<PAGE>

================================================================================

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

                               -----------------

                                   FORM 10-K

                 Annual Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 2001

                        Commission File Number 0-13823

                               -----------------

                                   FNB CORP.
            (Exact name of Registrant as specified in its charter)

                   North Carolina              56-1456589
              (State of incorporation)       (I.R.S. Employer
                                           Identification No.)

               101 Sunset Avenue, Asheboro, North Carolina 27203
                   (Address of principal executive offices)

                                (336) 626-8300
             (Registrant's telephone number, including area code)

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

                    Common Stock, par value $2.50 per share
                               (Title of Class)

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

   As of March 15, 2002, the Registrant had 4,758,147 shares of $2.50 par value
common stock outstanding. The aggregate market value of voting stock held by
nonaffiliates of the Registrant, assuming, without admission, that all
directors and officers of the Registrant may be deemed affiliates, was
$62,844,000.

   Portions of the Proxy Statement of the Registrant for the Annual Meeting of
Shareholders to be held on May 14, 2002 are incorporated by reference in Part
III of this report.

================================================================================

<PAGE>

                             CROSS REFERENCE INDEX

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                -----
<C>      <C>     <S>                                                                                            <C>
Part I   Item 1  Business......................................................................................   3-7

         Item 2  Properties....................................................................................     7

         Item 3  Legal Proceedings
                 Not applicable.

         Item 4  Submission of Matters to a Vote of Security Holders
                 Not applicable.

Part II  Item 5  Market for the Registrant's Common Equity and Related Stockholder Matters.....................    29

         Item 6  Selected Financial Data.......................................................................     8

         Item 7  Management's Discussion and Analysis of Financial Condition and Results of Operations.........  9-29

         Item 7a Quantitative and Qualitative Disclosures about Market Risk.................................... 17-18

         Item 8  Financial Statements and Supplementary Data

                 Independent Auditors' Report..................................................................    30

                 Consolidated Balance Sheets at December 31, 2001 and 2000.....................................    31

                 Consolidated Statements of Income for each of the years in the three-year period ended
                 December 31, 2001.............................................................................    32

                 Consolidated Statements of Shareholders' Equity and Comprehensive Income for each of the
                 years in the three-year period ended December 31, 2001........................................    33

                 Consolidated Statements of Cash Flows for each of the years in the three-year period ended
                 December 31, 2001.............................................................................    34

                 Notes to Consolidated Financial Statements.................................................... 35-58

                 Quarterly Financial Data for 2001 and 2000....................................................    29

         Item 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
                 Not applicable.

Part III Item 10 Directors and Executive Officers of the Registrant............................................     *

         Item 11 Executive Compensation........................................................................     *

         Item 12 Security Ownership of Certain Beneficial Owners and Management................................     *

         Item 13 Certain Relationships and Related Transactions................................................     *

Part IV  Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                 (a)(1) Financial Statements (See Item 8 for reference).

                 (2) Financial Statement Schedules normally required on Form 10-K are omitted since they are
                     not applicable.

                 (3) Exhibits have been filed separately with the Commission and are available upon written
                     request...................................................................................    60

                 (b) Reports on Form 8-K (None were filed during the last quarter of the period covered by this
                     Form 10-K).
</TABLE>
--------
*  Information called for by Part III is incorporated herein by reference to
   portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
   Shareholders, as follows:

      Item 10--See information that appears under the headings "Election of
   Directors" and "Executive Officers".
      Item 11--See information that appears under the heading "Executive
   Compensation".
      Item 12--See information that appears under the headings "Voting
   Securities Outstanding and Principal Shareholders" and "Security Ownership
   of Management".
      Item 13--See information that appears under the heading "Indebtedness of
   Officers and Directors".

                                      2

<PAGE>

                                   BUSINESS

General

   FNB Corp. is a bank holding company incorporated under the laws of the State
of North Carolina in 1984. On July 2, 1985, through an exchange of stock, FNB
Corp. acquired its wholly-owned bank subsidiary, First National Bank and Trust
Company (the "Bank"), a national banking association founded in 1907. FNB Corp.
and the Bank are collectively referred to as the "Corporation".

   The Bank, a full-service commercial bank, currently conducts all of its
operations in Chatham, Montgomery, Moore, Randolph, Richmond and Scotland
counties in North Carolina. Three offices, including the main office, are
located in Asheboro. Additional community offices are located in Archdale (two
offices), Biscoe, Ellerbe, Laurinburg, Ramseur, Randleman, Rockingham (two
offices), Seagrove, Siler City, Southern Pines and Trinity. Some of the major
banking services offered include regular checking accounts, interest checking
accounts (including package account versions that offer a variety of products
and services), money market accounts, savings accounts, certificates of
deposit, individual retirement accounts, debit cards, credit cards and loans,
both secured and unsecured, for business, agricultural and personal use. Other
services offered include internet banking, cash management, investment and
trust services. The Bank also has automated teller machines and is a member of
Plus, a national teller machine network, and Star, a regional network.

   On April 10, 2000, the Corporation completed a merger for the acquisition of
Carolina Fincorp, Inc. ("Carolina Fincorp"), holding company for Richmond
Savings Bank, Inc., SSB ("Richmond Savings"), headquartered in Rockingham,
North Carolina, in a transaction accounted for as a pooling of interests.
Accordingly, all prior period financial information included in the
consolidated financial statements has been restated to include the account
balances and results of operations of Carolina Fincorp. Pursuant to the terms
of the merger, each share of Carolina Fincorp common stock was converted into
..79 of a share of FNB Corp. common stock, for a total issuance of 1,478,398 FNB
Corp. shares. On June 26, 2000, Richmond Savings was merged into First National
Bank and Trust Company. At March 31, 2000, Carolina Fincorp operated five
offices through Richmond Savings and had approximately $125,943,000 in total
assets, $108,848,000 in deposits and $16,332,000 in shareholders' equity.
Merger-related expenses of $2,796,000 were recorded in the second quarter of
2000. Upon the change in control, the Carolina Fincorp ESOP plan terminated
according to its terms and unvested MRP shares became fully vested. Included in
merger-related expenses were $385,000 of expense related to the termination of
these plans. Additionally, approximately $450,000 of the total provision for
loan losses of $835,000 in the second quarter of 2000 was related to aligning
the credit risk methodologies of FNB Corp. and Carolina Fincorp.

   In connection with the merger of the Bank with Richmond Savings, the Bank
acquired a financial subsidiary, Richmond Investment Services, Inc., which
changed its name after the acquisition to First National Investor Services, Inc.

   On February 11, 2002, the Corporation entered into a definitive merger
agreement to acquire Rowan Bancorp, Inc. ("Rowan Bancorp"), holding company for
Rowan Savings Bank, SSB, Inc. ("Rowan Bank"), headquartered in China Grove,
North Carolina. Under the terms of the agreement, Rowan Bancorp will be merged
with a wholly-owned subsidiary of FNB Corp. formed for the purposes of
effecting the merger, immediately after which, the subsidiary will be merged
into FNB Corp. Rowan Bank will then become a separate subsidiary of FNB Corp.
The merger will be accounted for as a purchase business combination and is
subject to several conditions, including approval by the shareholders of Rowan
Bancorp and approval by applicable regulatory authorities. Upon satisfaction of
these conditions, the merger is anticipated to close early in the third quarter
of 2002. Rowan Bancorp shareholders will be permitted to elect FNB Corp. common
stock or cash, or a combination of each. Subject to the Corporation's ability
to limit the overall stock consideration to 45%, each share of Rowan Bancorp
common stock, at the election of the shareholder, will be converted into either
2.3715 shares of FNB Corp. common stock or $36.00 in cash. At December 31,
2001, Rowan Bancorp operated three offices through Rowan Bank and had
approximately $116,033,000 in total assets, $96,494,000 in deposits and
$10,043,000 in shareholders' equity.

   In the 2000 fourth quarter, management adopted a balance sheet restructuring
project to reduce the level of lower yielding, 1-4 family residential mortgage
loans by selling those loans and redeploying the funds in other types of
assets, including specific purchases of bank owned life insurance and a more
general redeployment to other loan programs and investment securities. 1-4
family residential mortgage loans totaling $20,938,000 were transferred to
loans held for sale, and of that amount, $12,199,000 were sold in 2000 and the
remainder were sold in the first quarter of 2001. In December 2000, single
premium purchases of life insurance amounting to $10,000,000 were recorded as
bank owned life insurance in other

                                      3

<PAGE>

assets on the consolidated balance sheet. Income relating to the bank owned
life insurance is being recorded as noninterest income, while the loans sold
had generated interest income. The effective reduction of interest income will
tend to lower the net yield on earning assets and net interest spread in future
periods. Management believes that the income resulting from the bank owned life
insurance, which is not subject to income tax, will produce a greater
contribution to net income than did the income from the loans sold.

   Prior to March 26, 1999, the Bank's data processing, item capture and
statement rendering operations were outsourced under a service bureau
arrangement. Commencing in the 1998 fourth quarter, the Bank began the process
of converting these operations to an in-house basis. Conversion to the
replacement systems occurred on March 26, 1999. Richmond Savings, however, was
on a service bureau arrangement until its merger into the Bank on June 26,
2000. The total capital expenditure outlay for hardware and software amounted
to approximately $1,700,000, of which approximately one-half was recorded in
1998 and the remainder in 1999.

   In the 1998 fourth quarter, the Bank received regulatory approval for
establishment of a new branch office in Trinity, North Carolina. Construction
of the permanent Trinity facility was completed in February 2002, resulting in
a total capital outlay of approximately $1,400,000. Prior to completion of the
permanent facility, a temporary mobile office, which opened in August 1999, was
operated at this site.

   In March 2002, the Bank filed for regulatory approval for establishment of a
new branch office in Pinehurst, North Carolina. The current intent is to lease
a facility which had previously been used as a banking office by another
financial institution. No significant capital outlay is expected.

Competition

   The commercial banking industry within the Bank's marketing area is
extremely competitive. The Bank faces direct competition in Chatham,
Montgomery, Moore, Randolph, Richmond and Scotland counties from approximately
22 different financial institutions, including commercial banks, savings
institutions and credit unions. Although none of these entities is dominant,
the Bank considers itself one of the major financial institutions in the area
in terms of total assets and deposits. Further competition is provided by banks
located in adjoining counties, as well as other types of financial institutions
such as insurance companies, finance companies, pension funds and brokerage
houses and other money funds. The principal methods of competing in the
commercial banking industry are improving customer service through the quality
and range of services provided, improving cost efficiencies and pricing
services competitively.

Regulation and Supervision

   The following discussion sets forth material elements of the regulatory
framework applicable to bank holding companies and their subsidiaries. It also
provides certain specific information relevant to FNB Corp. This regulatory
framework is intended primarily for the protection of depositors and the
deposit insurance funds that insure deposits of banks and savings institutions,
and not for the protection of security holders. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to those provisions. A change in the
statutes, regulations or regulatory policies applicable to FNB Corp. or the
Bank may have a material effect on the business of the Corporation. Additional
information related to regulatory matters is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.

  General

   As a bank holding company, FNB Corp. is subject to regulation under the Bank
Holding Company Act of 1956, as amended, and to inspection, examination and
supervision by the Federal Reserve Board. Under the Bank Holding Company Act,
bank holding companies, such as FNB Corp., that have not elected to become
financial holding companies under the Gramm-Leach Bliley Financial
Modernization Act of 1999 generally may not acquire ownership or control of
more than 5% of the voting shares or substantially all the assets of any
company, including a bank, without the Federal Reserve Board's prior approval.

   As a national banking association, the Bank is subject to regulation and
examination primarily by the Office of the Comptroller of the Currency (OCC).
It is also regulated by the Federal Deposit Insurance Corporation (FDIC) and the

                                      4

<PAGE>

Federal Reserve Board. The Bank's deposits are insured by the FDIC through the
Bank Insurance Fund and the Savings Association Insurance Fund. The OCC and the
FDIC impose various requirements and restrictions on First National, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
on loans, limitations on the types of investments that may be made and the
types of services that may be offered, and requirements governing capital
adequacy, liquidity, earnings, dividends, management practices and branching.
As a member of the Federal Reserve System, the Bank is subject to the
applicable provisions of the Federal Reserve Act, which imposes restrictions on
loans by subsidiary banks to a holding company and its other subsidiaries and
on the use of stock or securities as collateral security for loans.

   Various consumer laws and regulations also affect the operations of the
Corporation. In addition to the impact of regulation, financial institutions
may be significantly affected by legislation, which can change the statutes
affecting them in substantial and unpredictable ways, and by the actions of the
Federal Reserve Board as it attempts to control the money supply and credit
availability to influence the economy. The instruments of monetary policy used
by the Federal Reserve Board include its open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements on member bank deposits. The actions of the
Federal Reserve Board influence the growth of bank loans, investments and
deposits and also affect interest rates charged on loans or paid on deposits.

  Liability for Bank Subsidiaries

   Under current Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial and managerial strength to its
subsidiary banks and to maintain resources adequate to support each subsidiary
bank. This support may be required at times when the bank holding company may
not have the resources to provide it. Similarly, the cross-guaranty provisions
of the Federal Deposit Insurance Act provide that if the FDIC suffers or
anticipates a loss as a result of a default by a banking subsidiary or by
providing assistance to a subsidiary in danger of default, then any other bank
subsidiaries may be assessed for the FDIC's loss.

  Capital Requirements

   FNB Corp. and the Bank are required to comply with federal regulations on
capital adequacy. There are two measures of capital adequacy: a risk-based
measure and a leverage measure. All capital standards must be satisfied for an
institution to be considered in compliance. For additional information, see
"Capital Adequacy" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below.

  Dividend Restrictions

   FNB Corp. is a legal entity separate and distinct from its bank subsidiary.
Because the principal source of FNB Corp. revenues is dividends from the Bank,
the ability of FNB Corp. to pay dividends to its shareholders depends largely
upon the amount of dividends the Bank may pay to its parent holding company.
There are statutory and regulatory limitations on the payment of dividends by
the Bank to FNB Corp., as well as by FNB Corp. to its shareholders.

   The Bank must obtain the prior approval of the OCC to pay dividends if the
total of all dividends declared by the Bank in any calendar year will exceed
the sum of its net profits for that year and its retained net profits for the
preceding two calendar years, less any required transfers to surplus. Federal
law also prohibits the Bank from paying dividends that in the aggregate would
be greater than the Bank's undivided profits after deducting statutory bad
debts in excess of the Bank's loan loss allowance.

   FNB Corp. and the Bank are also subject to various general regulatory
policies and requirements relating to the payment of dividends, including
requirements to maintain adequate capital above regulatory minimums.

  Community Reinvestment Act

   The Bank is subject to the provisions of the Community Reinvestment Act of
1977, as amended (CRA). Under the CRA, all financial institutions have a
continuing and affirmative obligation consistent with their safe and sound
operation to help meet the credit needs for their entire communities, including
low- and moderate-income neighborhoods. The CRA does

                                      5

<PAGE>

not establish specific lending requirements or programs for financial
institutions, nor does it limit an institution's discretion to develop the
types of products and services that it believes are best suited to its
particular community, consistent with the CRA.

   The CRA requires the appropriate federal bank regulatory agency, in
connection with its examination of the bank, to assess the bank's record in
meeting the credit needs of the community served by the bank, including low-
and moderate-income neighborhoods. The regulatory agency's assessment of the
bank's record is made available to the public.

  Interstate Banking and Branching

   The Interstate Banking Act permits interstate acquisitions of banks by bank
holding companies. FNB Corp. and any other bank holding company located in
North Carolina may acquire a bank located in any other state, and any bank
holding company located outside North Carolina may lawfully acquire any North
Carolina-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage limitations, aging requirements and other
restrictions. The Interstate Banking Act also generally provides that national
and state-chartered banks may branch interstate through acquisitions of banks
in other states. It allowed, however, any state to elect prior to June 1, 1997
either to "opt in" and accelerate the date after which interstate branching was
permissible or to "opt out" and prohibit interstate branching altogether. North
Carolina enacted "opt in" legislation permitting interstate branching. The
Interstate Banking Act may have the effect of increasing competition within the
markets in which FNB Corp. operates. The extent and timing of any such increase
cannot be predicted.

  Gramm-Leach-Bliley Act

   The Gramm-Leach-Bliley Financial Modernization Act of 1999 allows bank
holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in the securities and insurance
businesses. Under the Gramm-Leach Bliley Act, a bank holding company that
elects to become a financial holding company may engage in any activity that is
financial in nature, is incidental to financial activity or complements
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally.
Activities cited by the law as being "financial in nature" include securities
underwriting, dealing in securities and market making, insurance underwriting
and agency, providing financial, investment or economic advisory services, and
activities that the Federal Reserve Board has determined to be closely related
to banking.

   Subject to certain limitations on investment, a national bank or its
financial subsidiary may also engage in activities that are financial in
nature, other than insurance underwriting, insurance company portfolio
investment, real estate development and real estate investment, so long as the
bank is well-capitalized, well-managed and has at least a satisfactory
Community Reinvestment Act rating. Subsidiary banks of a financial holding
company or national banks with financial subsidiaries must continue to be
well-capitalized and well-managed to continue to engage in activities that are
financial in nature. In addition, a financial holding company or a bank may not
acquire a company that is engaged in activities that are financial in nature
unless each of the subsidiary banks of the financial holding company or the
bank has at least a satisfactory Community Reinvestment Act rating.

   The Gramm-Leach Bliley Act also contains a number of other provisions that
will affect the Corporation's operations and the operations of all financial
institutions. One of the new provisions relates to the financial privacy of
consumers, authorizing federal banking regulators to adopt rules that will
limit the ability of banks and other financial entities to disclose nonpublic
information about consumers to nonaffiliated entities. These limitations likely
will require more disclosure to the Corporation's customers, and in some
circumstances, will require consent by the customer before information is
allowed to be provided to a third party.

  International Money Laundering Abatement and Financial Anti-Terrorism Act of
  2001

   On October 26, 2001, the USA Patriot Act of 2001 was signed into law. This
act contains the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001 (the "IMLAFA"), which sets forth anti-money
laundering measures affecting insured depository institutions, broker-dealers
and other financial institutions. The IMLAFA requires U.S. financial
institutions to adopt new policies and procedures to combat money laundering
and grants the Secretary of the Treasury broad authority to establish
regulations and to impose requirements and restrictions on the operations of
financial

                                      6

<PAGE>

institutions. As of the date of this filing, the Corporation has not determined
the impact that the IMLAFA will have on its operations but the impact is not
expected to be material. The Corporation will establish policies and procedures
to ensure compliance with the IMLAFA.

Employees

   As of December 31, 2001, FNB Corp. had three officers, all of whom were also
officers of the Bank. On that same date, the Bank had 193 full-time employees
and 22 part-time employees. The Bank considers its relationship with its
employees to be excellent. The Bank provides employee benefit programs,
including a noncontributory defined benefit pension plan, matching
retirement/savings (401(k)) plan, group life, health and dental insurance, paid
vacations, sick leave, and health care and life insurance benefits for retired
employees.

Properties

   The main offices of the Bank and the principal executive offices of FNB
Corp. are located in an office building at 101 Sunset Avenue, Asheboro, North
Carolina. The premises contain approximately 36,500 square feet of office
space. The Bank also has other community offices in Asheboro (two offices),
Archdale (two offices), Biscoe, Ellerbe, Laurinburg, Ramseur, Randleman,
Rockingham (two offices), Seagrove, Siler City, Southern Pines and Trinity,
North Carolina. Except as noted below, all premises are owned by the Bank in
fee. The Bush Hill office in Archdale is under a lease expiring January 31,
2003, with lease renewal options for up to an additional 19-year term. The
Laurinburg office is under a lease expiring August 31, 2003. The land on which
the Seagrove office is situated is under a lease expiring June 30, 2016. At
that time, the land is subject to a purchase option at a fixed price or lease
renewal options for up to an additional 30-year term.

