<PAGE>   1
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(MARK ONE)

  X      Annual Report under Section 13 or 15(d) of the Securities Exchange Act
         of 1934       For the fiscal year ended December 31, 1997

         OR

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

                          Commission file no. 333-1546

                              FNB BANCSHARES, INC.
                              --------------------
                 (Name of Small Business Issuer in Its Charter)

          South Carolina                                  57-1033165
          --------------                                  ----------
    (State or Other Jurisdiction                       (I.R.S. Employer
   of Incorporation or Organization)                  Identification No.)

     303 North Granard Street
     Gaffney, South Carolina                                29341
     -----------------------                                -----
(Address of Principal Executive Offices)                  (Zip Code)


                                 (864) 488-2265
                 Issuer's Telephone Number, Including Area Code

        Securities registered pursuant to Section 12(b) of the Act: None

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

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X  No
                                                                  ---   ---

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]

         The issuer's loss for its most recent fiscal year was $185,145. As of
March 15, 1998, 616,338 shares of Common Stock were issued and outstanding.

         The aggregate market value of the Common Stock held by non-affiliates
of the Company on March 15, 1998 was $4,436,580. This calculation is based upon
an estimate of the fair market value of the Common Stock by the Company's Board
of Directors of $10 per share. There is not an active trading market for the
Common Stock and it is not possible to identify precisely the market value of
the Common Stock.

    Transitional Small Business Disclosure Format. (Check one): Yes    No  X
                                                                   ---    ---
                       DOCUMENTS INCORPORATED BY REFERENCE

The Company's Annual Report to Shareholders for the year ended December 31, 1997
is incorporated by reference in this Form 10-KSB in Part II, Items 6 and 7. The
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 28, 1998 is incorporated by reference in this Form 10-KSB in Part III,
Items 9 through 12.

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

<PAGE>   2

ITEM 1.  DESCRIPTION OF BUSINESS

         This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.

GENERAL

         FNB Bancshares, Inc. (the "Company") was incorporated as a South
Carolina corporation on September 27, 1995, primarily to own and control all of
the capital stock of First National Bank of the Carolinas (the "Bank"). The
Company initially will engage in no business other than owning and managing the
Bank. The organizers of the Bank chose a holding company structure because the
holding company structure provides flexibility that would not otherwise be
available.

         The holding company structure can assist the Bank in maintaining its
required capital ratios because, subject to compliance with Federal Reserve
Board debt guidelines, the Company may borrow money and contribute the proceeds
to the Bank as primary capital. Moreover, a holding company may engage in
certain non-banking activities that the Federal Reserve Board has deemed to be
closely related to banking. See "Supervision and Regulation."

         The Bank is organized as a national banking association under the laws
of the United States and engages in the commercial banking business from its
office in the Cherokee County area, with deposits insured by the FDIC. The Bank
is a member of the Federal Reserve System. The Bank commenced business on
October 18, 1996 after receiving an OCC charter and FDIC approval for deposit
insurance.

LOCATION AND SERVICE AREA

         The Bank engages in a general commercial and retail banking business,
emphasizing the needs of small- to medium-sized businesses, professional
concerns, and individuals, primarily in Gaffney, South Carolina and the
surrounding area, including Cherokee County. The principal executive offices of
both the Company and the Bank are located in a modular building at 303 North
Granard Street, Gaffney, South Carolina 29342. The Bank intends to move the
Gaffney Office into a permanent facility across the street at 217 North Granard
Street in the first quarter of 1999. The address of the Blacksburg office is 207
West Cherokee Street, Blacksburg, South Carolina 29702. The Company's telephone
number is (864) 488-2265. See "Item 2. Description of Property."

         Blacksburg and Gaffney are approximately eight miles from each other
and are the two largest municipalities in Cherokee County. As of 1994, Cherokee
County had a population of 46,120, 13,622 of whom lived in the city of Gaffney
and 1,976 of whom lived in the Blacksburg town limits. Within a 15 mile radius
of Gaffney reside over 130,276 people, within a 30 mile radius over 539,400, and
within a 60 mile radius, approximately 2,250,000.

