......................................   $ 9,439,250     $134,291     $    8,658    $ 9,564,883
    U.S. Government agencies and corporations...........     8,604,302       49,133         12,213      8,641,222
    Mortgage-backed securities..........................     9,995,875       51,692         27,617     10,019,950
    Equity securities...................................       143,728        5,862         --            149,590
      Total.............................................   $28,183,155     $240,978     $   48,488    $28,375,645
HELD TO MATURITY
  DECEMBER 31, 1996
    U.S. Government agencies and corporations...........   $43,935,800     $114,573     $  441,497    $43,608,876
    State, county and municipal.........................    17,451,396      301,006         86,420     17,665,982
      Total.............................................   $61,387,196     $415,579     $  527,917    $61,274,858
  DECEMBER 31, 1995
    U.S. Government agencies and corporations...........   $43,975,874     $466,103     $   54,515    $44,387,462
    State, county and municipal.........................    12,184,940      447,387         11,553     12,620,774
      Total.............................................   $56,160,814     $913,490     $   66,068    $57,008,236
</TABLE>

   The amortized cost and estimated fair value of investment securities at
   December 31, 1996, by contractual maturity, are shown below. Actual
   maturities may differ from contractual maturities because issuers may have
   the right to prepay obligations with or without prepayment penalties.

<TABLE>
<CAPTION>
                                                          Available For Sale             Held To Maturity
                                                       Amortized      Estimated      Amortized      Estimated
                                                         Cost        Fair Value        Cost        Fair Value
<S>                                                   <C>            <C>            <C>            <C>
Due in one year or less............................   $ 3,077,658    $ 3,089,571    $ 1,673,383    $ 1,682,583
Due after one year through five years..............    12,066,711     12,052,628     27,583,959     27,575,662
Due after five years through ten years.............     8,824,523      8,843,792     24,037,534     23,911,622
Due after ten years................................       --             --           8,092,320      8,104,991
      Total........................................    23,968,892     23,985,991     61,387,196     61,274,858
Mortgage-backed securities.........................     4,759,750      4,787,138        --             --
Equity securities..................................       146,889        155,414        --             --
      Total investment securities..................   $28,875,531    $28,928,543    $61,387,196    $61,274,858
</TABLE>

   Debt securities with an estimated fair value of $50,856,716 were pledged to
   secure public funds and trust funds on deposit and retail repurchase
   agreements at December 31, 1996.

   Proceeds from the sale of investment securities classified as
   available-for-sale amounted to $5,896,328 in 1995. Gross losses of $414,596
   were realized on these sales. There were no securities sales in 1996 and
   1994.

                                       29

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. LOANS

   Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                                                                         December 31
<S>                                                                              <C>             <C>
                                                                                     1996            1995
Commercial and agricultural...................................................   $ 62,677,847    $ 47,317,352
Real estate -- construction...................................................      4,347,673         759,263
Real estate -- mortgage:
  1-4 family residential......................................................     68,886,704      57,663,783
  Commercial and other........................................................     24,256,938      27,802,936
Consumer......................................................................     35,103,521      46,379,403
    Total loans...............................................................   $195,272,683    $179,922,737
</TABLE>

   Loans as presented are increased by net deferred expense of $37,998 and
   $133,400 at December 31, 1996 and 1995, respectively. Residential mortgage
   loans held for sale at December 31, 1995 amounted to $405,503, with no such
   loans being held for sale at December 31, 1996. Nonaccrual loans amounted to
   $65,230 at December 31, 1996 and $25,576 at December 31, 1995. Lost interest
   income on nonaccrual loans was not material. Under the criteria of SFAS No.
   114, as discussed in Note 1, there were no loans considered to be impaired at
   December 31, 1996 or 1995.

   Loans are primarily made in the region of North Carolina that includes
   Randolph, Montgomery and Chatham counties. The real estate loan portfolio can
   be affected by the condition of the local real estate markets. Included in
   loans at December 31, 1996 and 1995 are $20,355,367 and $33,525,143,
   respectively, of retail installment loan contracts purchased primarily from
   automobile dealers. In March 1996, the Bank discontinued the purchase of
   retail installment loan contracts from automobile and equipment dealers.