                                      7

<PAGE>

                           FNB CORP. AND SUBSIDIARY

                       FIVE YEAR FINANCIAL HISTORY /(1)/

<TABLE>
<CAPTION>
                                                        2001      2000      1999      1998      1997
                                                      --------  --------  --------  --------  --------
                                                        (dollars in thousands, except per share data)
<S>                                                   <C>       <C>       <C>       <C>       <C>
Summary of Operations
Interest income...................................... $ 41,260  $ 41,936  $ 35,822  $ 35,111  $ 32,242
Interest expense.....................................   20,492    20,908    16,203    15,713    14,463
                                                      --------  --------  --------  --------  --------
Net interest income..................................   20,768    21,028    19,619    19,398    17,779
Provision for loan losses............................    1,200     1,802       511       482       670
                                                      --------  --------  --------  --------  --------
Net interest income after provision for loan losses..   19,568    19,226    19,108    18,916    17,109
Noninterest income...................................    5,900     4,501     4,068     3,756     3,346
Noninterest expense..................................   16,077    18,497    15,082    14,473    13,382
                                                      --------  --------  --------  --------  --------
Income before income taxes...........................    9,391     5,230     8,094     8,199     7,073
Income taxes.........................................    2,663     1,714     2,504     2,568     2,220
                                                      --------  --------  --------  --------  --------
Net income........................................... $  6,728  $  3,516  $  5,590  $  5,631  $  4,853
                                                      ========  ========  ========  ========  ========
Per Share Data /(2)/
Net income:
 Basic............................................... $   1.35  $    .70  $   1.11  $   1.12  $   1.08
 Diluted.............................................     1.32       .69      1.09      1.09      1.07
Cash dividends declared /(3)/........................      .53       .51       .51       .45       .38
Book value...........................................    11.74     10.89     10.13      9.76     11.24

Balance Sheet Information
Total assets......................................... $593,742  $565,639  $517,468  $472,188  $437,743
Investment securities................................  163,150   132,384   119,786   121,471   112,278
Loans................................................  391,632   395,737   360,840   314,839   296,525
Deposits.............................................  480,230   472,448   427,010   400,218   365,349
Shareholders' equity.................................   55,907    55,122    52,068    50,390    57,349

Ratios (Averages)
Return on assets.....................................     1.15%      .65%     1.15%     1.23%     1.16%
Return on shareholders' equity.......................    11.63      6.59     10.85      9.55      9.78
Shareholders' equity to assets.......................     9.93      9.86     10.57     12.88     11.86
Dividend payout ratio................................    38.91     76.05     40.88     36.71     29.86
Loans to deposits....................................    81.71     84.79     80.63     80.36     77.71
Net yield on earning assets, taxable equivalent basis     4.03      4.28      4.48      4.71      4.72
</TABLE>
--------
(1) Financial data for all prior periods has been restated to reflect the
    merger with Carolina Fincorp, Inc., which became effective on April 10,
    2000 and was accounted for as a pooling of interests.
(2) All per share data has been retroactively adjusted to reflect the FNB Corp.
    two-for-one stock split effected in the form of a 100% stock dividend paid
    in the first quarter of 1998.
(3) Cash dividends declared represent FNB Corp. historical cash dividends
    declared.

                                      8

<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.

Overview

   On April 10, 2000, the Corporation completed a merger for the acquisition of
Carolina Fincorp, Inc. ("Carolina Fincorp"), holding company for Richmond
Savings Bank, Inc., SSB ("Richmond Savings"), headquartered in Rockingham,
North Carolina, in a transaction accounted for as a pooling of interests.
Accordingly, all prior period financial information included in the
consolidated financial statements has been restated to include the account
balances and results of operations of Carolina Fincorp. Pursuant to the terms
of the merger, each share of Carolina Fincorp common stock was converted into
..79 of a share of FNB Corp. common stock, for a total issuance of 1,478,398 FNB
Corp. shares. On June 26, 2000, Richmond Savings was merged into First National
Bank and Trust Company. At March 31, 2000, Carolina Fincorp operated five
offices through Richmond Savings and had approximately $125,943,000 in total
assets, $108,848,000 in deposits and $16,332,000 in shareholders' equity.
Merger-related expenses of $2,796,000 were recorded in the second quarter of
2000. Upon the change in control, the Carolina Fincorp ESOP plan terminated
according to its terms and unvested MRP shares became fully vested. Included in
merger-related expenses were $385,000 of expense related to the termination of
these plans. Additionally, approximately $450,000 of the total provision for
loan losses of $835,000 in the second quarter of 2000 was related to aligning
the credit risk methodologies of FNB Corp. and Carolina Fincorp.

   On February 11, 2002, the Corporation entered into a definitive merger
agreement to acquire Rowan Bancorp, Inc. ("Rowan Bancorp"), holding company for
Rowan Savings Bank, SSB, Inc. ("Rowan Bank"), headquartered in China Grove,
North Carolina. Under the terms of the agreement, Rowan Bancorp will be merged
with a wholly-owned subsidiary of FNB Corp. formed for the purposes of
effecting the merger, immediately after which, the subsidiary will be merged
into FNB Corp. Rowan Bank will then become a separate subsidiary of FNB Corp.
The merger will be accounted for as a purchase business combination and is
subject to several conditions, including approval by the shareholders of Rowan
Bancorp and approval by applicable regulatory authorities. Upon satisfaction of
these conditions, the merger is anticipated to close early in the third quarter
of 2002. Rowan Bancorp shareholders will be permitted to elect FNB Corp. common
stock or cash, or a combination of each. Subject to the Corporation's ability
to limit the overall stock consideration to 45%, each share of Rowan Bancorp
common stock, at the election of the shareholder, will be converted into either
2.3715 shares of FNB Corp. common stock or $36.00 in cash. At December 31,
2001, Rowan Bancorp operated three offices through Rowan Bank and had
approximately $116,033,000 in total assets, $96,494,000 in deposits and
$10,043,000 in shareholders' equity.

   In the 2000 fourth quarter, management adopted a balance sheet restructuring
project to reduce the level of lower yielding, 1-4 family residential mortgage
loans by selling those loans and redeploying the funds in other types of
assets, including specific purchases of bank owned life insurance and a more
general redeployment to other loan programs and investment securities. 1-4
family residential mortgage loans totaling $20,938,000 were transferred to
loans held for sale, and of that amount, $12,199,000 were sold in 2000 and the
remainder were sold in the first quarter of 2001. In December 2000, single
premium purchases of life insurance amounting to $10,000,000 were recorded as
bank owned life insurance in other assets on the consolidated balance sheet.
Income relating to the bank owned life insurance is being recorded as
noninterest income, while the loans sold had generated interest income. The
effective reduction of interest income will tend to lower the net yield on
earning assets and net interest spread in future periods. Management believes
that the income resulting from the bank owned life insurance, which is not
subject to income tax, will produce a greater contribution to net income than
did the income from the loans sold.

   The Corporation earned $6,728,000 in 2001, a 91.4% increase in net income
from 2000. Basic earnings per share increased from $.70 in 2000 to $1.35 in
2001 and diluted earnings per share increased from $.69 to $1.32. Total assets
were $593,742,000 at December 31, 2001, up 5.0% from year-end 2000. Loans
amounted to $391,632,000 at December 31, 2001, decreasing 1.0% from the prior
year. Total deposits grew 1.6% to $480,230,000 in 2001.

                                      9

<PAGE>

   Excluding $2,338,000 in after-tax charges associated with the merger, which
includes the $450,000 provision for loan losses discussed above, net income for
2000 amounted to $5,854,000, resulting in a comparative 14.9% increase in 2001
net income, with basic and diluted earnings per share amounts of $1.16 and
$1.15, respectively.

Critical Accounting Policies

   The Corporation's significant accounting policies are set forth in Note 1 to
the Consolidated Financial Statements. Of these significant accounting
policies, the Corporation considers its policy regarding the allowance for loan
losses to be its most critical accounting policy, because it requires
management's most subjective and complex judgments. In addition, changes in
economic conditions can have a significant impact on the allowance for loan
losses and therefore the provision for loan losses and results of operations.
The Corporation has developed appropriate policies and procedures for assessing
the adequacy of the allowance for loan losses, recognizing that this process
requires a number of assumptions and estimates with respect to its loan
portfolio. The Corporation's assessments may be impacted in future periods by
changes in economic conditions, the impact of regulatory examinations, and the
discovery of information with respect to borrowers which is not known to
management at the time of the issuance of the consolidated financial
statements. For additional discussion concerning the Corporation's allowance
for loan losses and related matters, see "Asset Quality".

Earnings Review

   After exclusion of after-tax, merger-related charges of $2,338,000 recorded
in the second quarter of 2000 and associated with the merger with Carolina
Fincorp as discussed in the "Overview", the Corporation's net income increased
$874,000 in 2001, up 14.9% over 2000. Earnings were positively impacted in 2001
by a $1,399,000 increase in noninterest income and by a $152,000 decrease in
the provision for loan losses, excluding merger-related charges. These gains
were partially offset, however, by a $376,000 increase in noninterest expense,
excluding merger-related charges, and by a $260,000 or 1.2% decrease in net
interest income, which reflected the effects of interest rate declines in 2001
and the balance sheet restructuring project discussed in the "Overview". The
interest rate declines, resulting from actions taken by the Federal Reserve,
caused a greater reduction in the average yield on earning assets than in the
average rate paid on interest-bearing liabilities. As noted in the discussion
of the restructuring project, non-taxable income related to bank owned life
insurance, which replaced a portion of certain loans sold, is recorded as
noninterest income, while income on loans sold was recorded as interest income.
Income on bank owned life insurance amounted to $638,000 in 2001 compared to
$12,000 in 2000. The net gain on loans sold, which amounted to $831,000 in 2001
compared to $153,000 in 2000, included a net gain of $151,000 in the 2001 first
quarter and $50,000 in the 2000 fourth quarter related to loans sold in
connection with the restructuring project.

   The Corporation's net income, after exclusion of the merger-related charges,
increased $264,000 in 2000, up 4.7% over 1999. Earnings were positively
impacted in 2000 by increases of $1,409,000 or 7.2% in net interest income and
$433,000 in noninterest income. These gains were significantly offset, however,
by an increase of $619,000 in noninterest expense and by an increase of
$841,000 in the provision for loan losses, excluding merger-related charges.
Results for 2000 were negatively affected by a special group medical insurance
assessment of $176,000 recorded in the second quarter, the effect of which was
only partially offset by a $76,000 gain on the sale of an investment recorded
in the same quarter.

   Excluding the merger-related charges, return on average assets declined from
1.15% in 1999 to 1.08% in 2000 and subsequently improved to 1.15% in 2001.
Return on average shareholders' equity improved from 10.85% in 1999 to 10.97%
in 2000 to 11.63% in 2001. Including the effect of the merger-related charges,
return on average assets was .65% in 2000 and return on average shareholders'
equity was 6.59%.

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 $20,768,000 in 2001 compared to $21,028,000 in 2000.
The decrease of $260,000 or 1.2% resulted primarily from the effect of the
balance sheet restructuring project as discussed in the "Overview" and from a
decline in the net yield on earning assets, or net interest margin, from 4.28%
in 2000 to 4.03% in 2001, the effect of which

                                      10

<PAGE>

more than offset the benefit of a 5.9% increase in the level of average earning
assets. In 2000, there was a $1,409,000 or 7.2% increase in net interest income
reflecting a 11.7% increase in average earning assets, the effect of which was
partially offset by a decline in the net interest margin from 4.48% in 1999 to
4.28% in 2000. On a taxable equivalent basis, the decrease in net interest
income in 2001 was $73,000 and the increase in 2000 was $1,377,000, 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.

Table 1
Average Balances and Net Interest Income Analysis

<TABLE>
<CAPTION>
                                                      2001                          2000                          1999
                                          ----------------------------  ----------------------------  -----------------
                                                   Interest   Average            Interest   Average            Interest
                                          Average  Income/     Rates    Average  Income/     Rates    Average  Income/
                                          Balance  Expense  Earned/Paid Balance  Expense  Earned/Paid Balance  Expense
                                          -------- -------- ----------- -------- -------- ----------- -------- --------
                                                         (taxable equivalent basis, dollars in thousands)
<S>                                       <C>      <C>      <C>         <C>      <C>      <C>         <C>      <C>
EARNING ASSETS
Loans (1) (2)............................ $391,127 $31,992     8.18%    $385,299 $34,296     8.88%    $328,450 $28,016
Investment securities (1):
  Taxable income.........................  128,610   8,738     6.79      103,636   6,772     6.53      104,438   6,893
  Non-taxable income.....................   20,026   1,541     7.69       19,684   1,508     7.66       19,832   1,537
Other earning assets.....................    5,352     199     3.73        6,296     383     6.06        8,446     431
                                          -------- -------     ----     -------- -------     ----     -------- -------
    Total earning assets.................  545,115  42,470     7.79      514,915  42,959     8.33      461,166  36,877
                                          -------- -------     ----     -------- -------     ----     -------- -------
Cash and due from banks..................   12,327                        13,955                        14,371
Other assets, net........................   25,083                        11,968                        11,895
                                          --------                      --------                      --------
    TOTAL ASSETS......................... $582,525                      $540,838                      $487,432
                                          ========                      ========                      ========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
  Demand deposits........................ $ 55,656     446      .80     $ 57,332     907     1.58     $ 55,129     826
  Savings deposits.......................   34,351     499     1.45       35,844     827     2.30       37,571     849
  Money market deposits..................   42,886   1,339     3.12       34,798   1,463     4.19       31,839   1,154
  Certificates and other time deposits...  299,787  16,469     5.49      279,586  16,304     5.82      239,289  12,354
Retail repurchase agreements.............   13,010     419     3.22       11,091     516     4.64       12,971     501
Federal Home Loan Bank advances..........   24,770   1,273     5.14       15,178     819     5.38        8,567     433
Other borrowed funds.....................      940      47     5.04        1,112      72     6.47        1,616      86
                                          -------- -------     ----     -------- -------     ----     -------- -------
    Total interest-bearing liabilities...  471,400  20,492     4.35      434,941  20,908     4.79      386,982  16,203
                                          -------- -------     ----     -------- -------     ----     -------- -------
Noninterest-bearing demand deposits......   46,012                        46,859                        43,546
Other liabilities........................    7,242                         5,692                         5,360
Shareholders' equity.....................   57,871                        53,346                        51,544
                                          --------                      --------                      --------
TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY................... $582,525                      $540,838                      $487,432
                                          ========                      ========                      ========
NET INTEREST INCOME
  AND SPREAD.............................          $21,978     3.44%             $22,051     3.54%             $20,674
                                                   =======     ====              =======     ====              =======
  EARNING ASSETS.........................                      4.03%                         4.28%
                                                               ====                          ====
</TABLE>
<TABLE>
<CAPTION>


                                            Average
                                             Rates
                                          Earned/Paid
                                          -----------
                                                         (taxable equivalent basis, dollars in thousands)
<S>                                       <C>
EARNING ASSETS
Loans (1) (2)............................    8.53%
Investment securities (1):
  Taxable income.........................    6.60
  Non-taxable income.....................    7.75
Other earning assets.....................    5.10
                                             ----
    Total earning assets.................    8.00
                                             ----
Cash and due from banks..................
Other assets, net........................

    TOTAL ASSETS.........................

INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
  Demand deposits........................    1.50
  Savings deposits.......................    2.26
  Money market deposits..................    3.62
  Certificates and other time deposits...    5.16
Retail repurchase agreements.............    3.87
Federal Home Loan Bank advances..........    5.05
Other borrowed funds.....................    5.30
                                             ----
    Total interest-bearing liabilities...    4.19
                                             ----
Noninterest-bearing demand deposits......
Other liabilities........................
Shareholders' equity.....................

TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY...................

NET INTEREST INCOME
  AND SPREAD.............................    3.81%
                                             ====
  EARNING ASSETS.........................    4.48%
                                             ====
</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.

                                      11

<PAGE>

   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.

   Until the significant interest rate declines in 2001, there had been a much
greater degree of stability for several years in the interest rates both earned
and paid by the Bank. The prime rate, which fell to 4.75% by December 31, 2001,
averaged 6.99% in 2001 compared to the average prime rates of 9.21%, 7.99% and
8.37% in 2000, 1999 and 1998, respectively. In all of these periods, however,
the actual level of the prime rate has changed with some frequency as the
Federal Reserve has responded to various economic scenarios. Due to concern
about inflationary pressures that appeared to be building in the economy, the
Federal Reserve elected to raise the level of interest rates in the third and
fourth quarters of 1999, resulting in three 25 basis point increases in the
prime rate that increased it from 7.75% to 8.50%, thereby effectively reversing
similar rate reductions that had occurred in 1998. Continued concerns about
possible inflationary pressures caused the Federal Reserve to further raise the
level of interest rates in the first six months of 2000, resulting in two
additional 25 basis point increases and one 50 basis point increase in the
prime rate that raised it to the 9.50% level. While the Corporation tended to
see some improvement in the average total yield on earning assets due to the
prime rate increases, the average rate paid on interest-bearing liabilities
increased by a greater amount, negatively impacting the net interest margin and
net interest spread.

   Due to a general slowdown in the economy that began to be perceived in the
2000 fourth quarter, the Federal Reserve acted to provide a stimulus through a
series of interest rate reductions commencing in the 2001 first quarter,
resulting in eight 50 basis point reductions and three 25 basis point
reductions in the prime rate that lowered it to the 4.75% level at December 31,
2001. This decrease in the prime rate, through the reduction of the average
yield on earning assets without a commensurate reduction in the average rate
paid on interest bearing liabilities, has tended to negatively impact the net
interest margin and net interest spread.

   In 2001, the net interest spread declined by 10 basis points from 3.54% in
2000 to 3.44% in 2001, reflecting the effect of a decrease in the average total
yield on earning assets that was only partially offset by a decrease in the
average rate paid on interest-bearing liabilities, or cost of funds. The yield
on earning assets decreased by 54 basis points from 8.33% in 2000 to 7.79% in
2001, while the cost of funds decreased by 44 basis points in moving from 4.79%
to 4.35%. In 2000, the 27 basis points decrease in net interest spread resulted
from a 33 basis points increase in the yield on earning assets that was more
than offset by a 60 basis points increase in the cost of funds.

   Due to significant progress made in lowering the cost of deposits during the
second half of 2001, the net interest margin and spread improved during the
2001 fourth quarter to 4.38% and 3.92%, respectively, compared to 4.12% and
3.33% in the 2000 fourth quarter and 4.03% and and 3.44% for the entire year of
2001. During these same periods, the cost of funds was 3.46%, 5.13% and 4.35%,
respectively, while the yield on earning assets was 7.38%, 8.46% and 7.79%.