         The Bank's primary service area is Cherokee County, South Carolina.
Cherokee County is part of a five-county metropolitan statistical area covering
the "upstate" area of South Carolina, including Greenville,

                                       1
<PAGE>   3

Spartanburg, Pickens, Cherokee, and Laurens Counties. Cherokee County is located
between the major metropolitan statistical areas of
Greenville-Spartanburg-Anderson of South Carolina and Charlotte-Gastonia-Rock
Hill of North Carolina. The counties from Greenville-Spartanburg-Anderson to
Charlotte-Gastonia-Rock Hill and Cherokee and Laurens make up an area that is
known to many as the "I-85 Business Belt." The presence of I-85 enhances the
economic potential of the area by linking the seven counties to other major
southeastern markets, including the Charlotte and Atlanta markets, which are
easily accessible to this area by I-85.

         Cherokee County's economy is dominated by manufacturing and
agriculture. With over 60 manufacturing plants, including the Nestle Frozen
Foods Company, Milliken & Co. - Magnolia Finishing Plant, and the Timken
Company, Cherokee County enjoys a diversified manufacturing community.
Manufacturing companies employ approximately 48% of the county's workforce, and
the textile mills products sector accounts for nearly 50% of this manufacturing
employment.

MARKETING FOCUS

         Most of the banks in the Cherokee County area are now local branches of
large regional banks. Although size gives the larger banks certain advantages in
competing for business from large corporations, including higher lending limits
and the ability to offer services in other areas of South Carolina and the
Cherokee County area, management believes there has been a void in the community
banking market in the Cherokee County area and believe that the Bank can
successfully fill this void. As a result, the Company generally does not attempt
to compete for the banking relationships of large corporations, but concentrates
its efforts on small- to medium-sized businesses and on individuals.

         The Bank advertises through various forms of media, as well as direct
mail, targeting market segments and emphasizing the Company's local ownership,
community bank nature, and ability to provide more personalized service than its
competition. Management believes that the community bank focus of the Bank is
likely to succeed in this market. Management believes that the area will react
favorably to the Bank's emphasis on service to small businesses, individuals,
and professional concerns. However, no assurances in this respect can be given.

BANKING SERVICES

         The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts, and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
Bank's principal market area at rates competitive to those offered in the
Cherokee County area. In addition, the Bank offers certain retirement account
services, such as Individual Retirement Accounts (IRAs). All deposit accounts
are insured by the FDIC up to the maximum amount allowed by law (generally,
$100,000 per depositor, subject to aggregation rules). The Bank solicits these
accounts from individuals, businesses, associations and organizations, and
governmental authorities.

LENDING ACTIVITIES

         General. The Bank emphasizes a range of lending services, including
real estate, commercial and consumer loans, to individuals and small- to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in the Bank's market area.

         Real Estate Loans. One of the primary components of the Bank's loan
portfolio is loans secured by first or second mortgages on real estate. These
loans generally consist of commercial real estate loans,

                                       2

<PAGE>   4

construction and development loans, and residential real estate loans (but
exclude home equity loans, which are classified as consumer loans). Loan terms
generally are limited to five years or less, although payments may be structured
on a longer amortization basis. Interest rates are fixed or adjustable. The Bank
generally charges an origination fee. Management attempts to reduce credit risk
in the commercial real estate portfolio by emphasizing loans on owner-occupied
office and retail buildings where the loan-to-value ratio, established by
independent appraisals, does not exceed 80%. In addition, the Bank typically
requires personal guarantees of the principal owners of the property backed with
a review by the Bank of the personal financial statements of the principal
owners. The principal economic risk associated with each category of loans,
including real estate loans, is the creditworthiness of the Bank's borrowers.
The risks associated with real estate loans vary with many economic factors,
including employment levels and fluctuations in the value of real estate. The
Bank competes for real estate loans with a number of bank competitors which are
well established in the Cherokee County area. Most of these competitors have
substantially greater resources and lending limits than the Bank. As a result,
the Bank occasionally must charge a lower interest rate to attract borrowers.
See "--Competition". The Bank also originates loans for sale into the secondary
market. The Bank attempts to limit interest rate risk and credit risk on these
loans by locking the interest rate for each loan with the secondary investor and
receiving the investor's underwriting approval prior to originating the loan.