   Loans have been made by the Bank to directors and executive officers of the
   Corporation and to the associates of such persons, as defined by the
   Securities and Exchange Commission. Such loans were made in the ordinary
   course of business on substantially the same terms, including rate and
   collateral, as those prevailing at the time in comparable transactions with
   other borrowers and do not involve more than normal risk of collectibility. A
   summary of the activity during 1996 with respect to related party loans is as
   follows:

<TABLE>
<S>                                                                            <C>
Balance, December 31, 1995..................................................   $  8,596,170
New loans during 1996.......................................................     10,244,476
Repayments during 1996......................................................     (8,637,755)
Balance, December 31, 1996..................................................   $ 10,202,891
</TABLE>

                                       30

<PAGE>
                                                        FNB CORP. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. ALLOWANCE FOR LOAN LOSSES

   Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                                                Years Ended December 31
<S>                                                                      <C>           <C>           <C>
                                                                            1996          1995          1994
Balance at beginning of year..........................................   $1,902,640    $1,719,717    $1,744,820
Provision for losses charged to operations............................      490,000       515,000       220,000
Loans charged off.....................................................     (568,499)     (476,977)     (436,157)
Recoveries on loans previously charged off............................      161,440       144,900       191,054
Balance at end of year................................................   $1,985,581    $1,902,640    $1,719,717
</TABLE>

5. PREMISES AND EQUIPMENT

   Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                            December 31
<S>                                                                                  <C>            <C>
                                                                                        1996           1995
Land..............................................................................   $ 1,003,619    $1,003,619
Buildings and improvements........................................................     4,275,866     4,045,155
Furniture and equipment...........................................................     4,953,489     4,572,809
Leasehold improvements............................................................       394,390       394,390
      Total.......................................................................    10,627,364    10,015,973
Less accumulated depreciation and amortization....................................     4,336,893     3,986,432
Premises and equipment, net.......................................................   $ 6,290,471    $6,029,541
</TABLE>

6. INCOME TAXES

   Income taxes as reported in the consolidated income statement included the
   following expense (benefit) components:

<TABLE>
<CAPTION>
                                                                            1996          1995          1994
<S>                                                                      <C>           <C>           <C>
Current:
  Federal.............................................................   $1,674,945    $1,045,564    $  818,773
  State...............................................................       66,505        18,795        45,055
    Total.............................................................    1,741,450     1,064,359       863,828
Deferred -- Federal...................................................      (65,999)       36,206       295,558
    Total income taxes................................................   $1,675,451    $1,100,565    $1,159,386
</TABLE>

   A reconciliation of income tax expense computed at the statutory Federal
   income tax rate to actual income tax expense is presented below:

<TABLE>
<CAPTION>
                                                                            1996          1995          1994
<S>                                                                      <C>           <C>           <C>
Amount of tax computed using Federal statutory tax rate of 34%........   $1,874,337    $1,292,348    $1,355,326
Increases (decreases) resulting from:
  Effect of tax-exempt loan and investment securities income..........     (251,508)     (213,390)     (233,114)
  Other...............................................................       52,622        21,607        37,174
      Total...........................................................   $1,675,451    $1,100,565    $1,159,386
</TABLE>

                                       31

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   The sources of deferred tax assets and liabilities and the tax effect of each
   are as follows:

<TABLE>
<CAPTION>
                                                                                            December 31
<S>                                                                                    <C>         <C>
                                                                                         1996         1995
Deferred tax assets:
  Allowance for loan losses.........................................................   $501,571    $  473,370
  Accrued expenses, not currently deductible........................................    324,210       326,010
  Other.............................................................................     76,663        73,001
    Total...........................................................................    902,444       872,381
Deferred tax liabilities:
  Depreciable basis of premises and equipment.......................................    309,869       236,963
  Taxable basis of investment securities............................................     53,499        47,066
  Prepaid pension cost..............................................................    224,827       250,717
  Net deferred loan fees and costs..................................................    219,625       309,318
  Other.............................................................................     27,472        74,587
    Total...........................................................................    835,292       918,651
Net deferred tax assets (liabilities)...............................................   $ 67,152    $  (46,270)
</TABLE>

   There is no valuation allowance for deferred tax assets as it is management's
   contention that realization of the deferred tax assets is more likely than
   not based upon the Corporation's history of taxable income and estimates of
   future taxable income.