                                      12

<PAGE>

   The 2001 and 2000 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

<TABLE>
<CAPTION>
                                               2001 Versus 2000              2000 Versus 1999
                                         ---------------------------- ----------------------------
                                         Variance due to(1)            Variance due to(1)
                                         -----------------            -----------------
                                         Volume     Rate   Net Change  Volume    Rate   Net Change
                                         ------   -------  ---------- ------    ------  ----------
                                                  (taxable equivalent basis, in thousands)
<S>                                      <C>      <C>      <C>        <C>       <C>     <C>
Interest Income
 Loans (2).............................. $  498   $(2,802)  $(2,304)  $5,077    $1,203    $6,280
 Investment securities (2):
   Taxable income.......................  1,687       279     1,966      (51)      (70)     (121)
   Non-taxable income...................     27         6        33      (11)      (18)      (29)
 Other earning assets...................    (52)     (132)     (184)    (121)       73       (48)
                                         ------   -------   -------    ------   ------    ------
       Total interest income............  2,160    (2,649)     (489)   4,894     1,188     6,082
                                         ------   -------   -------    ------   ------    ------

Interest Expense
 Interest-bearing deposits:
   Demand deposits......................    (26)     (435)     (461)      35        46        81
   Savings deposits.....................    (33)     (295)     (328)     (38)       16       (22)
   Money market deposits................    296      (420)     (124)     115       194       309
   Certificates and other time deposits.  1,126      (961)      165    2,245     1,705     3,950
 Retail repurchase agreements...........     79      (176)      (97)     (78)       93        15
 Federal Home Loan Bank advances........    492       (38)      454      356        30       386
 Other borrowed funds...................    (10)      (15)      (25)     (30)       16       (14)
                                         ------   -------   -------    ------   ------    ------
       Total interest expense...........  1,924    (2,340)     (416)   2,605     2,100     4,705
                                         ------   -------   -------    ------   ------    ------
      Net Interest Income............... $  236   $  (309)  $   (73)  $2,289    $ (912)   $1,377
                                         ======   =======   =======    ======   ======    ======
</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 probable losses inherent in the loan portfolio. 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.
Earnings were negatively impacted in 2000 by a $1,802,000 provision for loan
losses compared to provisions of $1,200,000 in 2001 and $511,000 in 1999. Of
the total 2000 provision, $835,000 was recorded in the second quarter, which
amount included approximately $450,000 that was merger related as discussed
below, while the remainder resulted from increases in historical charge-off
trends.

   The allowance for loan losses, as a percentage of loans held for investment,
amounted to 1.17% at December 31, 2001, 1.13% at December 31, 2000 and .91% at
December 31, 1999. The increase in the allowance percentage from December 31,
1999 to December 31, 2000 resulted largely from the provision component of
approximately $450,000 for the second quarter of 2000 to align the credit risk
methodologies of FNB Corp. and Carolina Fincorp, while the increase from
December 31, 2000 to December 31, 2001 related primarily to asset quality
considerations and increases in historical charge-off trends.

                                      13

<PAGE>

Noninterest Income

   Noninterest income increased $1,399,000 or 31.1% in 2001 and $433,000 or
10.6% in 2000, reflecting in part the general increase in the volume of
business. The 2001 increase was primarily due to a $678,000 increase in the net
gain on sales of loans and to a $626,000 increase in income on bank owned life
insurance. As discussed in the "Overview", a balance sheet restructuring
project resulted in single premium purchases of life insurance amounting to
$10,000,000 in December 2000. Income resulting from the bank owned life
insurance is not subject to income tax. The net gain on loans sold included a
net gain of $151,000 in the 2001 first quarter and $50,000 in the 2000 fourth
quarter related to loans sold in connection with the restructuring project. The
increase in service charges on deposit accounts in both 2001 and 2000 was
primarily due to the improved fee collection efforts that became effective in
2000 subsequent to the first quarter. The decrease in annuity and brokerage
commissions in both 2001 and 2000 was largely related to a general decrease in
the volume of sales of annuity products. Other income was positively impacted
in 2000 by a $76,000 gain on the sale of an investment and by a net gain on
sales of other real estate that exceeded the net gain recorded in 1999 while a
net loss was incurred on these sales in 2001.

Noninterest Expense

   Excluding merger-related expenses of $2,796,000 recorded in the second
quarter of 2000, noninterest expense was $376,000 or 2.4% higher in 2001. The
nominal increase in the level of noninterest expense in 2001 reflects in part
the successful implementation of synergies following the merger with Carolina
Fincorp on April 10, 2000 as discussed in the "Overview". Personnel expense was
impacted by increased staffing requirements and by normal salary adjustments.
The decrease in furniture and equipment expense was due mainly to the reduction
in depreciation expense related to computer networks that became fully
depreciated in the third and fourth quarters of 2000. The cost of data
processing services was higher in 2000 than in 2001 because of the outside data
processing services employed by Richmond Savings until its merger into First
National Bank and Trust Company on June 26, 2000. While benefiting from a
reduction in advertising and marketing expense, other expense was negatively
impacted in 2001 by increased expenses related to nonperforming assets.

   Noninterest expense, excluding merger-related expenses, was $619,000 or 4.1%
higher in 2000 due largely to increased personnel expense and the continuing
effects of inflation. The level of noninterest expense was further affected by
the opening of a new branch office in August 1999 (see "Business Development
Matters"). The components of noninterest expense were affected by the major
data processing conversion completed in the first quarter of 1999, which
conversion ultimately resulted in a major reduction in the cost of data
processing services provided by outside processors. The cost of outside data
processing services continued for Richmond Savings until its merger into First
National Bank and Trust Company on June 26, 2000. Personnel expense was
impacted by increased staffing requirements, especially as related to the data
processing conversion and to the opening of the new branch office, and by
normal salary adjustments. Personnel expense was further negatively affected in
2000 by a special group medical insurance assessment of $176,000 in the second
quarter. Additionally, group medical insurance rates were increased
approximately 39% in the 2000 second quarter. Furniture and equipment expense
increased largely as a result of the data processing conversion, especially for
depreciation and maintenance charges.

   The major data processing conversion from a service bureau arrangement to an
in-house basis, completed on March 26, 1999 and discussed in "Business
Development Matters", significantly affected operating results for the 1999
first quarter. The cost of data processing services in the 1999 first quarter
was impacted by the higher rate charged by the service bureau on a
month-to-month basis, subsequent to the termination of the prior long-term
agreement in late 1998. Also, personnel expense was negatively affected by the
staffing and training requirements that were preliminary to the implementation
of the new system.

   Subsequent to the 1999 first quarter, the total cost related to data
processing operations on an in-house basis compares favorably to the cost that
was being experienced under the service bureau arrangement prior to the start
of the conversion process in the 1998 fourth quarter. Noninterest expense
components are being significantly affected, however, as there is a major
decrease in the direct cost of data processing services, but increases in the
levels of personnel expense and furniture and equipment expense.

                                      14

<PAGE>

Merger-Related Expenses and Charges

   In connection with the merger acquisition of Carolina Fincorp,
merger-related expenses of $2,796,000 were recorded in the second quarter of
2000. Upon the change in control, the Carolina Fincorp ESOP plan terminated
according to its terms and unvested restricted stock plan shares became fully
vested, resulting in certain expenses considered merger-related. Other primary
components of merger-related expenses were professional fees, investment
banking fees, contract termination costs, data processing conversion fees and
severance payments. Additionally, approximately $450,000 of the total provision
for loan losses of $835,000 in the second quarter was related to aligning the
credit risk methodologies of FNB Corp. and Carolina Fincorp. The primary
components of merger-related expenses are summarized in Table 3.

Table 3
Merger-Related Expenses

<TABLE>
<CAPTION>
                                                              2000
                                                         --------------
                                                         (in thousands)
        <S>                                              <C>
        Professional fees...............................     $  569
        Investment banking fees.........................        558
        Contract termination costs......................        467
        ESOP and restricted stock plan termination costs        385
        Data processing conversion fees.................        209
        Severance payments..............................        161
        Other merger expenses...........................        447
                                                             ------
           Total........................................     $2,796
                                                             ======
</TABLE>

Income Taxes

   The effective income tax rate declined from 32.8% in 2000 to 28.4% in 2001
due principally to the nondeductibility of certain merger-related expenses in
2000 and to a decrease in the ratio of taxable to tax-exempt income. The
effective income tax rate increased from 30.9% in 1999 to 32.8% in 2000 due
principally to the nondeductibility of certain merger-related expenses.

Liquidity

   Liquidity refers to the continuing ability of the Bank to meet deposit
withdrawals, fund loan and 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 five major sources: (a) cash on hand
and on deposit at other banks, (b) the outstanding balance of federal funds
sold, (c) lines for the purchase of federal funds from other banks, (d) the
$71,200,000 line of credit established at the Federal Home Loan Bank, less
existing advances against that line, and (e) the investment securities
portfolio. 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.

   Consistent 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 primarily on a core of local deposits and the
Bank's capital position. To date, the steady increase in deposits, retail
repurchase agreements and capital, supplemented by Federal Home Loan Bank
advances, has been adequate to fund loan demand in the Bank's market area,
while maintaining the desired level of immediate liquidity and a substantial
investment securities portfolio available for both immediate and secondary
liquidity purposes.

                                      15

<PAGE>

Contractual Obligations

   Under existing contractual obligations, the Bank will be required to make
payments in future periods. The following table presents aggregated information
about the payments due under such contractual obligations at December 31, 2001.
Transaction deposit accounts with indeterminate maturities have been classified
as having payments due in one year or less.

Table 4
Contractual Obligations

<TABLE>
<CAPTION>
                                       Payments due by Period at December 31, 2001
                                       -------------------------------------------
                                          One    One to  Three to  Over
                                        Year or  Three     Five    Five
                                         Less    Years    Years    Years   Total
                                       --------  ------- -------- ------- --------
                                                 (dollars in thousands)
<S>                                    <C>       <C>     <C>      <C>     <C>
Deposits.............................. $426,720  $38,325 $15,185  $    -- $480,230
Retail repurchase agreements..........   14,812       --      --       --   14,812
Federal Home Loan Bank advances.......       --       --      --   30,000   30,000
Federal funds purchased...............    6,000       --      --       --    6,000
Lease obligations.....................       48       33      16       50      147
                                       --------  ------- -------  ------- --------
   Total contractual cash obligations. $447,580  $38,358 $15,201  $30,050 $531,189
                                       ========  ======= =======  ======= ========
</TABLE>

Commitments, Contingencies and Off-Balance Sheet Risk

   In the normal course of business, various commitments are outstanding that
are not reflected in the consolidated financial statements. At December 31,
2001, a summary of significant commitments is as follows:

<TABLE>
                   <S>                          <C>
                   Commitments to extend credit $103,135,000
                   Standby letters of credit...      351,000
</TABLE>

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

   Commitments to extend credit and undisbursed advances on customer lines of
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many commitments expire without being drawn, the total commitment amounts
do not necessarily represent future cash requirements. The Corporation
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary, upon extension of credit is based
on the credit evaluation of the borrower.

   Standby letters of credit are commitments issued by the Corporation to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that in
extending loans to customers.

   There were no binding commitments for the origination of mortgage loans
intended to be held for sale at December 31, 2001 and 2000.

   The Corporation does not have any special purpose entities or other similar
forms of off-balance sheet financing.

Asset/Liability Management and Interest Rate Sensitivity

   One of the primary objectives of asset/liability management is to maximize
the net interest margin 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.


                                      16

<PAGE>

   The Bank's balance sheet was liability-sensitive at December 31, 2001. A
liability-sensitive position means that in gap measurement periods of one year
or less there are 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 interest-bearing demand, savings and money
market deposits. These types of deposits historically have not repriced
coincidentally with or in the same proportion as general market indicators.

   Table 5 presents information about the periods in which the
interest-sensitive assets and liabilities at December 31, 2001 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 interest-bearing demand, savings and money
market deposits are assumed to reprice immediately and 50% are assumed to
reprice beyond one year.

Table 5
Interest Rate Sensitivity Analysis

<TABLE>
<CAPTION>
                                                       December 31, 2001
                                       ------------------------------------------------
                                           Rate Maturity In Days
                                       ----------------------------   Beyond
                                         1-90     91-180   181-365   One Year   Total
                                       --------  --------  --------  --------  --------
                                                    (dollars in thousands)
<S>                                    <C>       <C>       <C>       <C>       <C>
Earning Assets
 Loans................................ $187,696  $ 17,354  $ 27,492  $159,090  $391,632
 Investment securities................      579       929       646   160,996   163,150
 Federal funds sold...................      127        --        --        --       127
                                       --------  --------  --------  --------  --------
   Total earning assets...............  188,402    18,283    28,138   320,086   554,909
                                       --------  --------  --------  --------  --------
Interest-Bearing Liabilities
 Interest-bearing deposits:
   Demand deposits....................   29,603        --        --    29,604    59,207
   Savings deposits...................   17,209        --        --    17,210    34,419
   Money market deposits..............   23,435        --        --    23,435    46,870
   Time deposits of $100,000 or more..   50,048    29,335    18,621    11,183   109,187
   Other time deposits................   46,702    36,862    58,016    39,878   181,458
 Retail repurchase agreements.........   14,812        --        --        --    14,812
 Federal Home Loan Bank advances......       --        --        --    30,000    30,000
 Federal funds purchased..............    6,000        --        --        --     6,000
                                       --------  --------  --------  --------  --------
   Total interest-bearing liabilities.  187,809    66,197    76,637   151,310   481,953
                                       --------  --------  --------  --------  --------
Interest Sensitivity Gap.............. $    593  $(47,914) $(48,499) $168,776  $ 72,956
                                       ========  ========  ========  ========  ========
Cumulative gap........................ $    593  $(47,321) $(95,820) $ 72,956  $ 72,956
Ratio of interest-sensitive assets to
 interest-sensitive liabilities.......      100%       28%       37%      212%      115%
</TABLE>

Market Risk

   Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be reflected
in diminished current market values and/or reduced potential net interest
income in future periods.

   The Bank's market risk arises primarily from interest rate risk inherent in
its lending and deposit-taking activities. The structure of the Bank's loan and
deposit portfolios is such that a significant decline in interest rates may
adversely impact net market values and net interest income. The Bank does not
maintain a trading account nor is the Bank subject to currency exchange risk or
commodity price risk. Interest rate risk is monitored as part of the Bank's
asset/liability management function, which is discussed in "Asset/Liability
Management and Interest Rate Sensitivity" above.


                                      17

<PAGE>

   Table 6 presents information about the contractual maturities, average
interest rates and estimated fair values of financial instruments considered
market risk sensitive at December 31, 2001.

Table 6
Market Risk Analysis of Financial Instruments

<TABLE>
<CAPTION>
                                 Contractual Maturities at December 31, 2001
                         -----------------------------------------------------------
                                                                   Beyond            Average  Estimated
                                                                    Five             Interest   Fair
                           2002    2003    2004    2005    2006    Years     Total   Rate (1)   Value
                         -------- ------- ------- ------- ------- -------- --------- -------- ---------
                                                     (dollars in thousands)
<S>                      <C>      <C>     <C>     <C>     <C>     <C>      <C>       <C>      <C>
Financial Assets
 Debt securities (2).... $  2,121 $ 2,818 $ 1,724 $ 2,355 $   959 $148,727  $158,704   6.95%  $160,144
 Loans (3):
   Fixed rate...........   51,493  19,885  21,996  13,854  13,753   47,804   168,785   8.40    181,970
   Variable rate........   70,359  32,334  35,743  15,891  13,741   54,779   222,847   6.13    223,061
 Federal funds sold.....       --      --      --      --      --       --       127   1.65        127
                         -------- ------- ------- ------- ------- -------- ---------          --------
     Total.............. $123,973 $55,037 $59,463 $32,100 $28,453 $251,310  $550,463   7.06   $565,302
                         ======== ======= ======= ======= ======= ======== =========          ========
Financial Liabilities
 Interest-bearing demand
   deposits............. $     -- $    -- $    -- $    -- $    -- $     --  $ 59,207    .61   $ 59,207
 Savings deposits.......       --      --      --      --      --       --    34,419    .99     34,419
 Money market
   deposits.............       --      --      --      --      --       --    46,870   1.93     46,870
 Time deposits:
   Fixed rate...........  233,167  15,294  14,596   2,149  12,890       --   278,096   4.06    284,383
   Variable rate........    3,968   7,885     550     146      --       --    12,549   4.65     12,918
   Retail repurchase
   agreements...........       --      --      --      --      --       --    14,812   1.92     14,812
 Federal Home Loan
   Bank advances........       --      --      --      --      --   30,000    30,000   4.82     33,168
 Federal funds
   purchased............       --      --      --      --      --       --     6,000   1.71      6,000
                         -------- ------- ------- ------- ------- -------- ---------          --------
     Total.............. $237,135 $23,179 $15,146 $ 2,295 $12,890 $ 30,000  $481,953   3.18   $491,777
                         ======== ======= ======= ======= ======= ======== =========          ========
</TABLE>
--------
(1) The average interest rate related to debt securities is 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.

(2) Debt securities are reported on the basis of amortized cost.
    Mortgage-backed securities which have monthly curtailments of principal are
    categorized by final maturity.

(3) Nonaccrual loans are included in the balance of loans. The allowance for
    loan losses is excluded.

Capital Adequacy

   Under guidelines established by the Board of Governors of the Federal
Reserve System, capital 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 1, Tier 2 and Tier 3, 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 1 capital consists primarily of common shareholders' equity and
qualifying perpetual preferred stock, net of goodwill and other disallowed
intangible assets. Tier 2 capital, which is limited to the total of Tier 1
capital, includes allowable amounts of subordinated debt, mandatory convertible
debt, preferred stock and the allowance for loan losses. Tier 3 capital,
applicable only to financial institutions subject to certain market risk
capital guidelines, is capital allocated to support the market risk related to
a financial institution's ongoing trading activities.

                                      18

<PAGE>

   At December 31, 2001, FNB Corp. and the Bank were not subject to the market
risk capital guidelines and, accordingly, had no Tier 3 capital allocation.
Total capital, for risk-based purposes, consists of the sum of Tier 1, Tier 2
and Tier 3 capital. Under current requirements, the minimum total capital ratio
is 8.00% and the minimum Tier 1 capital ratio is 4.00%. At December 31, 2001,
FNB Corp. and the Bank had total capital ratios of 14.29% and 13.56%,
respectively, and Tier 1 capital ratios of 13.22% and 12.50%.

   The leverage capital ratio, which serves as a minimum capital standard,
considers Tier 1 capital only and is expressed as a percentage of average total
assets for the most recent quarter, after 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, 2001, FNB Corp. and the Bank had leverage capital ratios of 9.39% and
8.87%, 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 1 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, 2001 and, accordingly, is well-capitalized under the regulatory framework
for prompt corrective action.

Balance Sheet Review

   Asset growth, affected by the general slowdown in the economy, was at a much
lower rate in 2001 than in 2000. Total assets increased $28,103,000 or 5.0% in
2001 compared to $48,171,000 or 9.3% in 2000. Deposits grew $7,782,000 or 1.6%
and $45,438,000 or 10.6%, respectively, in the same periods. A significant
portion of the 2001 asset growth was funded by advances totaling $15,000,000
from the Federal Home Loan Bank, which added to the initial $15,000,000 level
of advances obtained from the FHLB in 1999. Retail repurchase agreements
increased $3,611,000 in 2001 following a $534,000 increase in 2000. The average
asset growth rates were 7.7% in 2001 and 11.0% in 2000. The corresponding
average deposit growth rates were 5.3% and 11.5%.

   Certain balance sheet restructuring matters are discussed in the "Overview".

Investment Securities

   Investments are carried on the consolidated balance sheet at estimated fair
value for available-for-sale securities and at amortized cost for
held-to-maturity securities. Table 7 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 "Accounting
Pronouncement Matters", on January 1, 2001, the Corporation transferred all of
its securities from the held-to-maturity portfolio to the available-for-sale
portfolio in connection with the adoption of Statement of Financial Accounting
Standards No. 133.