         Commercial Loans. The Bank makes loans for commercial purposes in
various lines of businesses. Equipment loans typically are made for a term of
five years or less at fixed or variable rates, with the loan fully amortized
over the term and secured by the financed equipment and with a loan-to-value
ratio of 80% or less. Working capital loans typically have terms not exceeding
one year and are usually secured by accounts receivable, inventory, or personal
guarantees of the principals of the business. For loans secured by accounts
receivable or inventory, principal is typically repaid as the assets securing
the loan are converted into cash, and in other cases principal is typically due
at maturity. The principal economic risk associated with each category of loans,
including commercial loans, is the creditworthiness of the Bank's borrowers. The
risks associated with commercial loans vary with many economic factors,
including the economy in the Cherokee County area, especially the tourist
economy. The well-established banks in the Cherokee County area will make
proportionately more loans to medium- to large-sized businesses than the Bank.
Many of the Bank's commercial loans are made to small- to medium-sized
businesses which may be less able to withstand competitive, economic, and
financial conditions than larger borrowers.

         Consumer Loans. The Bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit, and revolving lines of credit
such as credit cards. These loans typically carry balances of less than $25,000
and, in the case of non-revolving loans, are amortized over a period not
exceeding 48 months. The revolving loans typically bear interest at a fixed rate
and require monthly payments of interest and a portion of the principal balance.
The underwriting criteria for home equity loans and lines of credit is generally
the same as applied by the Bank when making a first mortgage loan, as described
above, and home equity lines of credit typically expire fifteen years or less
after origination. As with the other categories of loans, the principal economic
risk associated with consumer loans is the creditworthiness of the Bank's
borrowers, and the principal competitors for consumer loans is the established
banks in the Cherokee County area.

         Loan Approval and Review. The Bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds an individual officer's lending authority, the loan
request is considered and approved by an officer with a higher lending limit.
The Bank has established a Board loan committee that must approve any loan over
the President's lending limit. The Bank does not make any loans to directors,
officers, or employees of the Bank unless the loan is approved by the board of
directors of the Bank and is made on terms not more favorable to such person
than would be available to a person not affiliated with the Bank (excluding
consumer loans less than $20,000 which are available at employee rates).

                                       3

<PAGE>   5

         Lending Limits. The Bank's lending activities are subject to a variety
of lending limits imposed by federal law. While differing limits apply in
certain circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to the Bank), in general the Bank is
subject to a loan-to-one-borrower limit. This limit will increase or decrease as
the Bank's capital increases or decreases. Unless the Bank is able to sell
participations in its loans to other financial institutions, the Bank will not
be able to meet all of the lending needs of loan customers requiring aggregate
extensions of credit above these limits.

OTHER BANKING SERVICES

         Other bank services include cash management services, safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks,
and automatic drafts for various accounts. The Bank is associated with a shared
network of automated teller machines that may be used by Bank customers
throughout South Carolina and other regions. The Bank also offers MasterCard and
VISA credit card services through a correspondent bank as an agent for the Bank.
The Bank does not currently exercise trust powers. The Bank may in the future
offer a full-service trust department, but cannot do so without the prior
approval of the OCC.

SUPERVISION AND REGULATION

         The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight with respect to virtually all aspects
of operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), numerous
additional regulatory requirements have been placed on the banking industry in
the past several years, and additional changes have been proposed. The
operations of the Company and the Bank may be affected by legislative changes
and the policies of various regulatory authorities. The Company is unable to
predict the nature or the extent of the effect on its business and earnings that
fiscal or monetary policies, economic control, or new federal or state
legislation may have in the future.

THE COMPANY

         Because it owns the outstanding capital stock of the Bank, the Company
is a bank holding company within the meaning of the federal Bank Holding Company
Act of 1956 (the "BHCA") and The South Carolina Bank Holding Company Act (the
"South Carolina Act"). The activities of the Company are governed by the
Glass-Steagall Act of 1933 (the "Glass-Steagall Act").