7. EMPLOYEE BENEFIT PLANS

   PENSION PLAN

   The Corporation has a noncontributory defined benefit pension plan covering
   substantially all full-time employees who qualify as to age and length of
   service. Benefits are based on the employee's compensation, years of service
   and age at retirement. The Corporation's funding policy is to contribute
   annually to the plan an amount which is not less than the minimum amount
   required by the Employee Retirement Income Security Act of 1974 and not more
   than the maximum amount deductible for income tax purposes.

   Information concerning the funded status of the plan is as follows:

<TABLE>
<CAPTION>
                                                                                           December 31
<S>                                                                                 <C>            <C>
                                                                                       1996           1995
Actuarial present value of benefit obligation:
  Vested benefit obligation......................................................   $ 4,368,884    $ 4,059,993
  Non-vested benefit obligation..................................................        48,293         40,180
    Total accumulated benefit obligation.........................................   $ 4,417,177    $ 4,100,173
Projected benefit obligation for service rendered................................   $(5,325,298)   $(4,706,895)
Plan assets at fair value, primarily marketable securities.......................     4,828,175      4,428,752
Projected benefit obligation in excess of plan assets............................      (497,123)      (278,143)
Unrecognized net transition liability............................................       107,369        128,844
Unrecognized prior service cost..................................................       995,011        720,672
Unrecognized net loss............................................................        56,000        166,029
    Prepaid pension cost included on the consolidated balance sheet..............   $   661,257    $   737,402
</TABLE>

                                       32

<PAGE>
                                                        FNB CORP. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Net periodic pension cost included the following components:

<TABLE>
<CAPTION>
                                                                              1996         1995         1994
<S>                                                                         <C>          <C>          <C>
Service cost -- benefits earned during the period........................   $ 108,379    $  71,275    $  82,674
Interest cost on projected benefit obligation............................     327,835      311,432      280,736
Actual return on plan assets.............................................    (517,299)    (458,088)     101,768
Net amortization and deferral............................................     266,453      290,002     (279,824)
    Net periodic pension cost............................................   $ 185,368    $ 214,621    $ 185,354
</TABLE>

   The rates used in determining the actuarial present value of the projected
   benefit obligation were as follows:

<TABLE>
<CAPTION>
                                                                                           1996    1995    1994
<S>                                                                                        <C>     <C>     <C>
Discount rate...........................................................................    7.0%    7.0%    8.0%
Rate of increase in compensation levels.................................................    6.0     6.0     6.0
Expected long-term rate of return on plan assets........................................    8.0     8.0     8.0
</TABLE>

   OTHER POSTRETIREMENT DEFINED BENEFIT PLANS

   The Corporation has postretirement medical and life insurance plans covering
   substantially all full-time employees who qualify as to age and length of
   service. The medical plan is contributory, with retiree contributions
   adjusted whenever medical insurance rates change. The life insurance plan is
   noncontributory.

   Information reconciling the plans, which are unfunded, with the amount
   included on the consolidated balance sheet is as follows:

<TABLE>
<CAPTION>
                                                                                             December 31
<S>                                                                                     <C>          <C>
                                                                                          1996         1995
Accumulated postretirement benefit obligation:
  Retirees...........................................................................   $(322,587)   $(330,919)
  Fully eligible active participants.................................................     (26,174)     (25,500)
  Other active plan participants.....................................................    (201,338)    (173,295)
    Total accumulated postretirement benefit obligation..............................    (550,099)    (529,714)
Unrecognized net transition liability................................................     323,502      343,720
Unrecognized prior service cost......................................................      87,906       97,673
Unrecognized net gain................................................................     (13,926)     (18,285)
    Accrued postretirement benefit cost included on the consolidated balance sheet...   $(152,617)   $(106,606)
</TABLE>

   Net periodic postretirement benefit cost included the following components:

<TABLE>
<CAPTION>
                                                                                  1996       1995       1994
<S>                                                                              <C>        <C>        <C>
Service cost -- benefits earned during the period.............................   $17,049    $12,523    $ 6,880
Interest cost on accumulated postretirement benefit obligation................    35,931     35,998     34,468
Net amortization and deferral.................................................    29,985     28,239     20,218
    Net periodic postretirement benefit cost..................................   $82,965    $76,760    $61,566
</TABLE>

   For measurement purposes, the annual rate of increase assumed in 1996 for the
   cost of medical benefits was 14%, decreasing gradually to 6% in 2004 and
   assumed to remain at that level thereafter. In 1995, the annual rate of
   increase assumed for the cost of medical benefits was 15%, decreasing
   gradually to 6% in 2004 and assumed to remain at that level thereafter.
   Increasing the assumed medical cost trend rate by one percentage point in
   each year would not have a significant effect on either the accumulated
   postretirement benefit obligation at December 31, 1996 or the aggregate of
   the service and interest cost components of net periodic postretirement
   benefit cost for the year ended December 31, 1996. The discount rate used in
   determining the accumulated postretirement benefit obligation was 7.0% in
   1996, 7.0% in 1995 and 8.0% in 1994.

                                       33

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   MATCHING RETIREMENT/SAVINGS PLAN

   The Corporation has a matching retirement/savings plan which permits eligible
   employees to make contributions to the plan up to a specified percentage of
   compensation as defined by the plan. A portion of the employee contributions
   are matched by the Corporation based on the plan formula. The matching
   contributions amounted to $78,247 in 1996, $77,835 in 1995 and $71,484 in
   1994.

8. LEASES

   Future obligations for minimum rentals under noncancellable operating lease
   commitments, all relating to premises, are as follows:

<TABLE>
<CAPTION>
Years ending December 31
<S>                                                                                                  <C>
1997..............................................................................................   $ 45,109
1998..............................................................................................     45,109
1999..............................................................................................     45,109
2000..............................................................................................     15,100
2001..............................................................................................     15,100
2002 and later years..............................................................................     51,840
    Total minimum lease payments..................................................................   $217,367
</TABLE>

   Net rental expense for all operating leases amounted to $57,891 in 1996,
   $55,122 in 1995 and $50,908 in 1994. One operating lease for real property
   contains a purchase option considered to approximate fair market value.

9. SUPPLEMENTARY INCOME STATEMENT INFORMATION

   Significant components of other expense were as follows:

<TABLE>
<CAPTION>
                                                                                1996        1995        1994
<S>                                                                           <C>         <C>         <C>
FDIC insurance.............................................................   $101,621    $281,894    $503,379
Stationery, printing and supplies..........................................    301,703     280,665     304,997
</TABLE>

                                       34

<PAGE>
                                                        FNB CORP. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. FNB CORP. (PARENT COMPANY) FINANCIAL DATA

   The Parent Company's principal asset is its investment in the Bank
   subsidiary, and its principal source of income is dividends from that
   subsidiary.

   The Parent Company's condensed balance sheets as of December 31, 1996 and
   1995, and the related condensed statements of income and cash flows for each
   of the years in the three-year period ended December 31, 1996 are as follows:

 CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           December 31
<S>                                                                                 <C>            <C>
                                                                                       1996           1995
Assets:
  Cash...........................................................................   $   611,884    $   220,312
  Investment in wholly-owned bank subsidiary.....................................    28,129,278     25,758,036
  Other assets...................................................................       405,549        286,422
    Total assets.................................................................   $29,146,711    $26,264,770
Liabilities and Shareholders' Equity:
  Accrued liabilities............................................................   $   379,469    $   269,699
  Shareholders' equity...........................................................    28,767,242     25,995,071
    Total liabilities and shareholders' equity...................................   $29,146,711    $26,264,770
</TABLE>

 CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                Years Ended December 31
<S>                                                                      <C>           <C>           <C>
                                                                            1996          1995          1994
Income:
  Dividends from bank subsidiary......................................   $1,383,000    $  936,000    $1,146,000
  Other income (expense)..............................................        3,899          (315)        1,345
    Total income......................................................    1,386,899       935,685     1,147,345
Operating expenses....................................................       15,707       201,916        21,017
Income before income tax benefit and equity in undistributed net
  income of bank subsidiary...........................................    1,371,192       733,769     1,126,328
Income tax benefit....................................................        2,815        68,957         6,738
Income before equity in undistributed net income of bank subsidiary...    1,374,007       802,726     1,133,066
Equity in undistributed net income of bank subsidiary.................    2,463,297     1,897,731     1,693,800
    Net income........................................................   $3,837,304    $2,700,457    $2,826,866
</TABLE>

                                       35

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Years Ended December 31
<S>                                                                    <C>            <C>            <C>
                                                                          1996           1995           1994
Operating activities:
  Net income........................................................   $ 3,837,304    $2,700,457..   $ 2,826,866
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Equity in undistributed net income of bank subsidiary...........    (2,463,297)    (1,897,731)    (1,693,800)
    Other, net......................................................      (111,900)       (82,601)        (2,245)
      Net cash provided by operating activities.....................     1,262,107        720,125      1,130,821
Investing activities:
  Increase in other assets..........................................        (7,227)        (4,444)      (180,112)
Financing activities:
  Common stock issued...............................................       217,302         21,773             --
  Common stock repurchased..........................................            --        (52,800)            --
  Cash dividends and fractional shares paid.........................    (1,080,610)      (666,086)      (840,000)
      Net cash used in financing activities.........................      (863,308)      (697,113)      (840,000)
Net increase in cash................................................       391,572         18,568        110,709
Cash at beginning of year...........................................       220,312        201,744         91,035
Cash at end of year.................................................   $   611,884    $   220,312    $   201,744
</TABLE>

11. REGULATORY MATTERS

   Certain regulatory requirements restrict the lending of funds by the Bank to
   FNB Corp. and the amount of dividends which can be paid to FNB Corp. In 1997,
   the maximum amount of dividends the Bank can pay to FNB Corp., without the
   approval of the Comptroller of the Currency, is $4,361,057 plus an additional
   amount equal to the retained net income in 1997 up to the date of any
   dividend declaration.

   The Bank is required to maintain average reserve balances with the Federal
   Reserve Bank based on a percentage of deposits. For the reserve maintenance
   period in effect at December 31, 1996, the average daily reserve requirement
   was $3,253,000.

   FNB Corp. and the Bank are required to comply with capital adequacy standards
   established by the Board of Governors of the Federal Reserve System. In
   addition, the Bank is required to comply with prompt corrective action
   provisions established by the Federal Deposit Insurance Corporation
   Improvement Act. Under capital adequacy guidelines and the regulatory
   framework for prompt corrective action, there are minimum ratios of capital
   to risk-weighted assets. The capital amounts and classifications are also
   subject to qualitative judgments by the regulators about components, risk
   weightings, and other factors. Failure to meet minimum capital requirements
   can initiate certain mandatory and possibly discretionary actions by
   regulators that, if undertaken, could have a material effect on the
   consolidated financial statements.

   Regulatory capital amounts and ratios are set forth in the table below. The
   risk-based capital ratios are determined by expressing allowable capital
   amounts, defined in terms of Tier I and Tier II, as a percentage of
   risk-weighted assets, which are computed by measuring the relative credit
   risk of both the asset categories on the balance sheet and various
   off-balance sheet exposures. Tier I capital consists primarily of common
   shareholders' equity and qualifying perpetual preferred stock, net of
   goodwill and other disallowed intangible assets. Tier II capital, which is
   limited to the total of Tier I capital, includes allowable amounts of
   subordinated debt, mandatory convertible securities, preferred stock and the
   allowance for loan losses. Total capital, for risk-based purposes, consists
   of both Tier I and Tier II capital.

                                       36

<PAGE>
                                                        FNB CORP. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   The Bank is well-capitalized under the regulatory framework for prompt
   corrective action. To be categorized as well-capitalized, the Bank must meet
   minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
   forth in the table below.