                                      19

<PAGE>

Table 7
Investment Securities Portfolio Analysis

<TABLE>
<CAPTION>
                                                             December 31
                                           ------------------------------------------------
                                                        2001                2000     1999
                                           -----------------------------  -------- --------
                                                     Estimated  Taxable
                                           Amortized   Fair    Equivalent Carrying Carrying
                                             Cost      Value   Yield (1)   Value    Value
                                           --------- --------- ---------- -------- --------
                                                        (dollars in thousands)
<S>                                        <C>       <C>       <C>        <C>      <C>
Available for Sale
U.S. Treasury:
 Within one year.......................... $     --  $     --       --%   $   753  $   758
 One to five years........................       --        --       --         --      250
                                           --------  --------             -------  -------
   Total..................................       --        --       --        753    1,008
                                           --------  --------             -------  -------
U.S. Government agencies and corporations:
 Within one year..........................    1,000     1,021     6.23      3,240    1,492
 One to five years........................    2,749     2,909     6.56     25,975   13,131
 Five to ten years........................   79,844    81,072     6.84     38,563   43,214
 Over ten years...........................   46,138    45,782     6.69      1,494       --
                                           --------  --------             -------  -------
   Total..................................  129,731   130,784     6.78     69,272   57,837
                                           --------  --------             -------  -------
Mortgage-backed securities................      330       341     7.04         --       --
                                           --------  --------             -------  -------
State, county and municipal:
 Within one year..........................    1,118     1,130     9.06         --       --
 One to five years........................    4,321     4,471     7.93         --       --
 Five to ten years........................   10,231    10,556     7.93         --       --
 Over ten years...........................    9,372     9,067     6.99         --       --
                                           --------  --------             -------  -------
   Total..................................   25,042    25,224     7.63         --       --
                                           --------  --------             -------  -------
Other debt securities:
 Within one year..........................       --        --       --         --       --
 One to five years........................      500       521     6.48         --       --
 Five to ten years........................      493       504     6.66         --       --
 Over ten years...........................    2,608     2,770     9.29         --       --
                                           --------  --------             -------  -------
   Total..................................    3,601     3,795     8.61         --       --
                                           --------  --------             -------  -------
Total debt securities.....................  158,704   160,144     6.95     70,025   58,845
Equity securities.........................    2,981     3,006               2,998    2,220
                                           --------  --------             -------  -------
   Total available-for-sale securities.... $161,685  $163,150             $73,023  $61,065
                                           ========  ========             =======  =======
Held to Maturity
U.S. Government agencies and corporations:
 Within one year.......................... $     --  $     --       --    $ 3,499  $ 1,001
 One to five years........................       --        --       --     28,190    7,796
 Five to ten years........................       --        --       --      4,400   28,292
                                           --------  --------             -------  -------
   Total..................................       --        --       --     36,089   37,089
                                           --------  --------             -------  -------
Mortgage-backed securities................       --        --       --        483      594
                                           --------  --------             -------  -------
State, county and municipal:
 Within one year..........................       --        --       --      1,092    1,330
 One to five years........................       --        --       --      4,483    4,495
 Five to ten years........................       --        --       --      7,637    6,645
 Over ten years...........................       --        --       --      6,523    7,578
                                           --------  --------             -------  -------
   Total..................................       --        --       --     19,735   20,048
                                           --------  --------             -------  -------
Other debt securities:
 Within one year..........................       --        --       --         --       --
 One to five years........................       --        --       --        499      499
 Five to ten years........................       --        --       --        492      491
 Over ten years...........................       --        --       --      2,063       --
                                           --------  --------             -------  -------
   Total..................................       --        --       --      3,054      990
                                           --------  --------             -------  -------
Total held-to-maturity securities......... $     --  $     --       --    $59,361  $58,721
                                           ========  ========             =======  =======
</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.

                                      20

<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. In general, since there was growth in total assets in 2001 but a
decrease in loans outstanding, the level of investment securities was increased
$30,766,000 or 23.2%. This growth in investment securities also related to
certain balance sheet strategies, including a restructuring project that
commenced in the 2000 fourth quarter (see "Overview") whereby certain loans
were sold with the reinvestment of such funds planned for other asset
categories including investment securities. Additionally, the funds obtained
from advances totaling $15,000,000 from the Federal Home Loan Bank in 2001 were
primarily utilized for the purchase of investment securities. In 2000, because
the growth in total assets exceeded that for loans and as investments were
further impacted by the balance sheet restructuring project, the level of
investment securities was increased $12,598,000 or 10.5%. 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, 2001.

Loans

   The Corporation's primary source of revenue and largest component of earning
assets is the loan portfolio. Reflecting the general slowdown in the economy
and as further impacted by the balance sheet restructuring project discussed
below, loans decreased $4,105,000 or 1.0% in 2001 after experiencing growth of
$34,897,000 or 9.7% in 2000. Average loans increased $5,828,000 or 1.5% and
$56,849,000 or 17.3%, respectively. The ratio of average loans to average
deposits decreased from 84.8% in 2000 to 81.7% in 2001. The ratio of loans to
deposits at December 31, 2001 was 81.6%.

   Table 8 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, 2001 are presented in Table 9.

Table 8
Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                             December 31
                              --------------------------------------------------------------------------
                                   2001           2000           1999           1998           1997
                              -------------- -------------- -------------- -------------- --------------
                               Amount    %    Amount    %    Amount    %    Amount    %    Amount    %
                              -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
                                                        (dollars in thousands)
<S>                           <C>      <C>   <C>      <C>   <C>      <C>   <C>      <C>   <C>      <C>
Commercial and agricultural.. $177,577  46.9 $160,057  41.5 $125,331  34.7 $ 99,055  32.0 $ 84,221  28.6
Real estate -- construction..   11,249   3.0    5,734   1.5    5,472   1.5    8,056   2.6    7,801   2.6
Real estate -- mortgage:
    1-4 family residential...  146,347  38.6  165,057  42.8  170,577  47.3  151,552  49.0  146,588  49.7
    Commercial and other.....   15,269   4.0   16,050   4.2   22,214   6.2   21,423   6.9   24,535   8.3
Consumer.....................   20,978   5.5   25,290   6.5   30,340   8.4   29,477   9.5   31,772  10.8
Leases.......................    7,376   2.0   13,679   3.5    6,832   1.9       --    --       --    --
                              -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Loans held for investment....  378,796 100.0  385,867 100.0  360,766 100.0  309,563 100.0  294,917 100.0
                                       =====          =====          =====          =====          =====
Loans held for sale..........   12,836          9,870             74          5,276          1,608
                              --------       --------       --------       --------       --------
Gross loans.................. $391,632       $395,737       $360,840       $314,839       $296,525
                              ========       ========       ========       ========       ========
</TABLE>

Table 9
Selected Loan Maturities
<TABLE>
<CAPTION>
                                              December 31, 2001
                                   ---------------------------------------
                                   One Year   One to      Over
                                   or Less  Five Years Five Years  Total
                                   -------- ---------- ---------- --------
                                               (in thousands)
      <S>                          <C>      <C>        <C>        <C>
      Commercial and agricultural. $63,534   $81,569    $32,474   $177,577
      Real estate -- construction.   6,410     3,428      1,411     11,249
                                   -------   -------    -------   --------
          Total selected loans.... $69,944   $84,997    $33,885   $188,826
                                   =======   =======    =======   ========
      Sensitivity to rate changes:
        Fixed interest rates...... $18,592   $33,644    $12,817   $ 65,053
        Variable interest rates...  51,352    51,353     21,068    123,773
                                   -------   -------    -------   --------
          Total................... $69,944   $84,997    $33,885   $188,826
                                   =======   =======    =======   ========
</TABLE>

                                      21

<PAGE>

   While the level of the entire loan portfolio was adversely impacted in 2001
by the general slowdown of the economy, the commercial and agricultural loan
portfolio did experience a gain. The level of the 1-4 family residential
mortgage loan portfolio has been specifically affected by the balance sheet
restructuring project adopted in the 2000 fourth quarter and discussed in the
"Overview". The specific aim of the restructuring project was to reduce the
level of lower yielding, 1-4 family residential mortgage loans by selling those
loans and redeploying the funds in other types of assets, including specific
purchases of bank owned life insurance and a more general redeployment to other
loan programs and investment securities. 1-4 family residential mortgage loans
totaling $20,938,000 were transferred to loans held for sale, and of that
amount, $12,199,000 were sold in 2000 and the remainder were sold in the first
quarter of 2001. Funds obtained from these sales were primarily redeployed to
single premium purchases of life insurance amounting to $10,000,000 in December
2000 and to purchases of investment securities.

Asset Quality

   Management considers the Bank's asset quality to be of primary importance. A
formal loan 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 a review of individual
loans, historical loan loss experience, the value and adequacy of collateral,
and economic conditions in the Bank's market area. For loans determined to be
impaired, the allowance 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. 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. Loans are charged off when, in the opinion of
management, they are deemed to be uncollectible. Recognized losses are charged
against the allowance, and subsequent recoveries are added to the allowance.

   At December 31, 2001, the Bank had impaired loans which totaled $512,000 and
were also on nonaccrual status. The related allowance for loan losses on these
loans amounted to $155,000. At December 31, 2000, the Bank had impaired loans
which totaled $321,000 and were also on nonaccrual status. The related
allowance for loan losses on these loans amounted to $73,000.

   A model that considers both allocated and unallocated components of the
allowance for loan losses is used on a quarterly basis to analyze the adequacy
of the allowance to absorb probable losses inherent in the loan portfolio.
Homogeneous pools of loans are segregated, and classifications of individual
loans within certain of these pools are identified using risk grades derived
from regulatory guidelines. Allocations of estimated reserves are assigned to
the most adversely classified loans based upon an individual analysis of
present-value repayment and/or liquidation projections of each loan. The
reserve is allocated to each pool, and remaining classifications within pools,
based upon a two-year historical loss ratio, concentrations within industries,
economic and industry-specific trends, portfolio trends, and other subjective
factors. An additional portion of the reserve is unallocated to any specific
portion of the loan portfolio, and is based upon the mix and weight of the
several homogeneous pools. The determination within the allowance model of
allocated and unallocated components is not necessarily indicative of future
losses or allocations. The entire balance of the allowance for loan losses is
available to absorb losses in the loan portfolio.

   The allowance for loan losses, as a percentage of loans held for investment,
amounted to 1.17% at December 31, 2001, 1.13% at December 31, 2000 and .91% at
December 31, 1999. The increase in the allowance percentage from December 31,
1999 to December 31, 2000 resulted largely from the merger-related component of
the provision for loan losses of approximately $450,000 in 2000 to align the
credit risk methodologies of FNB Corp. and Carolina Fincorp, Inc., while the
increase from December 31, 2000 to December 31, 2001 related primarily to asset
quality considerations and increases in historical charge-off trends.

   Management believes the allowance for loan losses of $4,417,000 at December
31, 2001 is adequate to cover probable losses in the loan portfolio; however,
assessing the adequacy of the allowance is a process that requires considerable

                                      22

<PAGE>

judgment. Management's judgments are based on numerous assumptions about
current events which it believes to be reasonable, but which may or may not be
valid. Thus there can be no asssurance that loan losses in future periods will
not exceed the current allowance or that future increases in the allowance will
not be required. No assurance can be given that management's ongoing evaluation
of the loan portfolio in light of changing economic conditions and other
relevant circumstances will not require significant future additions to the
allowance, thus adversely affecting the operating results of the Corporation.

   Table 10 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 11.

Table 10
Allowance for Loan Losses and Nonperforming Assets

<TABLE>
<CAPTION>
                                                    2001    2000    1999    1998    1997
                                                   ------  ------  ------  ------  ------
                                                           (dollars in thousands)
<S>                                                <C>     <C>     <C>     <C>     <C>
Allowance for Loan Losses
 Balance at beginning of year..................... $4,352  $3,289  $2,954  $2,694  $2,375
 Charge-offs:
   Commercial and agricultural....................    152     603      49       9      66
   Real estate -- construction....................     --      --      --      --      --
   Real estate -- mortgage........................     10      21       2      --       2
   Consumer.......................................    395     277     306     387     449
   Leases.........................................    702      12      --      --      --
                                                   ------  ------  ------  ------  ------
     Total charge-offs............................  1,259     913     357     396     517
                                                   ------  ------  ------  ------  ------
 Recoveries:
   Commercial and agricultural....................     63     117      16      16      14
   Real estate -- construction....................     --      --      --      --      --
   Real estate -- mortgage........................      8       6      --      --      11
   Consumer.......................................     96     130     138     158     141
   Leases.........................................     --      --      --      --      --
                                                   ------  ------  ------  ------  ------
     Total recoveries.............................    167     253     154     174     166
                                                   ------  ------  ------  ------  ------
 Net loan charge-offs.............................  1,092     660     203     222     351
 Provision for loan losses (1)....................  1,200   1,802     511     482     670
 Allowance adjustment for loans sold..............    (43)    (79)     --      --      --
 Adjustment to conform fiscal periods.............     --      --      27      --      --
                                                   ------  ------  ------  ------  ------
 Balance at end of year........................... $4,417  $4,352  $3,289  $2,954  $2,694
                                                   ======  ======  ======  ======  ======
Nonperforming Assets, at end of year
 Nonaccrual loans................................. $4,144  $1,478  $1,602  $  855  $  257
 Accruing loans past due 90 days or more..........    609     367     298     263     167
                                                   ------  ------  ------  ------  ------
     Total nonperforming loans....................  4,753   1,845   1,900   1,118     424
 Foreclosed assets................................    123      33       3      --      23
 Other real estate owned..........................    758     163     423      20      27
                                                   ------  ------  ------  ------  ------
     Total nonperforming assets................... $5,634  $2,041  $2,326  $1,138  $  474
                                                   ======  ======  ======  ======  ======
Ratios
 Net loan charge-offs to average loans............    .28%    .17%    .06%    .07%    .13%
 Net loan charge-offs to allowance for loan losses  24.72   15.17    6.17    7.52   13.03
 Allowance for loan losses to loans held for
   investment.....................................   1.17    1.13     .91     .95     .91
 Total nonperforming loans to loans held for
   investment.....................................   1.25     .48     .53     .36     .14
</TABLE>
--------
(1) Approximately $450,000 of the total provision for loan losses in 2000 was
    related to aligning the credit risk methodologies of FNB Corp. and Carolina
    Fincorp, Inc.

                                      23

<PAGE>

Table 11
Allocation of Allowance For Loan Losses

<TABLE>
<CAPTION>
                                                      December 31
                                           ----------------------------------
                                            2001   2000   1999   1998   1997
                                           ------ ------ ------ ------ ------
                                                     (in thousands)
   <S>                                     <C>    <C>    <C>    <C>    <C>
   Commercial and agricultural............ $1,590 $1,714 $1,070 $  821 $  719
   Real estate -- construction............     15     21     14     31     23
   Real estate -- mortgage................    776    982    735    643    633
   Consumer...............................    934  1,076  1,023  1,027    971
   Leases.................................    734    201     58     --     --
   Unallocated............................    368    358    389    432    348
                                           ------ ------ ------ ------ ------
        Total allowance for loan losses... $4,417 $4,352 $3,289 $2,954 $2,694
                                           ====== ====== ====== ====== ======
</TABLE>

Deposits

   The level and mix of deposits is affected by various factors, including
general economic 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. Money market deposits, which increased $10,969,000 in 2001,
were the most significant factor resulting in the 2001 gain in deposits. Time
deposits, reflecting the effect of promotions for premium-rate certificates of
deposits, grew $43,867,000 in 2000, accounting for the majority of total
deposit growth in that year. In 2001, time deposits decreased by $9,079,000.
Further, the level of time deposits obtained from governmental units
fluctuates, amounting to $53,573,000, $46,800,000, and $39,179,000 at December
31, 2001, 2000 and 1999, respectively.

                                      24

<PAGE>

   Table 12 shows the year-end and average deposit balances for the years 2001,
2000 and 1999 and the changes in 2001 and 2000.

Table 12
Analysis of Deposits

<TABLE>
<CAPTION>
                                                     2001                    2000            1999
                                            ----------------------  ----------------------  --------
                                                      Change from             Change from
                                                       Prior Year              Prior Year
                                                     -------------           -------------
                                            Balance  Amount    %    Balance  Amount    %    Balance
                                            -------- -------  ----  -------- -------  ----  --------
                                                             (dollars in thousands)
<S>                                         <C>      <C>      <C>   <C>      <C>      <C>   <C>
Year-End Balances
 Interest-bearing deposits:
   Demand deposits......................... $ 59,207 $ 2,726   4.8  $ 56,481 $(1,532) (2.6) $ 58,013
   Savings deposits........................   34,419     (22)  (.1)   34,441  (1,438) (4.0)   35,879
   Money market deposits...................   46,870  10,969  30.6    35,901   1,974   5.8    33,927
                                            -------- -------        -------- -------        --------
       Total...............................  140,496  13,673  10.8   126,823    (996)  (.8)  127,819
   Certificates and other time deposits....  290,645  (9,079) (3.0)  299,724  43,867  17.1   255,857
                                            -------- -------        -------- -------        --------
       Total interest-bearing deposits.....  431,141   4,594   1.1   426,547  42,871  11.2   383,676
   Noninterest-bearing demand deposits.....   49,089   3,188   6.9    45,901   2,567   5.9    43,334
                                            -------- -------        -------- -------        --------
       Total deposits...................... $480,230 $ 7,782   1.6  $472,448 $45,438  10.6  $427,010
                                            ======== =======        ======== =======        ========
Average Balances
 Interest-bearing deposits:
   Demand deposits......................... $ 55,656 $(1,676) (2.9) $ 57,332 $ 2,203   4.0  $ 55,129
   Savings deposits........................   34,351  (1,493) (4.2)   35,844  (1,727) (4.6)   37,571
   Money market deposits...................   42,886   8,088  23.2    34,798   2,959   9.3    31,839
                                            -------- -------        -------- -------        --------
       Total...............................  132,893   4,919   3.8   127,974   3,435   2.8   124,539
   Certificates and other time deposits....  299,787  20,201   7.2   279,586  40,297  16.8   239,289
                                            -------- -------        -------- -------        --------
       Total interest-bearing deposits.....  432,680  25,120   6.2   407,560  43,732  12.0   363,828
   Noninterest-bearing demand deposits.....   46,012    (847) (1.8)   46,859   3,313   7.6    43,546
                                            -------- -------        -------- -------        --------
       Total deposits...................... $478,692 $24,273   5.3  $454,419 $47,045  11.5  $407,374
                                            ======== =======        ======== =======        ========
</TABLE>

Business Development Matters

   As discussed in the "Overview" and in Note 2 to Consolidated Financial
Statements, the Corporation completed a merger on April 10, 2000 for the
acquisition of Carolina Fincorp, Inc. ("Carolina Fincorp"), holding company for
Richmond Savings Bank, Inc., SSB ("Richmond Savings"), headquartered in
Rockingham, North Carolina, in a transaction accounted for as a pooling of
interests.

   As further discussed in the "Overview" and in Note 2 to Consolidated
Financial Statements, on February 11, 2002, the Corporation entered into a
definitive merger agreement to acquire Rowan Bancorp, Inc. ("Rowan Bancorp"),
holding company for Rowan Savings Bank, SSB, Inc. ("Rowan Bank"), headquartered
in China Grove, North Carolina. Under the terms of the agreement, Rowan Bancorp
will be merged with a wholly-owned subsidiary of FNB Corp. formed for the
purposes of effecting the merger, immediately after which, the subsidiary will
be merged into FNB Corp. Rowan Bank will then become a separate subsidiary of
FNB Corp. The merger is anticipated to close early in the third quarter of 2002.