         The BHCA. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file periodic reports of
its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing, or controlling banks; furnishing services to or performing services
for its subsidiaries; and engaging in other activities that the Federal Reserve
determines to be so closely related to banking, managing, or controlling banks
as to be a proper incident thereto.

         Investments, Control, and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any

                                       4

<PAGE>   6

bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.

         In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities and either the
Company has registered securities under Section 12 of the Exchange Act (which
the Company has done) or no other person will own a greater percentage of that
class of voting securities immediately after the transaction. The regulations
provide a procedure for challenge of the rebuttable control presumption.

         Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, nonbanking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.

         The Federal Reserve Board imposes certain capital requirements on the
Company under the BHCA, including a minimum leverage ratio and a minimum ratio
of "qualifying" capital to risk-weighted assets. These requirements are
described below under "Capital Regulations." Subject to its capital requirements
and certain other restrictions, the Company is able to borrow money to make a
capital contribution to the Bank, and such loans may be repaid from dividends
paid from the Bank to the Company (although the ability of the Bank to pay
dividends is subject to regulatory restrictions as described below in "The
Bank-- Dividends"). The Company is also able to raise capital for contribution
to the Bank by issuing securities without having to receive regulatory approval,
subject to compliance with federal and state securities laws.

         Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, the Company is expected to act as a source of financial strength
to the Bank and to commit resources to support the Bank in circumstances in
which the Company might not otherwise do so. Under the BHCA, the Federal Reserve
Board may require a bank holding company to terminate any activity or relinquish
control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon
the Federal Reserve Board's determination that such activity or control
constitutes a serious risk to the financial soundness or stability of any
subsidiary depository institution of the bank holding company. Further, federal
bank regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.

         Glass-Steagall Act. The Company is restricted in its activities by the
provisions of the Glass-Steagall Act, which prohibits the Company from owning
subsidiaries that are engaged principally in the issue, flotation, underwriting,
public sale, or distribution of securities. The interpretation, scope, and
application of the provisions of the Glass-Steagall Act currently are being
considered and reviewed by regulators and legislators, and the interpretation
and application of those provisions have been challenged in the federal courts.

                                       5

<PAGE>   7

         South Carolina Act. As a bank holding company registered under the
South Carolina Act, the Company is subject to regulation by the South Carolina
Board. Consequently, the Company must receive the approval of the South Carolina
Board prior to engaging in the acquisition of banking or nonbanking institutions
or assets. The Company must also file with the South Carolina Board periodic
reports with respect to its financial condition and operations, management, and
intercompany relationships between the Company and its subsidiaries.

THE BANK

         General. The Bank operates as a national banking association
incorporated under the laws of the United States and subject to examination by
the OCC. Deposits in the Bank are insured by the FDIC up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The OCC and
the FDIC regulate or monitor virtually all areas of the Bank's operations,
including security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits, interest
rates or fees chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The OCC
requires the Bank to maintain certain capital ratios and imposes limitations on
the Bank's aggregate investment in real estate, bank premises, and furniture and
fixtures. The Bank is required by the OCC to prepare quarterly reports on the
Bank's financial condition and to conduct an annual audit of its financial
affairs in compliance with minimum standards and procedures prescribed by the
OCC.

         Under FDICIA, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates is assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.

         National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the OCC or the Federal Reserve Board, respectively, to
be troubled institutions must give the OCC or the Federal Reserve Board,
respectively, thirty days prior notice of the appointment of any senior
executive officer or director. Within the thirty day period, the OCC or the
Federal Reserve Board, as the case may be, may approve or disapprove any such
appointment. The Company and the Bank will meet the criteria which trigger this
additional approval during the first two years after they are registered or
chartered, respectively.

         Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") are maintained for commercial banks and thrifts, respectively, with
insurance premiums from the industry used to offset losses from insurance
payouts when banks and thrifts fail. Since 1993, insured depository institutions
like the Bank have paid for deposit insurance under a risk-based premium system.
Under this system, until mid-1995 depositor institutions paid to BIF or SAIF
from $0.23 to $0.31 per $100 of insured deposits depending on its capital levels
and risk profile, as determined by its primary federal regulator on a
semi-annual basis. Once the BIF reached its legally mandated reserve ratio in

                                       6

<PAGE>   8

mid-1995, the FDIC lowered premiums for well-capitalized banks, eventually to
$.00 per $100, with a minimum semiannual assessment of $1,000. However, in 1996
Congress enacted the Deposit Insurance Funds Act of 1996, which eliminated this
minimum assessment. It also separated the Financial Corporation (FICO)
assessment to service the interest on its bond obligations. The amount assessed
on individual institutions, including the Bank, by FICO is in addition to the
amount paid for deposit insurance according to the risk-related assessment rate
schedule. Increases in deposit insurance premiums or changes in risk
classification will increase the Bank's cost of funds, and there can be no
assurance that such cost can be passed on the Bank's customers.

         Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.

         The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those available to all employees of the Bank and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features.

         Dividends. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends declared by a national bank
in any calendar year exceeds the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus. In addition, under FDICIA, the Bank may not pay a dividend
if, after paying the dividend, the Bank would be undercapitalized. See "Capital
Regulations."

         Branching. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current South Carolina law, the Bank may open
branch offices throughout South Carolina with the prior approval of the OCC. In
addition, with prior regulatory approval, the Bank will be able to acquire
existing banking operations in South Carolina. Furthermore, federal legislation
has recently been passed which permits interstate branching. The new law permits
out-of-state acquisitions by bank holding companies (subject to veto by new
state law), interstate branching by banks if allowed by state law, interstate
merging by banks, and de novo branching by national banks if allowed by state
law. See "--Recent Legislative Developments." Management currently have no plans
or agreements whereby the Bank would acquire other banks or thrifts.

         Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, the OCC, or the Office
of Thrift Supervision shall evaluate the record of the financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent

                                       7

<PAGE>   9

with the safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility.

         Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution will be fulfilling its obligation to
help meet the housing needs of the community it serves; the Equal Credit
Opportunity Act, prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit; the Fair Credit Reporting Act of 1978,
governing the use and provision of information to credit reporting agencies; the
Fair Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies; and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Bank also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that act,
which governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.

CAPITAL REGULATIONS

         The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and account for off-balance sheet items.
The guidelines are minimums, and the federal regulators have noted that banks
and bank holding companies contemplating significant expansion programs should
not allow expansion to diminish their capital ratios and should maintain ratios
in excess of the minimums. Neither the Company nor the Bank has received any
notice indicating that either entity will be subject to higher capital
requirements. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common shareholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.

         Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.

         The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum

                                       8

<PAGE>   10

degree to which a bank holding company may leverage its equity capital base. The
minimum required leverage ratio for top-rated institutions is 3%, but most
institutions are required to maintain an additional cushion of at least 100 to
200 basis points.

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

         Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.

         Effective January 1, 1997, the OCC amended the risk-based capital
standards to incorporate a measure for market risk to cover all positions
located in a institution's trading account, and foreign exchange and commodity
positions wherever located. The effect of the rule is that it requires any bank
or bank holding company with significant exposure to market risk to measure the
risk and hold capital commensurate with that risk. Since the Bank does not
currently engage, nor has any plans to engage, in trading, foreign exchange or
commodity position activities, the rule does not have an effect on the required
Bank capital levels.

         These capital guidelines can affect the Company in several ways. The
Company's capital levels are currently more than adequate. However, rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Company's capital position in a
relatively short period of time, making an additional capital infusion
necessary. Failure to meet these capital requirements would mean that a bank
would be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.

ENFORCEMENT POWERS

         FIRREA expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties" (primarily including management,
employees, and agents of a financial institution, and independent contractors
such as attorneys and accountants and others who participate in the conduct of
the financial institution's affairs). These practices can include the failure of
an institution to timely file required reports or the filing of false or
misleading information or the submission of inaccurate reports. Civil penalties
may be as high as

                                        9

<PAGE>   11

$1,000,000 a day for such violations. Criminal penalties for
some financial institution crimes have been increased to twenty years. In
addition, regulators are provided with greater flexibility to commence
enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance.
Furthermore, FIRREA expanded the appropriate banking agencies' power to issue
cease-and-desist orders that may, among other things, require affirmative action
to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnifications or guarantees against loss. A
financial institution may also be ordered to restrict its growth, dispose of
certain assets, rescind agreements or contracts, or take other actions as
determined by the ordering agency to be appropriate.