<TABLE>
<CAPTION>
                                                                                               Minimum Ratios
                                                                                          For          To Be Well
                                                                                        Capital     Capitalized Under
                                                  Capital Amount          Ratio         Adequacy    Prompt Corrective
                                                 1996       1995      1996     1995     Purposes    Action Provisions
<S>                                             <C>        <C>        <C>      <C>      <C>         <C>
                                                   (thousands)
AS OF DECEMBER 31
  Total capital (to risk-weighted assets):
    FNB Corp.................................   $30,695    $27,740    14.79%   14.78%     8.00%             N/A
    Bank.....................................    29,980     27,390    14.46    14.61      8.00            10.00%
  Tier I capital (to risk-weighted assets):
    FNB Corp.................................    28,709     25,837    13.84    13.77      4.00              N/A
    Bank.....................................    27,994     25,487    13.50    13.59      4.00             6.00%
  Tier I capital (to average assets):
    FNB Corp.................................    28,709     25,837     9.41     9.16      4.00              N/A
    Bank.....................................    27,994     25,487     9.18     9.04      4.00             5.00%
</TABLE>

12. STOCK OPTIONS

   The Corporation adopted a stock compensation plan in 1994 that allows for the
   granting of incentive and nonqualified stock options to key employees and
   directors. Under terms of the plan, options are granted at prices equal to
   the fair market value of the common stock on the date of grant. Options
   become exercisable after one year in equal, cumulative installments over a
   five-year period. No option shall expire later than ten years from the date
   of grant. A maximum of 180,000 shares of common stock has been reserved for
   issuance under the stock compensation plan. At December 31, 1996, there were
   39,525 shares available under the plan for the granting of additional
   options.

   The Corporation applies APB Opinion No. 25 in accounting for the stock
   compensation plan and, accordingly, no compensation cost has been recognized
   for stock option grants in the consolidated financial statements. As required
   by Statement of Financial Accounting Standards (SFAS) No. 123, disclosures
   are presented below for the effect on net income and net income per share
   that would result from the use of the fair value based method to measure
   compensation costs related to stock option grants in 1995 and subsequent
   years. The effect on pro forma net income for 1996 and 1995 for options
   granted prior to 1995 has not been determined. Consequently, the effects of
   applying SFAS No. 123 pro forma disclosures during the initial phase-in
   period may not be representative of the effects on reported net income in
   future years.

<TABLE>
<CAPTION>
                                                                                          1996          1995
<S>                                                                                    <C>           <C>
NET INCOME
  As reported.......................................................................   $3,837,304    $2,700,457
  Pro forma.........................................................................   $3,803,186    $2,699,117
NET INCOME PER SHARE
  As reported.......................................................................         2.13          1.50
  Pro forma.........................................................................         2.11          1.50
</TABLE>

                                       37

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   The weighted-average fair value per share of options granted in 1996 and 1995
   amounted to $8.87 and $7.21, respectively. Fair values were estimated on the
   date of grant using the Black-Scholes option-pricing model with the following
   weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                                             1996       1995
<S>                                                                                         <C>        <C>
Risk-free interest rate..................................................................      6.25%      5.38%
Dividend yield...........................................................................      2.50       2.50
Volatility...............................................................................     30.00      30.00
Expected life............................................................................   6 years    6 years
</TABLE>

   A summary of stock option activity, adjusted to reflect the 1995 stock split
   disclosed in Note 1, is as follows:

<TABLE>
<CAPTION>
                                                                       Years Ended December 31
                                                         1996                   1995                   1994
                                                             Weighted               Weighted               Weighted
                                                             Average                Average                Average
                                                             Exercise               Exercise               Exercise
                                                  Shares      Price      Shares      Price      Shares      Price
<S>                                               <C>        <C>         <C>        <C>         <C>        <C>
Outstanding at beginning of year...............    97,375     $19.45      66,000     $16.27          --     $   --
Granted........................................    47,750      28.00      40,000      24.00      66,000      16.27
Exercised......................................    (2,425)     17.55          --         --          --         --
Forfeited......................................    (4,650)     20.01      (8,625)     16.27          --         --
Outstanding at end of year.....................   138,050      22.42      97,375      19.45      66,000      16.27
Options exercisable at end of year.............    27,250      18.30      11,475      16.27          --         --
</TABLE>

   At December 31, 1996, stock options outstanding had exercise prices ranging
   from $16.27 to $28.00 and a weighted-average remaining contractual life of
   8.9 years.