   As discussed in the "Overview", management adopted a balance sheet
restructuring project in the 2000 fourth quarter that has affected loans and
other balance sheet categories in both the 2000 fourth quarter and the 2001
first quarter.

   Prior to March 26, 1999, the Bank's data processing, item capture and
statement rendering operations were outsourced under a service bureau
arrangement. Commencing in the 1998 fourth quarter, the Bank began the process
of converting these

                                      25

<PAGE>

operations to an in-house basis. Conversion to the replacement systems occurred
on March 26, 1999. Richmond Savings, however, was on a service bureau
arrangement until its merger into the Bank on June 26, 2000. The total capital
expenditure outlay for hardware and software amounted to approximately
$1,700,000, of which approximately one-half was recorded in 1998 and the
remainder in 1999.

   In the 1998 fourth quarter, the Bank received regulatory approval for
establishment of a new branch office in Trinity, North Carolina. Construction
of the permanent Trinity facility was completed in February 2002, resulting in
a total capital outlay of approximately $1,400,000. Prior to completion of the
permanent facility, a temporary mobile office, which opened in August 1999, was
operated at this site.

   In March 2002, the Bank filed for regulatory approval for establishment of a
new branch office in Pinehurst, North Carolina. The current intent is to lease
a facility which had previously been used as a banking office by another
financial institution. No significant capital outlay is expected.

Accounting Pronouncement Matters

   On January 1, 2001, the Corporation adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as further amended by Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Financial Instruments and
Certain Hedging Activities, an amendment of FASB Statement No. 133"
(collectively referred to as "SFAS No. 133"). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. As
permitted by SFAS No. 133, on January 1, 2001, the Corporation transferred all
of its securities from the held-to-maturity portfolio to the available-for-sale
portfolio as follows:

<TABLE>
<CAPTION>
                                           Securities Transferred
                                       -----------------------------



                                                 Estimated Unrealized
                                       Amortized   Fair       Gain
                                         Cost      Value     (Loss)
                                       --------- --------- ----------
                                               (in thousands)
          <S>                          <C>       <C>       <C>
          U.S. Government agencies and
            corporations..............  $36,089   $35,759    $(330)
          Mortgage-backed securities..      483       488        5
          State, county and municipal.   19,735    20,352      617
          Other debt securities.......    3,054     3,128       74
                                        -------   -------    -----
               Total..................  $59,361   $59,727    $ 366
                                        =======   =======    =====
</TABLE>

   As of January 1, 2001, the transfer of the securities had a net of tax
effect of $242,000 on other comprehensive income.

   On January 1, 2001, the Corporation had no embedded derivative instruments
requiring separate accounting treatment. The Corporation does not engage in
hedging activities and has identified fixed rate conforming loan commitments as
its only freestanding derivative instruments. The fair value of these
commitments was not material and therefore the adoption of SFAS No. 133 on
January 1, 2001, did not have a material impact on the Corporation's
consolidated financial statements. The fair value of these commitments at
December 31, 2001 was not material to the Corporation's consolidated financial
statements. The Corporation had no other derivative instruments requiring
separate accounting treatment at December 31, 2001.

   In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities--a replacement of SFAS No. 125" ("SFAS No.
140"), which revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosure.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and is effective
for recognition and reclassification of collateral and for disclosures related
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. The Corporation adopted the provisions of SFAS No. 140
effective April 1, 2001 with no material impact.

                                      26

<PAGE>

   In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141"), and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies criteria which must be met for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill. SFAS No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
Also, SFAS No. 142 will require that identifiable intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and be reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of".

   The Corporation was required to adopt the provisions of SFAS No. 141 as of
June 30, 2001 and will adopt SFAS No. 142 effective January 1, 2002.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate accounting
literature issued prior to SFAS No. 142. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 continued to be
amortized in 2001 prior to the adoption of SFAS No. 142 on January 1, 2002.

   SFAS No. 141 requires, upon adoption of SFAS No. 142, that the Corporation
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in SFAS No. 141 for
recognition apart from goodwill. Upon adoption of SFAS No. 142, The Corporation
will be required to reassess the useful lives and residual values of all
identifiable intangible assets acquired in purchase business combinations, and
make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, any intangible asset classified as
goodwill under SFAS No. 142 will be subjected to a transitional impairment test
during the first six months of 2002 based on the level of goodwill as of
January 1, 2002. Any impairment losses identified as a result of this
transitional impairment test will be recognized in the 2002 statement of income
as the effect of a change in accounting principle.

   As of December 31, 2001, the Corporation had no goodwill and had intangible
assets, totaling $1,000, related to deposit and branch purchase acquisitions
that are being accounted for in accordance with SFAS No. 72, "Accounting for
Certain Acquisitions of Banking and Thrift Institutions". SFAS No. 72, which
was not amended by SFAS No. 142, requires that identified intangible assets and
unidentified intangible assets associated with deposit and branch purchase
acquisitions be amortized into expense. Accordingly, these intangible assets
will continue to be amortized over their useful lives (generally ten years).
Management periodically reviews the useful lives of these assets and adjusts
them downward where appropriate. The amortization expense associated with these
intangible assets was $9,000, $14,000, and $19,000 for the years ended December
31, 2001, 2000 and 1999, respectively.

   In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement cost. SFAS No. 143 requires the Corporation to record the fair value
of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or
normal use of the assets. The Corporation also is to record a corresponding
increase to the carrying amount of the related long-lived asset and to
depreciate that cost over the life of the asset. The liability is changed at
the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the initial fair value measurement. This
statement is effective for fiscal years beginning after June 15, 2002. At this
time, the Corporation is assessing the impact of SFAS No. 143 on its financial
condition and results of operations.

   In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This standard provides guidance on
differentiating between long-lived assets to be held and used, long-lived
assets to be disposed of other than by sale and long-lived assets to be
disposed of by sale. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Statement 144 also supersedes APB Opinion No. 30, "Reporting the Results of
Operations-Reporting

                                      27

<PAGE>

the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. The Corporation does not
expect adoption of SFAS No. 144 to have a material effect on its consolidated
financial statements.

Effects of Inflation

   The operations of the Bank and therefore of the Corporation are subject to
the effects of 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.

Cautionary Statement for Purpose of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

   The statements contained in this Annual Report on Form 10-K that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995), which can be identified by
the use of forward-looking terminology such as "believes", "expects", "plans",
"projects", "goals", "estimates", "may", "could", "should", or "anticipates" or
the negative thereof or other variations thereon of comparable terminology, or
by discussions of strategy that involve risks and uncertainties. In addition,
from time to time, the Corporation or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Corporation with the Securities and Exchange Commission, or press releases
or oral statements made by or with the approval of an authorized executive
officer of the Corporation. Forward-looking statements are based on
management's current views and assumptions and involve risks and uncertainties
that could significantly affect expected results. The Corporation wishes to
caution the reader that factors, such as those listed below, in some cases have
affected and could affect the Corporation's actual results, causing actual
results to differ materially from those in any forward-looking statement. These
factors include: (i) competitive pressure in the banking industry or in the
Corporation's markets may increase significantly, (ii) changes in the interest
rate environment may reduce margins, (iii) general economic conditions, either
nationally or regionally, may be less favorable than expected, resulting in,
among other things, credit quality deterioration, (iv) changes may occur in
banking legislation and in the environment, (v) changes may occur in general
business conditions and inflation and (vi) changes may occur in the securities
markets.

                                      28

<PAGE>

Table 13
Quarterly Financial Data

<TABLE>
<CAPTION>
                                                      First     Second   Third    Fourth
                                                     -------   -------  -------  -------
                                                    (in thousands, except per share data)
<S>                                                 <C>        <C>      <C>      <C>
2001
Interest income.................................... $10,677    $10,519  $10,269  $ 9,795
Interest expense...................................   5,769      5,565    5,015    4,143
                                                     -------   -------  -------  -------
Net interest income................................   4,908      4,954    5,254    5,652
Provision for loan losses..........................     120        165      205      710
                                                     -------   -------  -------  -------
Net interest income after provision for loan losses   4,788      4,789    5,049    4,942
Noninterest income.................................   1,426      1,488    1,453    1,533
Noninterest expense................................   3,839      4,071    4,097    4,070
                                                     -------   -------  -------  -------
Income before income taxes.........................   2,375      2,206    2,405    2,405
Income taxes.......................................     693        608      685      677
                                                     -------   -------  -------  -------
Net income......................................... $ 1,682    $ 1,598  $ 1,720  $ 1,728
                                                     =======   =======  =======  =======
Per share data:
 Net income:
   Basic........................................... $   .33    $   .32  $   .34  $   .36
   Diluted.........................................     .33        .31      .34      .35
 Cash dividends declared...........................     .12        .12      .12      .17
 Common stock price (1):
   High............................................   15.00      14.90    15.75    15.99
   Low.............................................   11.88      12.00    13.65    13.85

2000
Interest income.................................... $ 9,814    $10,330  $10,734  $11,058
Interest expense...................................   4,632      5,013    5,445    5,818
                                                     -------   -------  -------  -------
Net interest income................................   5,182      5,317    5,289    5,240
Provision for loan losses..........................     157        835      160      650
                                                     -------   -------  -------  -------
Net interest income after provision for loan losses   5,025      4,482    5,129    4,590
Noninterest income.................................   1,093      1,147    1,070    1,191
Merger related expense.............................      --      2,796       --       --
Noninterest expense................................   3,948      4,086    3,957    3,710
                                                     -------   -------  -------  -------
Income (loss) before income taxes..................   2,170     (1,253)   2,242    2,071
Income taxes (benefit).............................     689       (278)     698      605
                                                     -------   -------  -------  -------
Net income (loss).................................. $ 1,481    $  (975) $ 1,544  $ 1,466
                                                     =======   =======  =======  =======
Per share data:
 Net income (loss):
   Basic........................................... $   .30    $  (.19) $   .31  $   .29
   Diluted.........................................     .29       (.19)     .30      .29
 Cash dividends declared...........................     .12        .12      .12      .15
 Common stock price (1):
   High............................................   17.00      12.50    12.00    12.13
   Low.............................................   10.50       6.00     9.50    11.19
</TABLE>
--------
(1) FNB Corp. common stock is traded on the NASDAQ National Market System under
    the symbol FNBN. At December 31, 2001, there were 1,653 shareholders of
    record.


                                      29

<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, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended December 31, 2001.
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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

                                          /s/ KPMG LLP

Greenville, South Carolina
March 7, 2002

                                      30

<PAGE>

                           FNB CORP. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                     December 31
                                                                                                --------------------
                                                                                                  2001       2000
                                                                                                --------   --------
                                                                                                (in thousands, excep
                                                                                                     share data)
<S>                                                                                             <C>        <C>
Assets
Cash and due from banks........................................................................ $ 13,490   $ 14,108
Federal funds sold.............................................................................      127         94
Investment securities:
 Available for sale, at estimated fair value (amortized cost of $161,685 in 2001 and $73,572 in
   2000).......................................................................................  163,150     73,023
 Held to maturity (estimated fair value of $59,727 in 2000)....................................       --     59,361
Loans:
 Loans held for sale...........................................................................   12,836      9,870
 Loans held for investment.....................................................................  378,796    385,867
 Less allowance for loan losses................................................................   (4,417)    (4,352)
                                                                                                --------   --------
     Net loans.................................................................................  387,215    391,385
                                                                                                --------   --------
Premises and equipment, net....................................................................   10,268      9,596
Other assets...................................................................................   19,492     18,072
                                                                                                --------   --------
     Total Assets.............................................................................. $593,742   $565,639
                                                                                                ========   ========
Liabilities and Shareholders' Equity
Deposits:
 Noninterest-bearing demand deposits........................................................... $ 49,089   $ 45,901
 Interest-bearing deposits:
   Demand, savings and money market deposits...................................................  140,496    126,823
   Time deposits of $100,000 or more...........................................................  109,187    101,584
   Other time deposits.........................................................................  181,458    198,140
                                                                                                --------   --------
     Total deposits............................................................................  480,230    472,448
Retail repurchase agreements...................................................................   14,812     11,201
Federal Home Loan Bank advances................................................................   30,000     15,000
Federal funds purchased........................................................................    6,000      4,750
Other liabilities..............................................................................    6,793      7,118
                                                                                                --------   --------
     Total Liabilities.........................................................................  537,835    510,517
                                                                                                --------   --------
Shareholders' equity:
 Preferred stock, $10.00 par value; authorized 200,000 shares, none issued.....................       --         --
 Common stock, $2.50 par value; authorized 10,000,000 shares, issued 4,763,261 shares in 2001
   and 5,059,641 shares in 2000................................................................   11,908     12,649
 Surplus.......................................................................................       --      2,836
 Retained earnings.............................................................................   43,032     40,000
 Accumulated other comprehensive income (loss).................................................      967       (363)
                                                                                                --------   --------
     Total Shareholders' Equity................................................................   55,907     55,122
                                                                                                --------   --------
     Total Liabilities and Shareholders' Equity................................................ $593,742   $565,639
                                                                                                ========   ========
</TABLE>

Commitments (Note 17)

         See accompanying notes to consolidated financial statements.

                                      31

<PAGE>

                           FNB CORP. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                           Years Ended December 31
                                                    -------------------------------------
                                                        2001         2000        1999
                                                     ----------   ----------  ----------
                                                    (in thousands, except per share data)
<S>                                                 <C>          <C>          <C>
Interest Income
 Interest and fees on loans........................ $   31,872   $   34,241   $   27,970
 Interest and dividends on investment securities:
   Taxable income..................................      8,203        6,331        6,430
   Non-taxable income..............................        986          981          991
 Other interest income.............................        199          383          431
                                                     ----------   ----------  ----------
     Total interest income.........................     41,260       41,936       35,822
                                                     ----------   ----------  ----------
Interest Expense
 Deposits..........................................     18,753       19,501       15,183
 Retail repurchase agreements......................        419          516          501
 Federal Home Loan Bank advances...................      1,273          819          433
 Other borrowed funds..............................         47           72           86
                                                     ----------   ----------  ----------
     Total interest expense........................     20,492       20,908       16,203
                                                     ----------   ----------  ----------
Net Interest Income................................     20,768       21,028       19,619
 Provision for loan losses.........................      1,200        1,802          511
                                                     ----------   ----------  ----------
Net Interest Income After Provision for Loan Losses     19,568       19,226       19,108
                                                     ----------   ----------  ----------
Noninterest Income
 Service charges on deposit accounts...............      2,537        2,236        2,058
 Annuity and brokerage commissions.................        271          414          482
 Cardholder and merchant services income...........        609          524          450
 Other service charges, commissions and fees.......        720          674          583
 Bank owned life insurance.........................        638           12           --
 Net gain on sales of loans........................        831          153          238
 Other income......................................        294          488          257
                                                     ----------   ----------  ----------
     Total noninterest income......................      5,900        4,501        4,068
                                                     ----------   ----------  ----------
Noninterest Expense
 Personnel expense.................................      9,137        8,534        7,792
 Occupancy expense.................................        824          835          788
 Furniture and equipment expense...................      1,423        1,709        1,472
 Data processing services..........................        703          831        1,188
 Merger related expenses...........................         --        2,796           --
 Other expense.....................................      3,990        3,792        3,842
                                                     ----------   ----------  ----------
     Total noninterest expense.....................     16,077       18,497       15,082
                                                     ----------   ----------  ----------
Income Before Income Taxes.........................      9,391        5,230        8,094
Income taxes.......................................      2,663        1,714        2,504
                                                     ----------   ----------  ----------
Net Income......................................... $    6,728   $    3,516   $    5,590
                                                     ==========   ==========  ==========
Net income per common share:
 Basic............................................. $     1.35   $      .70   $     1.11
 Diluted........................................... $     1.32   $      .69   $     1.09
Weighted average number of shares outstanding:
 Basic.............................................  4,988,084    5,035,529    5,022,403
 Diluted...........................................  5,080,767    5,077,937    5,138,365
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      32

<PAGE>

                           FNB CORP. AND SUBSIDIARY

   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                      Common Stock                        ESOP and       Other
                                                   ------------------           Retained Restricted  Comprehensive
                                                    Shares    Amount   Surplus  Earnings Stock Plans Income (Loss)  Total
                                                   ---------  -------  -------  -------- ----------- ------------- -------
                                                                      (in thousands, except share data)
<S>                                                <C>        <C>      <C>      <C>      <C>         <C>           <C>
Balance, December 31, 1998........................ 5,160,756  $12,902  $ 4,205  $35,763    $(2,531)     $    51    $50,390
Comprehensive income:.............................
  Net income......................................        --       --       --    5,590         --           --      5,590
  Other comprehensive income:
    Unrealized securities losses, net of income
     tax benefit of $1,037........................        --       --       --       --         --       (2,009)    (2,009)
                                                                                                                   -------
  Total comprehensive income......................                                                                   3,581
                                                                                                                   -------
Cash dividends declared, $.51 per share...........        --       --       --   (2,285)        --           --     (2,285)
ESOP and restricted stock plan transactions.......        --       --      (64)      --        295           --        231
Common stock issued through:
  Dividend reinvestment plan......................        --       --       --       --         --           --         --
  Stock option plan...............................     7,224       19       77       --         --           --         96
Common stock repurchased..........................   (28,460)     (72)     (71)    (184)        --           --       (327)
Equity adjustment to conform fiscal periods.......        --       --      (16)     274        144          (20)       382
                                                   ---------  -------  -------  -------    -------      -------    -------
Balance, December 31, 1999........................ 5,139,520   12,849    4,131   39,158     (2,092)      (1,978)    52,068

Comprehensive income:
  Net income......................................        --       --       --    3,516         --           --      3,516
  Other comprehensive income:
    Unrealized securities gains, net of income
     taxes of $834................................        --       --       --       --         --        1,615      1,615
                                                                                                                   -------
  Total comprehensive income......................                                                                   5,131
                                                                                                                   -------
Cash dividends declared, $.51 per share...........        --       --       --   (2,674)        --           --     (2,674)
Cash paid for fractional shares in merger.........      (122)      --       (1)      --         --           --         (1)
ESOP and restricted stock plan transactions:
  Termination of plans............................   (93,113)    (233)  (1,342)      --      1,960           --        385
  Other transactions..............................        --       --      (17)      --        132           --        115
Common stock issued through:
  Dividend reinvestment plan......................     4,701       12       39       --         --           --         51
  Stock option plan...............................    15,355       38      114       --         --           --        152
Common stock repurchased..........................    (6,700)     (17)     (88)      --         --           --       (105)
                                                   ---------  -------  -------  -------    -------      -------    -------
Balance, December 31, 2000........................ 5,059,641   12,649    2,836   40,000         --         (363)    55,122

Comprehensive income:
  Net income......................................        --       --       --    6,728         --           --      6,728
  Other comprehensive income:
    Unrealized securities gains, net of income
     taxes of $684................................        --       --       --       --         --        1,330      1,330
                                                                                                                   -------
Total comprehensive income........................                                                                   8,058
                                                                                                                   -------
Cash dividends declared, $.53 per share...........        --       --       --   (2,618)        --           --     (2,618)
Common stock issued through:
  Stock option plan...............................    24,461       61      189       --         --           --        250
Common stock repurchased..........................  (320,841)    (802)  (3,025)  (1,078)        --           --     (4,905)
                                                   ---------  -------  -------  -------    -------      -------    -------
Balance, December 31, 2001........................ 4,763,261  $11,908  $    --  $43,032    $    --      $   967    $55,907
                                                   =========  =======  =======  =======    =======      =======    =======
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      33