RECENT LEGISLATIVE DEVELOPMENTS

         In the 1994 legislative session, South Carolina amended its bank
holding act to allow nationwide interstate banking beginning in 1996. The
Interstate Banking Act, passed by Congress in 1994, allows unrestricted
interstate bank mergers, unrestricted interstate acquisition of banks by bank
holding companies, and interstate de novo branching by banks if allowed by state
law. In 1997, legislation was passed in North Carolina which provides that until
June 1, 1999, an out-of-state bank, such as the Bank, could establish and
maintain a de novo branch in North Carolina or acquire and maintain an existing
branch from another bank only if the laws of the home state of the out-of-state
bank contain reciprocal provisions permitting North Carolina banks to establish
and maintain de novo branches or acquire branches from another bank in that
state. South Carolina law does not contain such reciprocal provisions, and
therefore the North Carolina legislation has the effect of prohibiting the Bank
from establishing a de novo branch in North Carolina prior to June 1, 1999. From
time to time, various bills are introduced in the United States Congress with
respect to the regulation of financial institutions. Certain of these proposals,
if adopted, could significantly change the regulation of banks and the financial
services industry. The Bank cannot predict whether any of these proposals will
be adopted or, if adopted, how these proposals would affect the Bank. From time
to time, various bills are introduced in the United States Congress with respect
to the regulation of financial institutions. Certain of these proposals, if
adopted, could significantly change the regulation of banks and the financial
services industry. The Company cannot predict whether any of these proposals
will be adopted or, if adopted, how these proposals would affect the Company.

EFFECT OF GOVERNMENTAL MONETARY POLICIES

         The earnings of the Bank is affected by domestic economic conditions
and the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve Board's monetary policies have had, and will
likely continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The monetary
policies of the Federal Reserve Board have major effects upon the levels of bank
loans, investments and deposits through its open market operations in United
States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.

COMPETITION

         The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds operating in the
Cherokee County area and elsewhere. A number of these competitors are well
established in the Cherokee County area. Most of them have substantially greater
resources and lending limits than the Bank and offer certain services, such as
extensive and established branch networks and trust services, that

                                       10

<PAGE>   12

the Bank either does not expect to provide or does not currently provide. As a
result of these competitive factors, the Bank may have to pay higher rates of
interest to attract deposits.

         The Company believes that the community bank focus of the Bank, with
its emphasis on service to small businesses, individuals, and professional
concerns, will give it an advantage in this market.

EMPLOYEES

         The Company has sixteen full-time employees as of December 31, 1997.


ITEM 2.  DESCRIPTION OF PROPERTY

         Gaffney Property. The principal place of business of both the Company
and the Bank and the main office of the Bank is located at the corner of Granard
Street and West Meadow Street in Gaffney, South Carolina. Currently, the Bank
operates the Gaffney office in a modular building. The proposed site of the
Bank's main office is a parcel of land adjacent to the current site located at
217 North Granard Street. The Company plans to construct a permanent banking
facility of 11,000 square feet on the site at an approximate cost of $1,500,000,
including furniture, fixtures, and equipment. Construction of this building is
expected to begin in the first quarter of 1998.

         Blacksburg Property. The Bank also operates a Blacksburg office
facility at 207 West Cherokee Street, Blacksburg, South Carolina 29702. The
Blacksburg site is on approximately a one acre of land. The Company plans to
construct a permanent banking facility of 2,500 square feet on the site at an
approximate cost of $250,000 which will be paid out of funds from operations of
the Bank and, to the extent necessary, remaining proceeds of the offering.
Construction of this building is anticipated to begin in the near future.
Currently, the Bank operates the Blacksburg office in a modular building.

         The Company believes that these facilities will adequately serve the
Bank's needs for its first several years of operation.


ITEM 3.  LEGAL PROCEEDINGS.

         Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the Company or the Bank.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of which 616,338 shares were sold in the initial offering. As of
December 31, 1997, the Company had 572 shareholders of record. Trades in the
Common Stock are limited and sporadic, and management is not aware of the prices
of all trades. There is no established trading market in the Common Stock, and
one is not expected to develop in the near future.

                                       11

<PAGE>   13

         All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available therefor, when, as and
if declared by the Board of Directors. The Company does not plan to declare any
dividends in the immediate future. See "Item 1. Description of Business --
Dividends."


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         In response to this Item, the information contained on pages 4 through
14 of the Company's Annual Report to Shareholders for the year ended December
31, 1997 is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

         In response to this Item, the information contained on pages 3 through
13 of the Company's Annual Report to Shareholders for the year ended December
31, 1997 is incorporated herein by reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         In response to this Item, the information contained on pages 2 through
4 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 28, 1998 is incorporated herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION

         In response to this Item, the information contained on pages 4 through
5 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 28, 1998 is incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         In response to this Item, the information contained on pages 6 through
8 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 28, 1998 is incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In response to this Item, the information contained on page 11 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 28, 1998 is incorporated herein by reference.

ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)      The following documents are filed as part of this report:

                                       12

<PAGE>   14

<TABLE>
<CAPTION>
Exhibit
Number            Description
<S>               <C>
3.1               Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the
                  Registration Statement on Form S-1, File No. 333-1546)

3.2               Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Registration Statement
                  on Form S-1, File No. 333-1546)

4.1               Provisions in the Company's Articles of Incorporation and
                  Bylaws defining the rights of holders of the Company's Common
                  Stock (incorporated by reference to Exhibit 4.1 of the
                  Registration Statement on Form S-1, File No. 333-1546)

10.1              Option Agreement dated October 20, 1995, between James L.
                  Moss, as seller, and FNB Bancshares, Inc., as purchaser, for
                  the Blacksburg office property (incorporated by reference to
                  Exhibit 10.1 of the Registration Statement on Form S-1, File
                  No. 333-1546)

10.2              Option Agreement dated December 31, 1995, between William K. Brumbach, Jr., Linwood B.
                  Brumbach, Evelyn B. Sanles and Patricia Brumbach Clary, as sellers, and FNB Bancshares, Inc.,
                  as purchaser, for the secondary parcel for the Gaffney Office property (incorporated by
                  reference to Exhibit 10.2 of the Registration Statement on Form S-1, File No. 333-1546)

10.3              Option Agreement dated January 10, 1996, between Wylie L.
                  Hamrick and Catherine H. Beattie, as sellers, and FNB
                  Bancshares, Inc., as purchaser, for the primary parcel for the
                  Gaffney Office property (incorporated by reference to Exhibit
                  10.3 of the Registration Statement on Form S-1, File No.
                  333-1546)

10.4              Line of Credit Note dated September 27, 1995, by The Company
                  to The Bankers Bank (incorporated by reference to Exhibit 10.4
                  of the Registration Statement on Form S-1, File No. 333-1546)

10.5.             Employment Agreement dated January 17, 1996, between the
                  Company and V. Stephen Moss (incorporated by reference to
                  Exhibit 10.5 of the Registration Statement on Form S-1, File
                  No.
                  333-1546)

10.6.             Escrow Agreement dated March 8, 1996, between The Company and
                  The Bankers Bank (incorporated by reference to Exhibit 10.6 of
                  the Registration Statement on Form S-1, File No. 333-1546)

10.7              Commitment Letter dated March 27, 1996, from Spartanburg National Bank for a $150,000 line of
                  credit (incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-1,
                  File No. 333-1546)

10.8              Stock Option Plan dated as of March 25, 1997 (incorporated by
                  reference to Exhibit 10.7 of the Annual Report on Form 10-KSB
                  filed by the Company for the year ended December 31, 1996)

13                Annual Report to Shareholders for the year ended December 31, 1997

21.1              Subsidiaries of the Company
</TABLE>
                                       13

<PAGE>   15

27.1              Financial Data Schedule (for SEC use only)

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1997.

                                       14

<PAGE>   16
                                  SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                           FNB BANCSHARES, INC.