13. COMMITMENTS

   In the normal course of business, various commitments are outstanding that
   are not reflected in the consolidated financial statements. At December 31,
   1996, a summary of significant commitments is as follows:

<TABLE>
<S>                                                                             <C>
Commitments to extend credit.................................................   $45,576,000
Standby letters of credit....................................................     8,438,000
</TABLE>

   In management's opinion, these commitments will be funded from normal
   operations with not more than the normal risk of loss.

   The Bank has entered into an interest rate floor agreement with a
   correspondent bank to protect certain variable-rate loans from the downward
   effects of their repricing in the event of a decreasing rate environment. The
   notional amount of the agreement is $10,000,000. The agreement requires the
   correspondent bank to pay to the Bank the difference between the floor rate
   of interest of 7.50% and the prime rate of interest in the event that the
   prime rate is less. Any payments received under the agreement, net of premium
   amortization, will be treated as an adjustment of interest income on loans.
   The Bank's exposure to credit risk is limited to the ability of the
   counterparty to make payments to the Bank that are required pursuant to the
   agreement. The Bank's exposure to market risk of loss is limited to the
   amount of the unamortized premium. At December 31, 1996, the unamortized
   premium related to the interest rate floor agreement amounted to $42,000 and
   had an estimated fair value of $15,000. The Bank received no payments under
   the agreement in 1996.

                                       38

<PAGE>
                                                        FNB CORP. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

   The following methods and assumptions were used to estimate the fair value
   for each class of financial instruments.

   CASH AND CASH EQUIVALENTS. For cash on hand, amounts due from banks, and
   federal funds sold, the carrying value is considered to be a reasonable
   estimate of fair value.

   INVESTMENT SECURITIES. The fair value of investment securities is based on
   quoted market price, if available. If a quoted market price is not available,
   fair value is estimated using quoted market prices for similar securities.

   LOANS. The fair value of loans is estimated by discounting the future cash
   flows using the current rates at which similar loans would be made to
   borrowers with similar credit ratings and for the same remaining maturities.

   DEPOSITS. The fair value of noninterest-bearing demand deposits and NOW,
   savings and money market deposits is the amount payable on demand at the
   reporting date. The fair value of time deposits is estimated using the rates
   currently offered for deposits of similar remaining maturities.

   OTHER INTEREST-BEARING LIABILITIES. The carrying value of retail repurchase
   agreements and federal funds purchased is considered to be a reasonable
   estimate of fair value.

   COMMITMENTS. The fair value of commitments to extend credit is considered to
   approximate carrying value, since the large majority of these commitments
   would result in loans that have variable rates and/or relatively short terms
   to maturity. For other commitments, generally of a short-term nature, the
   carrying value is considered to be a reasonable estimate of fair value. The
   various commitment items are disclosed in Note 13.

   The estimated fair values of financial instruments are as follows (in
   thousands):

<TABLE>
<CAPTION>
                                                                    December 31, 1996        December 31, 1995
<S>                                                               <C>         <C>          <C>         <C>
                                                                              Estimated                Estimated
                                                                  Carrying      Fair       Carrying      Fair
                                                                   Value        Value       Value        Value
FINANCIAL ASSETS
  Cash and cash equivalents....................................   $ 13,052    $  13,052    $ 11,365    $ 11,365
  Investment securities:
    Available for sale.........................................     28,929       28,929      28,375      28,375
    Held to maturity...........................................     61,387       61,275      56,161      57,008
  Net loans....................................................    193,287      191,296     178,020     179,173
FINANCIAL LIABILITIES
  Deposits.....................................................    271,380      272,047     250,144     250,795
  Retail repurchase agreements.................................      3,725        3,725       4,642       4,642
  Federal funds purchased......................................        575          575          --          --
</TABLE>

   The fair value estimates are made at a specific point in time based on
   relevant market and other information about the financial instruments.
   Because no market exists for a significant portion of the Corporation's
   financial instruments, fair value estimates are based on judgments regarding
   future expected loss experience, current economic conditions, risk
   characteristics of various financial instruments, and such other factors.
   These estimates are subjective in nature and involve uncertainties and
   matters of significant judgment and therefore cannot be determined with
   precision. Changes in assumptions could significantly affect the estimates.
   In addition, the tax ramifications related to the realization of the
   unrealized gains and losses can have a significant effect on fair value
   estimates and have not been considered in the estimates.