<PAGE>

                           FNB CORP. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                        Years Ended December 31
                                                                                     -----------------------------
                                                                                       2001       2000      1999
                                                                                     ---------  --------  --------
                                                                                             (in thousands)
<S>                                                                                  <C>        <C>       <C>
Operating Activities
  Net income........................................................................ $   6,728  $  3,516  $  5,590
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization of premises and equipment.........................     1,144     1,465     1,359
    Provision for loan losses.......................................................     1,200     1,802       511
    Deferred income taxes...........................................................        20      (398)     (191)
    Deferred loan fees and costs, net...............................................       110       (22)      115
    Premium amortization and discount accretion of investment securities, net.......       (20)       47        (1)
    ESOP and restricted stock plan expenses.........................................        --       500       231
    Amortization of intangibles.....................................................         9        14        19
    Net decrease (increase) in loans held for sale..................................    (2,966)   11,142     5,096
    Decrease (increase) in other assets.............................................      (931)      631       436
    Increase (decrease) in other liabilities........................................      (452)    2,057      (354)
                                                                                     ---------  --------  --------
     Net Cash Provided by Operating Activities......................................     4,842    20,754    12,811
                                                                                     ---------  --------  --------
Investing Activities
  Available-for-sale securities:
    Proceeds from sales.............................................................        --        77       500
    Proceeds from maturities and calls..............................................   131,739     2,250    17,965
    Purchases.......................................................................  (160,460)  (11,761)  (30,039)
  Held-to-maturity securities:
    Proceeds from maturities and calls..............................................        --     2,434    13,039
    Purchases.......................................................................        --    (3,117)   (6,941)
  Net decrease (increase) in loans held for investment..............................     5,063   (47,948)  (46,246)
  Purchases of premises and equipment...............................................    (1,818)     (922)   (2,341)
  Purchases of life insurance contracts.............................................        --   (10,000)       --
  Other, net........................................................................      (373)     (108)      340
                                                                                     ---------  --------  --------
     Net Cash Used in Investing Activities..........................................   (25,849)  (69,095)  (53,723)
                                                                                     ---------  --------  --------
Financing Activities
  Net increase in deposits..........................................................     7,782    45,438    26,645
  Increase (decrease) in retail repurchase agreements...............................     3,611       534      (817)
  Increase in Federal Home Loan Bank advances.......................................    15,000        --    15,000
  Increase (decrease) in other borrowed funds.......................................     1,250    (2,985)    2,990
  Common stock issued...............................................................       250       203        96
  Common stock repurchased..........................................................    (4,905)     (105)     (327)
  Cash dividends and fractional shares paid.........................................    (2,566)   (2,465)   (2,284)
                                                                                     ---------  --------  --------
     Net Cash Provided by Financing Activities......................................    20,422    40,620    41,303
                                                                                     ---------  --------  --------
Net Increase (Decrease) in Cash and Cash Equivalents................................      (585)   (7,721)      391
Cash and cash equivalents at beginning of year......................................    14,202    21,923    23,253
Adjustment to conform fiscal periods................................................        --        --    (1,721)
                                                                                     ---------  --------  --------
Cash and Cash Equivalents at End of Year............................................ $  13,617  $ 14,202  $ 21,923
                                                                                     =========  ========  ========
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest........................................................................ $  21,502  $ 19,333  $ 16,128
    Income taxes....................................................................     2,994     1,879     3,025
  Noncash transactions:
    Transfer of held-to-maturity securities to available-for-sale securities........    59,361        --        --
    Loans held for investment transferred to loans held for sale....................        --    20,938        --
    Foreclosed loans transferred to other real estate...............................       673     1,173       549
    Unrealized securities gains (losses), net of income taxes.......................     1,330     1,615    (2,009)
</TABLE>
         See accompanying notes to consolidated financial statements.

                                      34

<PAGE>

                           FNB CORP. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 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, which has one
wholly-owned subsidiary, First National Investor Services, Inc., offers a
complete line of financial services, including loan, deposit, cash management,
investment and trust services, to individual and business customers primarily
in the region of North Carolina that includes Chatham, Montgomery, Moore,
Randolph, Richmond and Scotland 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 chief operating decision
maker reviews the results of operations of the Corporation and its subsidiary
as a single enterprise.

   The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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.

   As discussed in Note 2 below, the Corporation in 2000 completed a merger for
the acquisition of Carolina Fincorp, Inc. in a transaction accounted for as a
pooling of interests. Historical financial information included in these
consolidated financial statements has been restated to include the account
balances and results of operations of Carolina Fincorp, Inc.

  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

   Investment securities are categorized and accounted for as follows:

  .   Held-to-maturity securities--Debt securities that the Corporation has the
      positive intent and ability to hold to maturity are reported at amortized
      cost.

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

  .   Available-for-sale securities--Debt and equity securities not classified
      as either held-to-maturity securities or trading securities are reported
      at fair value, with unrealized gains and losses, net of related tax
      effect, included as an item of other comprehensive income 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.

   As permitted in connection with the adoption of SFAS No. 133 on January 1,
2001, as discussed under "Derivatives" below, the Corporation transferred all
of its securities from the held-to-maturity portfolio to the available-for-sale
portfolio. As of January 1, 2001, the transfer of the securities had a net of
tax effect of $242,000 on other comprehensive income.

   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.

                                      35

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)

  Loans

   Interest income on loans is generally calculated by using the constant yield
method based on the daily outstanding balance. The recognition of interest
income is discontinued when, in management's opinion, the collection of all or
a portion of interest becomes doubtful. Loans are returned to accrual status
when the factors indicating doubtful collectibility cease to exist and the loan
has performed in accordance with its terms for a demonstrated period of time.

   A loan is considered impaired when, based on current information or events,
it is probable that a borrower will be unable to pay all amounts due according
to the contractual terms of the loan agreement. For loans determined to be
impaired, the allowance 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. When the ultimate collectibility of the impaired
loan's principal is doubtful, all cash receipts are applied to principal. Once
the recorded principal balance has been reduced to zero, future cash receipts
are first recorded as recoveries of any amounts previously charged-off and are
then applied to interest income, to the extent that any interest has been
foregone.

   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. For loans determined to be impaired, the
allowance 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. 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.

  Other Real Estate

   Other real estate, which is included in other assets on the consolidated
balance sheet, represents properties acquired through foreclosure or deed in
lieu thereof and is carried at the lower of cost or fair value based on recent
appraisals, less estimated costs to sell. Declines in the fair value of
properties included in other real estate below carrying value are recognized by
a charge to income.

  Mortgage Servicing Rights (MSRs)

   The rights to service mortgage loans for others are included in other assets
on the consolidated balance sheet. MSRs are capitalized based on the allocated
cost which is determined when the underlying loans are sold. MSRs are amortized
over the life of the underlying loan as an adjustment of servicing income.
Impairment reviews of MSRs are performed on a quarterly basis.

                                      36

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)

  Premises and Equipment

   Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets as follows: buildings and improvements, 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

   In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141"), and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies criteria which must be met for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill. SFAS No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
Also, SFAS No. 142 will require that identifiable intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and be reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of".

   The Corporation was required to adopt the provisions of SFAS No. 141 as of
June 30, 2001 and will adopt SFAS No. 142 effective January 1, 2002.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate accounting
literature issued prior to SFAS No. 142. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 continued to be
amortized in 2001 prior to the adoption of SFAS No. 142 on January 1, 2002.

   SFAS No. 141 requires, upon adoption of SFAS No. 142, that the Corporation
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in SFAS No. 141 for
recognition apart from goodwill. Upon adoption of SFAS No. 142, the Corporation
will be required to reassess the useful lives and residual values of all
identifiable intangible assets acquired in purchase business combinations, and
make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, any intangible asset classified as
goodwill under SFAS No. 142 will be subjected to a transitional impairment test
during the first six months of 2002 based on the level of goodwill as of
January 1, 2002. Any impairment losses identified as a result of this
transitional impairment test will be recognized in the 2002 statement of income
as the effect of a change in accounting principle.

   As of December 31, 2001, the Corporation had no goodwill and had intangible
assets, totaling $1,000, related to deposit and branch purchase acquisitions
that are being accounted for in accordance with SFAS No. 72, "Accounting for
Certain Acquisitions of Banking and Thrift Institutions". SFAS No. 72, which
was not amended by SFAS No. 142, requires that identified intangible assets and
unidentified intangible assets associated with deposit and branch purchase
acquisitions be amortized into expense. Accordingly, these intangible assets
will continue to be amortized over their useful lives (generally ten years).
Management periodically reviews the useful lives of these assets and adjusts
them downward where appropriate. The amortization expense associated with these
intangible assets was $9,000, $14,000, and $19,000 for the years ended December
31, 2001, 2000 and 1999, respectively.

  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.

                                      37

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)

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.

  Earnings Per Share (EPS)

   As required for entities with complex capital structures, a dual
presentation of basic and diluted EPS is included on the face of the income
statement, and a reconciliation is provided in a footnote of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.

  Comprehensive Income

   Comprehensive income is defined as the change in equity of an enterprise
during a period from transactions and other events and circumstances from
nonowner sources and, accordingly, includes both net income and amounts
referred to as other comprehensive income. The items of other comprehensive
income are included in the consolidated statement of shareholders' equity and
comprehensive income. The accumulated balance of other comprehensive income is
included in the shareholders' equity section of the consolidated balance sheet.

  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.

   In 2000, the Corporation adopted a noncontributory, nonqualified
supplemental executive retirement plan (the "SERP") covering certain executive
employees. Annual benefits payable under the SERP are based on factors similar
to those for the pension plan, with offsets related to amounts payable under
the pension plan and social security benefits. SERP costs, which are
actuarially determined using the projected unit credit method and recorded on
an unfunded basis, are charged to current operations and credited to a
liability account on the consolidated balance sheet.

   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.

  Stock Options

   The Corporation accounts for awards under employee stock-based compensation
plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, no compensation cost has been recognized for such
awards in the consolidated financial statements. As required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Corporation discloses in a footnote the pro forma effect on
net income and earnings per share that would result from the use of the fair
value based method to measure compensation costs related to awards granted
after December 15, 1994.

  Derivatives

   On January 1, 2001, the Corporation adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as further amended by Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Financial Instruments and
Certain Hedging Activities, an amendment of FASB Statement No. 133"
(collectively referred to as "SFAS No. 133"). This statement establishes
accounting and reporting

                                      38

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)

standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. As permitted by SFAS No. 133, on January 1,
2001, the Corporation transferred all of its securities from the
held-to-maturity portfolio to the available-for-sale portfolio as follows:

<TABLE>
<CAPTION>
                                                  Securities Transferred
                                              -----------------------------
                                                        Estimated Unrealized
                                              Amortized   Fair       Gain
                                                Cost      Value     (Loss)
                                              --------- --------- ----------
                                                      (in thousands)
    <S>                                       <C>       <C>       <C>
    U.S. Government agencies and corporations  $36,089   $35,759    $(330)
    Mortgage-backed securities...............      483       488        5
    State, county and municipal..............   19,735    20,352      617
    Other debt securities....................    3,054     3,128       74
                                               -------   -------    -----
    Total....................................  $59,361   $59,727    $ 366
                                               =======   =======    =====
</TABLE>

   As of January 1, 2001, the transfer of the securities had a net of tax
effect of $242,000 on other comprehensive income.

   On January 1, 2001, the Corporation had no embedded derivative instruments
requiring separate accounting treatment. The Corporation does not engage in
hedging activities and has identified fixed rate conforming loan commitments as
its only freestanding derivative instruments. The fair value of these
commitments was not material and therefore the adoption of SFAS No. 133 on
January 1, 2001, did not have a material impact on the Corporation's
consolidated financial statements. The fair value of these commitments at
December 31, 2001 was not material to the Corporation's consolidated financial
statements. The Corporation had no other derivative instruments requiring
separate accounting treatment at December 31, 2001.

NOTE 2--MERGER INFORMATION

  Carolina Fincorp, Inc.

   On April 10, 2000, the Corporation completed a merger for the acquisition of
Carolina Fincorp, Inc. ("Carolina Fincorp"), holding company for Richmond
Savings Bank, Inc., SSB ("Richmond Savings"), headquartered in Rockingham,
North Carolina, in a transaction accounted for as a pooling of interests.
Accordingly, all prior period financial information included in the
consolidated financial statements has been restated to include the account
balances and results of operations of Carolina Fincorp.

   Pursuant to the terms of the merger, each share of Carolina Fincorp common
stock was converted into .79 of a share of FNB Corp. common stock, for a total
issuance of 1,478,398 FNB Corp. shares. On June 26, 2000, Richmond Savings was
merged into First National Bank and Trust Company. At March 31, 2000, Carolina
Fincorp operated five offices through Richmond Savings and had approximately
$125,943,000 in total assets, $108,848,000 in deposits and $16,332,000 in
shareholders' equity. Merger-related expenses of $2,796,000 were recorded in
the second quarter of 2000. Upon the change in control, the Carolina Fincorp
ESOP plan terminated according to its terms and unvested restricted stock plan
shares became fully vested, resulting in certain expenses considered
merger-related. Other primary components of merger-related expenses were
professional fees, investment banking fees, contract termination costs, data
processing conversion fees and

                                      39

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 2--MERGER INFORMATION--(Continued)

severance payments. Additionally, approximately $450,000 of the total provision
for loan losses of $835,000 in the second quarter of 2000 was related to
aligning the credit risk methodologies of FNB Corp. and Carolina Fincorp. The
primary components of merger-related expenses, all recorded in 2000, are as
follows (in thousands):

<TABLE>
            <S>                                              <C>
            Professional fees............................... $  569
            Investment banking fees.........................    558
            Contract termination costs......................    467
            ESOP and restricted stock plan termination costs    385
            Data processing conversion fees.................    209
            Severance payments..............................    161
            Other merger expenses...........................    447
                                                             ------
               Total........................................ $2,796
                                                             ======
</TABLE>

   For purposes of preparing the 1999 consolidated balance sheet, the year-end
for Carolina Fincorp was conformed from a June 30 year-end to the December 31
year-end of the Corporation. In preparing other consolidated financial
statements for 1999 and prior years and for the consolidated balance sheets
before December 31, 1999, the results of operations for Carolina Fincorp are
included based on the June 30 year-end. The net results of operations for
Carolina Fincorp for the six months ended December 31, 1999 are included as a
conforming adjustment in preparing the consolidated statement of shareholders'
equity and comprehensive income and consolidated statement of cash flows for
the year ended December 31, 1999. The equity adjustment to conform fiscal
periods for the consolidated statement of shareholders' equity and
comprehensive income consisted of the following for the operations of Carolina
Fincorp for the six months ended December 31, 1999 (in thousands):

<TABLE>
            <S>                                               <C>
            Net income....................................... $ 476
            Cash dividends declared..........................  (202)
            ESOP and restricted stock plan transactions......   128
            Unrealized securities losses, net of income taxes   (20)
                                                              -----
               Equity adjustment to conform fiscal periods... $ 382
                                                              =====
</TABLE>

   Separate financial information for the pooled entities for the year ended
December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                           FNB    Carolina
                                          Corp.   Fincorp  Combined
                                         -------- -------- --------
                                               (in thousands)
            <S>                          <C>      <C>      <C>
            Total assets................ $396,067 $121,401 $517,468
            Total revenues..............   30,734    9,156   39,890
            Net interest income.........   15,497    4,122   19,619
            Net income..................    4,657      933    5,590
            Net income per common share:
               Basic....................     1.27      .54     1.11
               Diluted..................     1.23      .54     1.09
</TABLE>

  Rowan Bancorp, Inc.

   On February 11, 2002, the Corporation entered into a definitive merger
agreement to acquire Rowan Bancorp, Inc. ("Rowan Bancorp"), holding company for
Rowan Savings Bank, SSB, Inc. ("Rowan Bank"), headquartered in China Grove,
North Carolina. Under the terms of the agreement, Rowan Bancorp will be merged
with a wholly-owned subsidiary of FNB Corp. formed for the purposes of
effecting the merger, immediately after which, the subsidiary will be merged
into FNB Corp. Rowan Bank will then become a separate subsidiary of FNB Corp.
The merger will be accounted for as a purchase

                                      40

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 2--MERGER INFORMATION--(Continued)

business combination and is subject to several conditions, including approval
by the shareholders of Rowan Bancorp and approval by applicable regulatory
authorities. Upon satisfaction of these conditions, the merger is anticipated
to close early in the third quarter of 2002. Rowan Bancorp shareholders will be
permitted to elect FNB Corp. common stock or cash, or a combination of each.
Subject to the Corporation's ability to limit the overall stock consideration
to 45%, each share of Rowan Bancorp common stock, at the election of the
shareholder, will be converted into either 2.3715 shares of FNB Corp. common
stock or $36.00 in cash. At December 31, 2001, Rowan Bancorp operated three
offices through Rowan Bank and had approximately $116,033,000 in total assets,
$96,494,000 in deposits and $10,043,000 in shareholders' equity.

NOTE 3--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>
                                              Amortized   Gross      Gross    Estimated
                                                Cost    Unrealized Unrealized   Fair
                                              ---------   Gains      Losses     Value
                                                           (in thousands)
<S>                                           <C>       <C>        <C>        <C>
Available For Sale
 December 31, 2001
   U.S. Government agencies and corporations. $129,731    $1,668     $  615   $130,784
   Mortgage-backed securities................      330        11         --        341
   State, county and municipal...............   25,042       574        392     25,224
   Other debt securities.....................    3,601       194         --      3,795
   Equity securities.........................    2,981        25         --      3,006
                                              --------    ------     ------   --------
     Total................................... $161,685    $2,472     $1,007   $163,150
                                              ========    ======     ======   ========
 December 31, 2000
   U.S. Treasury............................. $    749    $    4     $   --   $    753
   U.S. Government agencies and corporations.   69,854        67        649     69,272
   Equity securities.........................    2,969        29         --      2,998
                                              --------    ------     ------   --------
     Total................................... $ 73,572    $  100     $  649   $ 73,023
                                              ========    ======     ======   ========
Held To Maturity
 December 31, 2000
   U.S. Government agencies and corporations. $ 36,089    $   --     $  330   $ 35,759
   Mortgage-backed securities................      483         5         --        488
   State, county and municipal...............   19,735       622          5     20,352
   Other debt securities.....................    3,054        78          4      3,128
                                              --------    ------     ------   --------
     Total................................... $ 59,361    $  705     $  339   $ 59,727
                                              ========    ======     ======   ========
</TABLE>

                                      41

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 3--INVESTMENT SECURITIES--(Continued)

   The amortized cost and estimated fair value of investment securities at
December 31, 2001, 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
                                                  -------------------
                                                  Amortized Estimated
                                                    Cost      Fair
                                                  ---------   Value
                                                    (in thousands)
           <S>                                    <C>       <C>
           Due in one year or less............... $  2,118  $  2,151
           Due after one year through five years.    7,570     7,901
           Due after five years through ten years   90,568    92,132
           Due after ten years...................   58,118    57,619
                                                  --------  --------
              Total..............................  158,374   159,803
           Mortgage-backed securities............      330       341
           Equity securities.....................    2,981     3,006
                                                  --------  --------
              Total investment securities........ $161,685  $163,150
                                                  ========  ========
</TABLE>

   Debt securities with an estimated fair value of $75,819,000 at December 31,
2001 and $68,433,000 at December 31, 2000 were pledged to secure public funds
and trust funds on deposit. Debt securities with an estimated fair value of
$21,128,000 at December 31, 2001 and $18,800,000 at December 31, 2000 were
pledged to secure retail repurchase agreements.