Date: March 27, 1998         By:       /s/ V. Stephen Moss
                                       -------------------
                                           V. Stephen Moss
                                           President and Chief Executive Officer


         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints V. Stephen Moss, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.


Signature                           Title                   Date
                                                            ----
 /s/ Richard D. Gardner                                  March 27, 1998
-------------------------                           -----------------------
Richard D. Gardner                 Director

/s/ Barry Hamrick                                        March 27, 1998
-------------------------                           -----------------------
Barry Hamrick                      Director

 /s/ Haskell D. Mallory                                  March 27, 1998
-------------------------                           -----------------------
Haskell D. Mallory                 Director

 /s/ Bill Mason                                          March 27, 1998
-------------------------                           -----------------------
Bill Mason                         Director


<PAGE>   17


Signature                                Title                     Date
 /s/ V. Stephen Moss                                          March 27, 1998
------------------------------                              ------------------
V. Stephen Moss                         Director;
                                    President and CEO

 /s/ Harold D. Pennington, Jr.                                March 27, 1998
------------------------------                              ------------------
Harold D. Pennington, Jr.               Director


 /s/ Harold D. Pennington, Sr.                                March 27, 1998
------------------------------                              ------------------
Harold D. Pennington, Sr.               Director


 /s/ Heyward W. Porter                                        March 27, 1998
------------------------------                              ------------------
Heyward W. Porter                       Director



<PAGE>   18


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number   Description
<S>               <C>
3.1               Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the
                  Registration Statement on Form S-1, File No. 333-1546)

3.2               Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Registration Statement
                  on Form S-1, File No. 333-1546)

4.1               Provisions in the Company's Articles of Incorporation and
                  Bylaws defining the rights of holders of the Company's Common
                  Stock (incorporated by reference to Exhibit 4.1 of the
                  Registration Statement on Form S-1, File No. 333-1546)

10.1              Option Agreement dated October 20, 1995, between James L.
                  Moss, as seller, and FNB Bancshares, Inc., as purchaser, for
                  the Blacksburg office property (incorporated by reference to
                  Exhibit 10.1 of the Registration Statement on Form S-1, File
                  No. 333-1546)

10.2              Option Agreement dated December 31, 1995, between William K. Brumbach, Jr., Linwood B.
                  Brumbach, Evelyn B. Sanles and Patricia Brumbach Clary, as sellers, and FNB Bancshares, Inc.,
                  as purchaser, for the secondary parcel for the Gaffney Office property (incorporated by
                  reference to Exhibit 10.2 of the Registration Statement on Form S-1, File No. 333-1546)

10.3              Option Agreement dated January 10, 1996, between Wylie L.
                  Hamrick and Catherine H. Beattie, as sellers, and FNB
                  Bancshares, Inc., as purchaser, for the primary parcel for the
                  Gaffney Office property (incorporated by reference to Exhibit
                  10.3 of the Registration Statement on Form S-1, File No.
                  333-1546)

10.4              Line of Credit Note dated September 27, 1995, by The Company
                  to The Bankers Bank (incorporated by reference to Exhibit 10.4
                  of the Registration Statement on Form S-1, File No. 333-1546)

10.5.             Employment Agreement dated January 17, 1996, between the
                  Company and V. Stephen Moss (incorporated by reference to
                  Exhibit 10.5 of the Registration Statement on Form S-1, File
                  No.
                  333-1546)

10.6.             Escrow Agreement dated March 8, 1996, between The Company and
                  The Bankers Bank (incorporated by reference to Exhibit 10.6 of
                  the Registration Statement on Form S-1, File No. 333-1546)

10.7              Commitment Letter dated March 27, 1996, from Spartanburg National Bank for a $150,000 line of
                  credit (incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-1,
                  File No. 333-1546)

10.8              Stock Option Plan dated as of March 25, 1997 (incorporated by
                  reference to Exhibit 10.7 of the Annual Report on Form 10-KSB
                  filed by the Company for the year ended December 31, 1996)

13                Annual Report to Shareholders for the year ended December 31, 1997

21.1              Subsidiaries of the Company

27.1              Financial Data Schedule (for SEC use only)
</TABLE>