                                       39

<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. RESTRUCTURING CHARGES

   In 1995, management adopted a comprehensive restructuring project for the
   purpose of reengineering Bank operations to become more competitive and
   cost-effective in developing business and servicing customers and to improve
   long-term profitability. In connection with this project, certain positions
   within the Bank were either realigned or eliminated. All significant project
   costs were incurred and paid in 1995.

   A summary of the restructuring charges is as follows:

<TABLE>
<S>                                                                                                  <C>
Retirement benefits...............................................................................   $256,266
Other personnel costs.............................................................................     44,850
    Total personnel costs.........................................................................    301,116
Professional fees related to restructuring project................................................    159,341
    Total restructuring charges...................................................................   $460,457
</TABLE>

16. ACQUISITIONS

   On December 30, 1993, the Corporation entered into definitive agreements to
   acquire two mutual savings banks, Home Savings Bank of Siler City, SSB of
   Siler City, North Carolina and Randleman Savings Bank, SSB of Randleman,
   North Carolina, in merger/conversion transactions, pursuant to which the
   savings banks would convert from mutual to stock form and the Corporation
   would simultaneously acquire the shares issued in the conversions. Regulatory
   applications for approval to consummate the proposed acquisitions were filed
   in April 1994. Substantial changes in regulatory policy occurring shortly
   after the applications were filed effectively resulted in a moratorium on
   federal approval of merger/conversions, and the Corporation subsequently
   withdrew the applications to the FDIC and the Federal Reserve and postponed
   the ultimate decision to proceed with the acquisitions until it was clear
   what the regulatory obstacles might be. In 1995, the agreements expired
   without the acquisitions having been completed due to changes in federal and
   state regulatory policies which strictly limited the circumstances under
   which such transactions would be permitted.

   The Corporation incurred certain costs in connection with the proposed
   acquisitions. Those costs, which had been deferred, amounted to $186,350 and
   are included in other expense in the consolidated statement of income for the
   year ended December 31, 1995.

                                       40

<PAGE>
GENERAL INFORMATION

CORPORATE HEADQUARTERS

FNB Corp.
101 Sunset Avenue
Post Office Box 1328
Asheboro, North Carolina 27204

COMMON STOCK

FNB Corp. Common stock is traded on the NASDAQ National Market System under the
symbol FNBN. At December 31, 1996, there were 1,062 shareholders of record.

MARKET MAKERS

Interstate/Johnson Lane Corporation
J. C. Bradford & Co., Incorporated

ANNUAL MEETING

The annual Meeting of Shareholders of FNB Corp. will be held at the AVS Banquet
Centre, 2045 North Fayetteville Street, Asheboro, North Carolina, on Tuesday,
May 13, 1997 at 1:00 p.m., preceded by a buffet luncheon beginning at 12:15 p.m.

FORM 10-KSB

Copies of the FNB Corp. Annual Report to the Securities and Exchange Commission
on Form 10-KSB may be obtained by any shareholder upon written request to Jerry
A. Little, Treasurer.

EQUAL OPPORTUNITY EMPLOYER

FNB Corp. and First National Bank and Trust Company are equal opportunity
employers. All matters regarding recruiting, hiring, training, compensation,
benefits, promotions, transfers and all other personnel policies will continue
to be free from all discriminatory practices.

STOCK TRANSFER AGENT AND REGISTRAR
DIVIDEND REINVESTMENT SERVICES

First National Bank and Trust Company
Post Office Box 1328
Asheboro, North Carolina 27204
Attention: Mrs. Susan G. Brown, Assistant Secretary
(910) 626-8300

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP
Greensboro, North Carolina
 
<PAGE>
<PAGE>