   Proceeds from the sales of investment securities classified as
available-for-sale amounted to $77,000 in 2000 and $500,000 in 1999. Gross
gains of $76,000 were realized on the sales in 2000. There were no securities
sales in 2001.

   The Bank, as a member of the Federal Home Loan Bank (the "FHLB") of Atlanta,
is required to own capital stock in the FHLB of Atlanta based generally upon
the balances of residential mortgage loans and FHLB advances. FHLB capital
stock is pledged to secure FHLB advances. No ready market exists for this
stock, and it has no quoted market value. However, redemption of this stock has
historically been at par value. At December 31, 2001 and 2000, the Bank owned a
total of $2,557,000 of FHLB stock.

NOTE 4--LOANS

   Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                                December 31
                                             -----------------
                                               2001     2000
                                             -------- --------
                                              (in thousands)
                 <S>                         <C>      <C>
                 Commercial and agricultural $177,577 $160,057
                 Real estate -- construction   11,249    5,734
                 Real estate -- mortgage:
                  1-4 family residential....  146,347  165,057
                  Commercial and other......   15,269   16,050
                 Consumer...................   20,978   25,290
                 Leases.....................    7,376   13,679
                                             -------- --------
                 Loans held for investment..  378,796  385,867
                 Loans held for sale........   12,836    9,870
                                             -------- --------
                  Gross loans............... $391,632 $395,737
                                             ======== ========
</TABLE>

                                      42

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4--LOANS--(Continued)

   Loans as presented are reduced by net deferred loan fees of $514,000 and
$405,000 at December 31, 2001 and 2000, respectively. Nonaccrual loans amounted
to $4,144,000 at December 31, 2001 and $1,478,000 at December 31, 2000.
Interest income that would have been recorded on nonaccrual loans for the years
ended December 31, 2001, 2000 and 1999 had they performed in accordance with
their original terms, amounted to approximately $373,000, $137,000 and
$153,000, respectively. Interest income on all such loans included in the
results of operations amounted to approximately $213,000 in 2001, $98,000 in
2000 and $90,000 in 1999.

   At December 31, 2001, the Bank had impaired loans which totaled $512,000 and
were also on nonaccrual status. The related allowance for loan losses on these
loans amounted to $155,000. At December 31, 2000 the Bank had impaired loans
which totaled $321,000 and were also on nonaccrual status. The related
allowance for loan losses on these loans amounted to $73,000. The average
carrying value of impaired loans was $536,000 in 2001, $330,000 in 2000 and
$1,508,000 in 1999. Interest income recognized on impaired loans amounted to
approximately $51,000 in 2001, $17,000 in 2000 and $87,000 in 1999.

   Loans with outstanding balances of $673,000 in 2001 and $1,173,000 in 2000
were transferred from loans to other real estate acquired through foreclosure.
Other real estate acquired through loan foreclosures amounted to $758,000 at
December 31, 2001 and $163,000 at December 31, 2000 and is included in other
assets on the consolidated balance sheet.

   Loans are primarily made in the region of North Carolina that includes
Chatham, Montgomery, Moore, Randolph, Richmond and Scotland counties. The real
estate loan portfolio can be affected by the condition of the local real estate
markets.

   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 2001 with respect to related party loans is as follows (in
thousands):

<TABLE>
                      <S>                        <C>
                      Balance, December 31, 2000 $  8,020
                      New loans during 2001.....   17,055
                      Repayments during 2001....  (21,791)
                                                 --------
                      Balance, December 31, 2001 $  3,284
                                                 ========
</TABLE>

NOTE 5--ALLOWANCE FOR LOAN LOSSES

   Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                 Years Ended December 31
                                                 -----------------------
                                                  2001     2000    1999
                                                 -------  ------  ------
                                                      (in thousands)
      <S>                                        <C>      <C>     <C>
      Balance at beginning of year.............. $ 4,352  $3,289  $2,954
      Provision for losses charged to operations   1,200   1,802     511
      Loans charged off.........................  (1,259)   (913)   (357)
      Recoveries on loans previously charged off     167     253     154
      Allowance adjustment for loans sold.......     (43)    (79)     --
      Adjustment to conform fiscal periods......      --      --      27
                                                 -------  ------  ------
      Balance at end of year.................... $ 4,417  $4,352  $3,289
                                                 =======  ======  ======
</TABLE>


                                      43

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 6--PREMISES AND EQUIPMENT

   Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                          December 31
                                                        ---------------
                                                         2001    2000
                                                        ------- -------
                                                        (in thousands)
         <S>                                            <C>     <C>
         Land.......................................... $ 2,356 $ 2,342
         Buildings and improvements....................   7,773   6,672
         Furniture and equipment.......................   9,834   9,207
         Leasehold improvements........................     434     434
                                                        ------- -------
          Total........................................  20,397  18,655
         Less accumulated depreciation and amortization  10,129   9,059
                                                        ------- -------
         Premises and equipment, net................... $10,268 $ 9,596
                                                        ======= =======
</TABLE>

NOTE 7--INCOME TAXES

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

<TABLE>
<CAPTION>
                                         2001   2000    1999
                                        ------ ------  ------
                                            (in thousands)
                 <S>                    <C>    <C>     <C>
                 Current:
                  Federal.............. $2,640 $2,106  $2,633
                  State................      3      6      62
                                        ------ ------  ------
                    Total..............  2,643  2,112   2,695
                                        ------ ------  ------
                 Deferred--Federal.....     20   (398)   (191)
                                        ------ ------  ------
                    Total income taxes. $2,663 $1,714  $2,504
                                        ====== ======  ======
</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>
                                                      2001    2000    1999
                                                     ------  ------  ------
                                                         (in thousands)
    <S>                                              <C>     <C>     <C>
    Amount of tax computed using Federal
     statutory tax rate of 34%...................... $3,193  $1,778  $2,752
    Increases (decreases) resulting from effects of:
     Non-taxable income.............................   (565)   (329)   (316)
     Non-deductible merger-related expenses.........     --     331      --
     Other..........................................     35     (66)     68
                                                     ------  ------  ------
       Total........................................ $2,663  $1,714  $2,504
                                                     ======  ======  ======
</TABLE>

                                      44

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 7--INCOME TAXES--(Continued)

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

<TABLE>
<CAPTION>
                                                        December 31
                                                       --------------
                                                        2001   2000.
                                                       ------  ------
                                                       (in thousands)
          <S>                                          <C>     <C>
          Deferred tax assets:
           Allowance for loan losses.................. $1,272  $1,161
           Net unrealized securities losses...........     --     186
           Compensation and benefit plans.............    927     924
           Other......................................     67      80
                                                       ------  ------
             Total....................................  2,266   2,351
                                                       ------  ------
          Deferred tax liabilities:
           Depreciable basis of premises and equipment    401     337
           Net unrealized securities gains............    498      --
           Prepaid pension cost.......................    250     297
           Net deferred loan fees and costs...........    220     225
           Mortgage servicing rights..................    164      47
           Other......................................    157     165
                                                       ------  ------
             Total....................................  1,690   1,071
                                                       ------  ------
          Net deferred tax asset...................... $  576  $1,280
                                                       ======  ======
</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.

   The Corporation is permitted under the Internal Revenue Code to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. This addition differs significantly from the
provisions for losses for financial reporting purposes. Under accounting
principles generally accepted in the United States of America, the Corporation
is not required to provide a deferred tax liability for the tax effect of
additions to the tax bad debt reserve through 1987, the base year. Retained
earnings at December 31, 2001, includes approximately $1,400,000 for which no
provision for federal income tax has been made. These amounts represent
allocations of income to bad debt deductions for tax purposes only. Reductions
of such amounts for purposes other than bad debt losses could create income for
tax purposes in certain remote instances, which would then be subject to the
then current corporate income tax rate.

NOTE 8--TIME DEPOSITS

   The scheduled maturities of time deposits at December 31, 2001 are as
follows (in thousands):

<TABLE>
<CAPTION>
                       Years ending December 31
                       ------------------------
                       <S>                      <C>
                         2002.................. $237,135
                         2003..................   23,179
                         2004..................   15,146
                         2005..................    2,295
                         2006..................   12,890
                                                --------
                         Total time deposits... $290,645
                                                ========
</TABLE>

                                      45

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 9--SHORT-TERM BORROWED FUNDS

   Funds are borrowed on an overnight basis through retail repurchase
agreements with Bank customers and federal funds purchased from other financial
institutions. Retail repurchase agreement borrowings are collateralized by
securities of the U.S. Treasury and U.S. Government agencies and corporations.

   Information concerning retail repurchase agreements and federal funds
purchased is as follows:

<TABLE>
<CAPTION>
                                           2001                 2000
                                   -------------------  -------------------
                                     Retail    Federal    Retail    Federal
                                   Repurchase   Funds   Repurchase   Funds
                                   Agreements Purchased Agreements Purchased
                                   ---------- --------- ---------- ---------
                                            (dollars in thousands)
   <S>                             <C>        <C>       <C>        <C>
   Balance at December 31.........  $14,812    $6,000    $11,201    $4,750
   Average balance during the year   13,010       940     11,091     1,112
   Maximum month-end balance......   14,812     7,900     12,580     5,000
   Weighted average interest rate:
    At December 31................     1.92%     1.71%      4.82%     6.84%
    During the year...............     3.22      5.04       4.64      6.47
</TABLE>

NOTE 10--FEDERAL HOME LOAN BANK (FHLB) ADVANCES

   The Bank has a $71,200,000 line of credit with the FHLB, secured by a
blanket collateral agreement on qualifying 1-4 family residential mortgage
loans. At December 31, 2001, FHLB advances under this line amounted to
$30,000,000 and were at interest rates ranging from 3.49% to 5.92%. At December
31, 2000, FHLB advances amounted to $15,000,000 and were at interest rates
ranging from 4.92% to 5.92%.

   The scheduled maturities of FHLB advances at December 31, 2001 are as
follows (in thousands):

<TABLE>
<CAPTION>
                        Years ending December 31
                        ------------------------
                        <S>                      <C>
                         2009................... $ 7,000
                         2010...................   8,000
                         2011...................  15,000
                                                 -------
                           Total FHLB Advances.. $30,000
                                                 =======
</TABLE>

                                      46

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 11--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 status of the plan is as follows:

<TABLE>
<CAPTION>
                                                          2001        2000
                                                         ------      ------
                                                       (dollars in thousands)
     <S>                                               <C>          <C>
     Change in Benefit Obligation:
      Benefit obligation at beginning of year......... $6,228       $5,742
      Service cost....................................    238          255
      Interest cost...................................    452          428
      Net actuarial loss..............................    184          139
      Benefits paid...................................   (347)        (336)
                                                         ------      ------
      Benefit obligation at end of year............... $6,755       $6,228
                                                         ======      ======
     Change in Plan Assets:
      Fair value of plan assets at beginning of year.. $7,448       $7,832
      Actual loss on plan assets......................   (774)        (192)
      Employer contributions..........................     --           56
      Benefits paid...................................   (347)        (336)
      Other...........................................     48           88
                                                         ------      ------
      Fair value of plan assets at end of year........ $6,375       $7,448
                                                         ======      ======
     Prepaid Pension Cost Components:
     Funded status (liability) of plan................ $ (380)      $1,221
     Unrecognized net actuarial loss (gain)...........    657         (932)
     Unrecognized prior service cost..................    458          565
     Unrecognized transition obligation...............     --           21
                                                         ------      ------
     Prepaid pension cost at end of year.............. $  735       $  875
                                                         ======      ======
     Weighted-Average Plan Assumptions at End of Year:
      Discount rate...................................   7.25%        7.50%
      Expected long-term rate of return on plan assets   9.00         9.00
      Rate of increase in compensation levels.........   5.50         5.50
</TABLE>

   Net periodic pension cost included the following components:

<TABLE>
<CAPTION>
                                                 2001   2000   1999
                                                 -----  -----  -----
                                                    (in thousands)
           <S>                                   <C>    <C>    <C>
           Service cost......................... $ 238  $ 255  $ 225
           Interest cost........................   452    428    392
           Expected return on plan assets.......  (658)  (697)  (634)
           Amortization of prior service cost...   107    107    107
           Amortization of transition obligation    21     21     21
           Recognized net actuarial gain........   (20)   (84)   (16)
                                                 -----  -----  -----
           Net periodic pension cost............ $ 140  $  30  $  95
                                                 =====  =====  =====
</TABLE>

                                      47

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 11--EMPLOYEE BENEFIT PLANS--(Continued)

  Supplemental Executive Retirement Plan

   In 2000, the Corporation adopted a noncontributory, nonqualified
supplemental executive retirement plan (the "SERP") covering certain executive
employees. Annual benefits payable under the SERP are based on factors similar
to those for the pension plan, with offsets related to amounts payable under
the pension plan and social security benefits. In 2001, the social security
offset was changed from 100% to 50%, increasing the net periodic SERP cost, the
accrued SERP cost and the benefit obligation by $46,000, $140,000 and $196,000,
respectively.

   Information concerning the status of the plan is as follows:

<TABLE>
<CAPTION>
                                                         2001        2000
                                                        -----        -----
                                                      (dollars in thousands)
     <S>                                              <C>          <C>
     Change in Benefit Obligation:
      Benefit obligation at beginning of year........ $ 329        $  --
      Service cost...................................    38           20
      Interest cost..................................    43           21
      Amendments.....................................   196          288
      Net actuarial loss.............................    77           --
      Benefits paid..................................   (14)          --
                                                        -----        -----
      Benefit obligation at end of year.............. $ 669        $ 329
                                                        =====        =====
     Change in Plan Assets:
      Fair value of plan assets at beginning of year. $  --        $  --
      Actual return on plan assets...................    --           --
      Employer contributions.........................    14           --
      Benefits paid..................................   (14)          --
                                                        -----        -----
      Fair value of plan assets at end of year....... $  --        $  --
                                                        =====        =====
     Accrued SERP Cost Components:
      Funded status (liability) of plan.............. $(669)       $(329)
      Unrecognized net actuarial loss................    77           --
      Unrecognized prior service cost................   402          256
      Unrecognized transition obligation.............    --           --
                                                        -----        -----
      Accrued SERP cost at end of year............... $(190)       $ (73)
                                                        =====        =====
     Weighted-Average Plan Assumption at End of Year:
      Discount rate..................................  7.25%        7.50%
</TABLE>

   Net periodic SERP cost included the following components:

<TABLE>
<CAPTION>
                                                     2001    2000
                                                    ----     ----
                                                    (in thousands)
              <S>                                   <C>      <C>
              Service cost......................... $ 38     $20
              Interest cost........................   43      21
              Expected return on plan assets.......   --      --
              Amortization of prior service cost...   50      32
              Amortization of transition obligation   --      --
              Recognized net actuarial gain........   --      --
                                                     ----    ---
              Net periodic SERP cost............... $131     $73
                                                     ====    ===
</TABLE>

                                      48

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 11--EMPLOYEE BENEFIT PLANS--(Continued)

  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 concerning the plans, which are unfunded, is as follows:

<TABLE>
<CAPTION>
                                                              2001        2000
                                                            -------      ------
                                                           (dollars in thousands)
 <S>                                                       <C>          <C>
 Change in Benefit Obligation:
  Benefit obligation at beginning of year................. $   751      $  729
  Service cost............................................      43          29
  Interest cost...........................................      71          52
  Net actuarial gain (loss)...............................     238         (13)
  Benefits paid...........................................     (45)        (46)
                                                            -------      ------
  Benefit obligation at end of year....................... $ 1,058      $  751
                                                            =======      ======
 Accrued Postretirement Benefit Cost Components:
  Funded status (liability) of plan....................... $(1,058)     $ (751)
  Unrecognized net actuarial loss.........................     290          64
  Unrecognized prior service cost.........................      39          49
  Unrecognized transition obligation......................     223         243
                                                            -------      ------
  Accrued postretirement benefit cost at end of year...... $  (506)     $ (395)
                                                            =======      ======
 Weighted-Average Plan Assumptions at End of Year:
  Discount rate...........................................    7.25%       7.50%
  Annual rate of increase in the cost of medical benefits:
    Current year..........................................    9.00       10.00
    Final constant amount.................................    6.00        6.00
    Annual decrease.......................................    1.00        1.00
</TABLE>

   Increasing or decreasing the assumed medical cost trend rate by one
percentage point would not have a significant effect on either the
postretirement benefit obligation at December 31, 2001 or the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for the year ended December 31, 2001.

   Net periodic postretirement benefit cost included the following components:

<TABLE>
<CAPTION>
                                                     2001 2000 1999
                                                     ---- ---- ----
                                                     (in thousands)
            <S>                                      <C>  <C>  <C>
            Service cost............................ $ 43 $ 29 $ 22
            Interest Cost...........................   71   52   48
            Amortization of prior service cost......   10   10   10
            Amortization of transition obligation...   20   20   20
            Recognized net actuarial loss...........   12   --    4
                                                     ---- ---- ----
            Net periodic postretirement benefit cost $156 $111 $104
                                                     ==== ==== ====
</TABLE>

  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

                                      49

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 11--EMPLOYEE BENEFIT PLANS--(Continued)

matched by the Corporation based on the plan formula. The matching
contributions amounted to $154,000 in 2001, $117,000 in 2000 and $107,000 in
1999.

   Carolina Fincorp maintained a 401(k) retirement plan. Upon completion of the
merger with Carolina Fincorp in 2000, the plan was rolled into the
Corporation's matching retirement/savings plan. The matching contributions for
the Carolina Fincorp 401(k) retirement plan amounted to $24,000 in 1999.

  ESOP and Restricted Stock Plans

   Carolina Fincorp had established an ESOP, or employee stock ownership plan,
for the benefit of all qualified employees. Under the terms of the ESOP, shares
of Carolina Fincorp common stock, for future allocation to plan participants,
were purchased with proceeds from a loan by the parent company with repayments
to be made by the subsidiary bank. Under a restricted stock plan for directors,
officers and employees, newly issued shares of Carolina Fincorp common stock
were awarded to plan participants on a deferred vesting schedule. Compensation
expense related to the ESOP and restricted stock plans amounted to $115,000 in
2000 and $231,000 in 1999. Upon the change in control when the merger occurred
in 2000, the ESOP plan terminated according to its terms and unvested
restricted stock plan shares became fully vested, resulting in $385,000 of
merger-related expenses.

NOTE 12--LEASES

   Future obligations at December 31, 2001 for minimum rentals under
noncancellable operating lease commitments, primarily relating to premises, are
as follows (in thousands):

<TABLE>
<CAPTION>
                     Years ending December 31
                     ------------------------
                     <S>                              <C>
                     2002............................ $ 48
                     2003............................   24
                     2004............................    9
                     2005............................    9
                     2006............................    7
                     2007 and later years............   50
                                                      ----
                        Total minimum lease payments. $147
                                                      ====
</TABLE>

   Net rental expense for all operating leases amounted to $86,000 in 2001,
$87,000 in 2000 and $81,000 in 1999. One operating lease for real property
contains a purchase option considered to approximate fair market value.

NOTE 13--SUPPLEMENTARY INCOME STATEMENT INFORMATION

   Significant components of other expense were as follows:

<TABLE>
<CAPTION>
                                                  2001 2000 1999
                                                  ---- ---- ----
                                                  (in thousands)
                <S>                               <C>  <C>  <C>
                Stationery, printing and supplies $518 $521 $493
                Advertising and marketing........  331  392  460
</TABLE>

                                      50

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 14--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, 2001 and
2000, and the related condensed statements of income and cash flows for each of
the years in the three-year period ended December 31, 2001 are as follows:

Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                          December 31
                                                        ---------------
                                                         2001    2000
                                                        ------- -------
                                                        (in thousands)
         <S>                                            <C>     <C>
         Assets:
          Cash......................................... $ 2,961 $ 1,718
          Investment in wholly-owned bank subsidiary...  52,902  53,278
          Other assets.................................     862     885
                                                        ------- -------
            Total assets............................... $56,725 $55,881
                                                        ======= =======
         Liabilities and Shareholders' Equity:
          Accrued liabilities.......................... $   818 $   759
          Shareholders' equity.........................  55,907  55,122
                                                        ------- -------
            Total liabilities and shareholders' equity. $56,725 $55,881
                                                        ======= =======
</TABLE>

Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31
                                                                                     ----------------------
                                                                                      2001     2000   1999
                                                                                     -------  ------ ------
                                                                                         (in thousands)
<S>                                                                                  <C>      <C>    <C>
Income:
 Dividends from bank subsidiary..................................................... $ 8,457  $2,403 $6,554
 Other income.......................................................................      24     139    130
                                                                                     -------  ------ ------
   Total income.....................................................................   8,481   2,542  6,684
                                                                                     -------  ------ ------
Expenses:
 Operating..........................................................................      33      89    170
 Merger related.....................................................................      --     146     --
                                                                                     -------  ------ ------
   Total expenses...................................................................      33     235    170
                                                                                     -------  ------ ------
Income before income taxes and equity in undistributed net income of bank subsidiary   8,448   2,307  6,514
Income taxes (benefit)..............................................................      15      28     (4)
                                                                                     -------  ------ ------
Income before equity in undistributed net income of bank subsidiary.................   8,433   2,279  6,518
Equity in undistributed net income of bank subsidiary...............................  (1,705)  1,237   (928)
                                                                                     -------  ------ ------
Net income.......................................................................... $ 6,728  $3,516 $5,590
                                                                                     =======  ====== ======
</TABLE>

                                      51

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 14--FNB CORP. (PARENT COMPANY) FINANCIAL DATA--(Continued)

Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31
                                                                                   -------------------------
                                                                                    2001     2000     1999
                                                                                   -------  -------  -------
                                                                                         (in thousands)
<S>                                                                                <C>      <C>      <C>
Operating activities:
 Net income....................................................................... $ 6,728  $ 3,516  $ 5,590
 Adjustments to reconcile net income to net cash provided by operating activities:
   Equity in undistributed net income of bank subsidiary..........................   1,705   (1,237)     928
   Other, net.....................................................................      (8)     407     (582)
                                                                                   -------  -------  -------
     Net cash provided by operating activities....................................   8,425    2,686    5,936
                                                                                   -------  -------  -------
Investing activities:
 Proceeds from sales of available-for-sale securities.............................      --       77       --
 Other, net.......................................................................      39       64       29
                                                                                   -------  -------  -------
     Net cash provided by investing activities....................................      39      141       29
                                                                                   -------  -------  -------
Financing activities:
 Decrease in borrowed funds.......................................................      --       --   (3,200)
 Common stock issued..............................................................     250      203       96
 Common stock repurchased.........................................................  (4,905)    (105)    (327)
 Cash dividends and fractional shares paid........................................  (2,566)  (2,465)  (2,284)
                                                                                   -------  -------  -------
     Net cash used in financing activities........................................  (7,221)  (2,367)  (5,715)
                                                                                   -------  -------  -------
Net increase in cash..............................................................   1,243      460      250
Cash at beginning of year.........................................................   1,718    1,258    1,366
Adjustment to conform fiscal periods..............................................      --       --     (358)
                                                                                   -------  -------  -------
Cash at end of year............................................................... $ 2,961  $ 1,718  $ 1,258
                                                                                   =======  =======  =======
</TABLE>

NOTE 15--CAPITAL ADEQUACY REQUIREMENTS

   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 2002,
the maximum amount of dividends the Bank can pay to FNB Corp., without the
approval of the Comptroller of the Currency, is equal to the retained net
income in 2002 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, 2001, the average daily reserve requirement
was $2,155,000.

   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 1, Tier 2 and Tier 3, 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-

                                      52

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 15--CAPITAL ADEQUACY REQUIREMENTS--(Continued)

balance sheet exposures. Tier 1 capital consists primarily of common
shareholders' equity and qualifying perpetual preferred stock, net of goodwill
and other disallowed intangible assets. Tier 2 capital, which is limited to the
total of Tier 1 capital, includes allowable amounts of subordinated debt,
mandatory convertible debt, preferred stock and the allowance for loan losses.
Tier 3 capital, applicable only to financial institutions subject to certain
market risk capital guidelines, is capital allocated to support the market risk
related to a financial institution's ongoing trading activities. At December
31, 2001, FNB Corp. and the Bank were not subject to the market risk capital
guidelines and, accordingly, had no Tier 3 capital allocation. Total capital,
for risk-based purposes, consists of the sum of Tier 1, Tier 2 and Tier 3
capital.

   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 1 risk-based and Tier 1 leverage ratios as set
forth in the table below. There are no events or conditions since the
notification that management believes have changed the Bank's category.

<TABLE>
<CAPTION>
                                                               Minimum Ratios
                                                            -------------------
                                                                     To Be Well
                                                                     Capitalized
                                                                        Under
                                                              For      Prompt
                              Capital Amount      Ratio     Capital  Corrective
                              --------------- ------------  Adequacy   Action
                               2001    2000   2001   2000   Purposes Provisions
                              ------- ------- -----  -----  -------- -----------
                                            (dollars in thousands)
<S>                           <C>     <C>     <C>    <C>    <C>      <C>
As of December 31
 Total capital
   (to risk-weighted assets):
   FNB Corp.................. $59,319 $59,833 14.29% 15.15%   8.00%       N/A
   Bank......................  56,314  57,982 13.56  14.69    8.00      10.00%
 Tier 1 capital
   (to risk-weighted assets):
   FNB Corp..................  54,891  55,468 13.22  14.05    4.00        N/A
   Bank......................  51,886  53,617 12.50  13.58    4.00       6.00%
 Tier 1 capital
   (to average assets):
   FNB Corp..................  54,891  55,468  9.39   9.92    4.00        N/A
   Bank......................  51,886  53,617  8.87   9.58    4.00       5.00%
</TABLE>

NOTE 16--SHAREHOLDERS' EQUITY

  Stock Buyback Program

   Under a stock buyback program authorized by the Board of Directors for the
repurchase of up to 500,000 shares of common stock, the Corporation repurchased
320,841 shares in 2001. Under previous buyback authorizations, there were
repurchases of 6,700 shares in 2000 and 28,460 shares in 1999.

                                      53

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 16--SHAREHOLDERS' EQUITY--(Continued)

  Earnings Per Share (EPS)

   Basic net income per share, or basic EPS, is computed by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if the
Corporation's dilutive stock options were exercised. The numerator of the basic
EPS computation is the same as the numerator of the diluted EPS computation for
all periods presented. A reconciliation of the denominators of the basic and
diluted EPS computations is as follows:

<TABLE>
<CAPTION>
                                                                              2001      2000      1999
                                                                            --------- --------- ---------
<S>                                                                         <C>       <C>       <C>
Basic EPS denominator--Weighted average number of common shares outstanding 4,988,084 5,035,529 5,022,403
Dilutive share effect arising from assumed exercise of stock options.......    92,683    42,408   115,962
                                                                            --------- --------- ---------
Diluted EPS denominator.................................................... 5,080,767 5,077,937 5,138,365
                                                                            ========= ========= =========
</TABLE>

   For the years 2001, 2000 and 1999, there were 134,667, 323,601 and 96,364
stock options, respectively, that were antidilutive since the exercise price
exceeded the average market price. These common stock equivalents were omitted
from the calculations of diluted EPS for their respective years.

  Stock Options

   The Corporation adopted a stock compensation plan in 1993 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 720,000 shares of common stock has been reserved for issuance under
the stock compensation plan. At December 31, 2001, there were 183,025 shares
available under the plan for the granting of additional options.

   The Corporation assumed a stock compensation plan in its merger acquistion
of Carolina Fincorp in 2000. One grant of incentive and nonqualified stock
options was made under the plan in 1999 to key employees and directors at a
price equal to fair market value on the date of grant. No additional grants
will be made under the plan. The total stock options assumed on April 10, 2000,
the date of completion of the merger, amounted to 109,300 shares after
adjustment for the exchange ratio in converting from Carolina Fincorp shares to
FNB Corp. shares. All unvested options of Carolina Fincorp that were
outstanding on April 10, 2000 became immediately vested as a result of a
change-in-control provision in the plan that was triggered by the merger. Based
on the stock options outstanding at December 31, 2001, a maximum of 78,134
shares of common stock has been reserved for issuance under the stock
compensation plan.

   The Corporation applies APB Opinion No. 25 in accounting for stock
compensation plans 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 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.

                                      54

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 16--SHAREHOLDERS' EQUITY--(Continued)

<TABLE>
<CAPTION>
                                    2001         2000        1999
                                   ------       ------      ------
                                (in thousands, except per share data)
          <S>                   <C>          <C>          <C>
          Net Income:
           As reported......... $6,728       $3,516       $5,590
           Pro forma...........  6,345        3,199        5,346
          Net Income Per Share:
           Basic:
             As reported.......   1.35          .70         1.11
             Pro forma.........   1.27          .64         1.06
           Diluted:
             As reported.......   1.32          .69         1.09
             Pro forma.........   1.25          .63         1.04
</TABLE>

   The weighted-average fair value per share of options granted in 2000 and
1999 amounted to $4.16 and $4.21, respectively. There were no options granted
in 2001. Fair values were estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                            2000     1999
                                           -------  -------
                   <S>                     <C>      <C>
                   Risk-free interest rate    5.00%    6.23%
                   Dividend yield.........    3.50     3.20
                   Volatility.............   44.00    41.00
                   Expected life.......... 6 years  6 years
</TABLE>

   The following is a summary of stock option activity. For comparison
purposes, Carolina Fincorp and the Corporation were consolidated using
conforming fiscal years.

<TABLE>
<CAPTION>
                                                  Years Ended December 31
                                   ------------------------------------------------------
                                          2001              2000              1999
                                   ------------------ ----------------- -----------------
                                             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..  728,145   $12.69  567,315   $14.25  396,089   $15.53
Granted...........................       --       --  222,500    11.74  185,070    11.58
Exercised.........................  (24,461)    9.63  (15,355)    9.24   (7,619)   11.29
Forfeited......................... (140,175)   21.05  (46,315)   16.69   (6,225)   19.22
                                   --------           -------           -------
Outstanding at end of year........  563,509    11.71  728,145    13.44  567,315    14.25
                                   ========           =======           =======
Options exercisable at end of year  349,274    11.37  371,645    12.69  289,359    12.10
                                   ========           =======           =======
</TABLE>

                                      55

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 16--SHAREHOLDERS' EQUITY--(Continued)

   At December 31, 2001, information concerning stock options outstanding and
exercisable is as follows:

<TABLE>
<CAPTION>
                            Options Outstanding
                            --------------------
                                      Weighted
                                      Average
                                     Remaining
                   Exercise         Contractual    Options
                    Price   Shares  Life (Years) Exercisable
                    -----   ------- ------------ -----------
                   <S>      <C>     <C>          <C>
                    $ 8.13   71,150     2.96        71,150
                     12.00   55,900     3.96        55,900
                     14.00   69,500     4.96        69,500
                     16.00    2,000     5.75         1,600
                     17.50    3,000     5.96         2,400
                     27.00    2,500     6.96         1,500
                      9.82   78,134     7.13        78,134
                     14.13   64,125     7.96        25,650
                     10.00    1,000     8.58           200
                     11.63    1,000     8.79           200
                     11.75  215,200     8.96        43,040
                            -------                -------
                            563,509     6.81       349,274
                            =======                =======
</TABLE>

NOTE 17--COMMITMENTS

   In the normal course of business, various commitments are outstanding that
are not reflected in the consolidated financial statements. At December 31,
2001, a summary of significant commitments is as follows:

<TABLE>
                   <S>                          <C>
                   Commitments to extend credit $103,135,000
                   Standby letters of credit...      351,000
</TABLE>

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

   Commitments to extend credit and undisbursed advances on customer lines of
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many commitments expire without being drawn, the total commitment amounts
do not necessarily represent future cash requirements. The Corporation
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary, upon extension of credit is based
on the credit evaluation of the borrower.

   Standby letters of credit are commitments issued by the Corporation to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that in
extending loans to customers.

   There were no binding commitments for the origination of mortgage loans
intended to be held for sale at December 31, 2001 and 2000.

   The Corporation does not have any special purpose entities or other similar
forms of off-balance sheet financing.

                                      56

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 18--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 demand, 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.

   Borrowed Funds.  The carrying value of retail repurchase agreements and
federal funds purchased is considered to be a reasonable estimate of fair
value. The fair value of Federal Home Loan Bank advances is estimated using the
rates currently offered for advances of similar remaining maturities.

   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 17.

   The estimated fair values of financial instruments are as follows:

<TABLE>
<CAPTION>
                                      December 31, 2001  December 31, 2000
                                      ------------------ ------------------
                                               Estimated          Estimated
                                      Carrying   Fair    Carrying   Fair
                                       Value     Value    Value     Value
                                      -------- --------- -------- ---------
                                                 (in thousands)
     <S>                              <C>      <C>       <C>      <C>
     Financial Assets
      Cash and cash equivalents...... $ 13,617 $ 13,617  $ 14,202 $ 14,202
      Investment securities:
        Available for sale...........  163,150  163,150    73,023   73,023
        Held to maturity.............       --       --    59,361   59,727
      Net loans......................  387,215  400,614   391,385  385,698
     Financial Liabilities
      Deposits.......................  480,230  486,886   472,448  474,656
      Retail repurchase agreements...   14,812   14,812    11,201   11,201
      Federal Home Loan Bank advances   30,000   33,168    15,000   15,219
      Federal funds purchased........    6,000    6,000     4,750    4,750
</TABLE>

                                      57

<PAGE>

                           FNB CORP. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 18--FAIR VALUE OF FINANCIAL INSTRUMENTS--Continued

   The fair value estimates are made at a specific point in time based on
relevant market and other information about the financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument nor are potential taxes and other expenses that would be
considered in an actual sale considered. 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.

                                      58

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, as of March 21,
2002.

                                                         FNB CORP.
                                                        (Registrant)

                                              By: /s/          MICHAEL C. MILLER
                                                  ------------------------------
                                                        Michael C. Miller
                                                     Chairman and President

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 21, 2002.

          Signature                       Title
          ---------                       -----

/s/               MICHAEL C.  Chairman and
MILLER                          President (Principal
-----------------------------   Executive Officer)
      Michael C. Miller

/s/                 JERRY A.  Treasurer and
LITTLE                          Secretary (Principal
-----------------------------   Financial and Accounting
       Jerry A. Little          Officer)

/s/             JAMES M.      Director
CAMPBELL, JR.
-----------------------------
    James M. Campbell, Jr

/s/               R. LARRY    Director
CAMPBELL
-----------------------------
      R. Larry Campbell

/s/                DARRELL L. Director
FRYE
-----------------------------
       Darrell L. Frye

/s/              WILBERT L.   Director
HANCOCK
-----------------------------
     Wilbert L. Hancock

/s/                THOMAS A.  Director
JORDAN
-----------------------------
      Thomas A. Jordan

/s/              COOPER M.    Director
MCLAURIN
-----------------------------
     Cooper M. McLaurin

/s/             R. REYNOLDS   Director
NEELY, JR.
-----------------------------
   R. Reynolds Neely, Jr.

/s/                RICHARD K. Director
PUGH
-----------------------------
       Richard K. Pugh

/s/                 J. M.     Director
RAMSAY III
-----------------------------
      J. M. Ramsay III

/s/             CHARLES W.    Director
STOUT, M.D.
-----------------------------
   Charles W. Stout, M.D.

                                      59

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.                                          Description of Exhibit
-----------                                          ----------------------
<S>         <C>
   2.10     Agreement and Plan of Merger dated as of February 11, 2002 by and between the Registrant and Rowan
            Bancorp, Inc. The schedules to this agreement have been omitted. The Registrant will furnish
            supplementally a copy of any omitted schedule to the Commission upon request.
   3.10     Articles of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the
            Registrant's Form S-14 Registration Statement (No. 2-96498) filed March 16, 1985.
   3.11     Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 10, 1988,
            incorporated herein by reference to Exhibit 19.10 to the Registrant's Form 10-Q Quarterly Report for the
            quarter ended June 30, 1988.
   3.12     Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 12, 1998,
            incorporated herein by reference to Exhibit 3.12 to the Registrant's Form 10-Q Quarterly Report for the
            quarter ended June 30, 1998.
   3.20     Amended and Restated Bylaws of the Registrant, adopted May 21, 1998, incorporated herein by
            reference to Exhibit 3.20 to the Registrant's Form 10-Q Quarterly Report for the quarter ended
            June 30, 1998.
    4       Specimen of Registrant's Common Stock Certificate, incorporated herein by reference to Exhibit 4 to
            Amendment No. 1 to the Registrant's Form S-14 Registration Statement (No. 2-96498) filed April 19,
            1985.
  10.10*    Form of Split Dollar Insurance Agreement dated as of November 1, 1987 between First National Bank
            and Trust Company and certain of its key employees and directors, incorporated herein by reference to
            Exhibit 19.20 to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1988.
  10.11*    Form of Amendment to Split Dollar Insurance Agreement dated as of November 1, 1994 between First
            National Bank and Trust Company and certain of its key employees and directors, incorporated herein
            by reference to Exhibit 10.11 to the Registrant's Form 10-KSB Annual Report for the fiscal year ended
            December 31, 1994.
  10.20*    Stock Compensation Plan as amended effective May 12, 1998, incorporated herein by reference to
            Exhibit 10.30 to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1998.
  10.21*    Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees,
            pursuant to the Registrant's Stock Compensation Plan, incorporated herein by reference to Exhibit 10.31
            to the Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
  10.22*    Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant
            to the Registrant's Stock Compensation Plan, incorporated herein by reference to Exhibit 10.32 to the
            Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
  10.30*    Employment Agreement dated as of December 27, 1995 between First National Bank and Trust
            Company and Michael C. Miller, incorporated herein by reference to Exhibit 10.50 to the Registrant's
            Form 10-KSB Annual Report for the fiscal year ended December 31, 1995.
  10.31*    Carolina Fincorp, Inc. Stock Option Plan (assumed by the Registrant on April 10, 2000), incorporated
            herein by reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-8 (File No.
            333-54702).
  10.32*    Employment Agreement dated as of April 10, 2000 between First National Bank and Trust Company
            and R. Larry Campbell, incorporated herein by reference to Exhibit 10.32 to the Registrant's Form 10-K
            Annual Report for the fiscal year ended December 31, 2000.
  10.33*    Nonqualified Supplemental Retirement Plan with R. Larry Campbell, incorporated herein by reference
            to Exhibit 10(c) to the Annual Report on Form 10-KSB of Carolina Fincorp, Inc.for the fiscal year
            ended June 30, 1997.
    21      Subsidiaries of the Registrant.
    23      Independent Auditors' Consent.
</TABLE>
--------
   *Management contract, or compensatory plan or arrangement.

                                      60