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                       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, 1998

         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.)

           217 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 income for its most recent fiscal year was $127,392. As
of March 15, 1999, 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, 1999 was $4,379,380. This calculation is based upon
an estimate of the fair market value of the Common Stock by the Company's Board
of Directors of $10.00 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,
1998 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 27, 1999 is incorporated by reference in this Form 10-KSB in Part
III, Items 9 through 12.

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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
Section 21E of the Securities Exchange Act of 1934. These statements appear in
a number of places in this Report and include all statements that are not
historical statements of fact regarding the intent, belief, or current
expectations of the Company or 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; and (iii) the
Company's growth and operating strategies. Words such as "may," "would,"
"could," "will," "expect," "estimate," "anticipate," "believe," "intend," and
"plans" are intended to identify forward-looking statements. Investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, many of which are beyond the
Company's control. Actual results may differ materially from those projected in
the forward-looking statements as a result of various factors. Among the key
risks, assumptions, and factors that may affect operating results, performance,
and financial condition are the Company's ability to continue and manage its
growth, fluctuations in its quarterly results, Year 2000 risks and concerns,
competition, and other factors discussed in this Report and in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section of the Company's Registration Statement on Form S-1
(Registration Number 333-1546).


GENERAL

         FNB Bancshares, Inc. (the "Company") was incorporated in South
Carolina on September 27, 1995 for the purpose of operating as a bank holding
company. The Company's wholly owned subsidiary, First National Bank of the
Carolinas (the "Bank"), commenced business on October 18, 1996 and is primarily
engaged in the business of accepting savings and demand deposits and providing
mortgage, consumer, and commercial loans to the general public. The Bank has a
main office in Gaffney and a branch office in Blacksburg, South Carolina. The
Bank is organized as a national banking association under the laws of the
United States, with deposits insured by the FDIC. The Bank is a member of the
Federal Reserve System.

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 at 217 North Granard Street, Gaffney,
South Carolina 29342. 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."

         The Bank's primary service area is Cherokee County, South Carolina.
Blacksburg and Gaffney are approximately eight miles from each other and are
the two largest municipalities in Cherokee County. Cherokee County is part of a
five-county metropolitan statistical area covering the "upstate" area of South
Carolina, including Greenville, 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


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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 50% 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 is successfully filling 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.

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, 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 


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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).

         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.


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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.

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. As of December 31, 1998, there were four
commercial banks (none of which are headquartered in Cherokee County), one
savings bank, and one credit union operating in Cherokee County. 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 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.

EMPLOYEES

         The Bank has twenty one full-time employees as of December 31, 1998.

                           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 FIRREA in 1989
and following with FDICIA in 1991, 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 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 also 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,


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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 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 Securities Exchange Act of 1934 (the "Exchange Act") (which the Company has
done) or no other person owns 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,


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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 also 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.

         South Carolina Act. As a bank holding company registered under the
South Carolina Act, the Company is subject to regulation by the South Carolina
State Board of Financial Institutions (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. 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 may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC 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


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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.

         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. In 1993, the FDIC adopted a rule which
establishes a risk-based deposit insurance premium system for all insured
depository institutions. Under this system, until mid-1995 depository
institutions paid to 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 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.

         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 nonaffiliated companies. The Bank is subject to
certain restrictions on extensions of credit to executive officers, directors,
certain principal shareholders, and their related interests. Such extensions of
credit (i) must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with third parties and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features.

         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.


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         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 is 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."

         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 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 is fulfilling its obligation to
help meet the housing needs of the community it serves; the Equal Credit
Opportunity Act, prohibiting discrimination on the basis of race, creed or
other prohibited factors in extending credit; the Fair Credit Reporting Act of
1978, governing the use and provision of information to credit reporting
agencies; the Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and the rules and regulations of
the various federal agencies charged with the responsibility of implementing
such federal laws. 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
is subject to higher capital requirements. The current guidelines require all
bank holding companies and federally-regulated banks to maintain a minimum
risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible


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securities, hybrid capital instruments, subordinated debt and intermediate
term-preferred stock, and general reserves for loan and lease losses up to
1.25% of risk-weighted assets.

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

         The federal bank regulatory authorities 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 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. As of December 31, 1998, the
Company and the Bank were qualified as "well capitalized." See "Management's
Discussion and Analysis or Plan of Operation -- Capital."

         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 increases, and the
permissible activities of the institution decreases, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (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.

         These capital guidelines can affect the Company in several ways. If
the Company continues to grow at a rapid pace, a premature "squeeze" on capital
could occur making a capital infusion necessary. The requirements could impact
the Company's ability to pay dividends. The Company's present capital levels
are 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.


                                       9
<PAGE>   11


         FDICIA requires the federal banking regulators to revise the
risk-based capital standards to provide for explicit consideration of
interest-rate risk, concentration of credit risk, and the risks of
untraditional activities. It is uncertain what effect these regulations, when
implemented, would have on the Company.

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


                                      10
<PAGE>   12


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. The banking
facility is approximately 11,000 square feet and costs approximately
$1,500,000, including furniture, fixtures, and equipment. The Company completed
construction of these facilities in late 1998 and commenced operations from
these new facilities in January 1999.


         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 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 issued 616,338 shares of Common Stock in its initial
offering. As of December 31, 1998, the Company had 569 shareholders of record.
Trades in the Common Stock are limited and sporadic, and management is not
aware of the prices of all trades. Since February 1999, the Common Stock has
been quoted on the Nasdaq OTC Bulletin Board under the symbol "FNBC." There is
no established trading market in the Common Stock, and one is not expected to
develop in the near future.

         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.


                                      11
<PAGE>   13


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

         In response to this Item, the information contained on pages 4 through
17 of the Company's Annual Report to Shareholders for the year ended December
31, 1998 is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

         In response to this Item, the information contained on pages 18
through 36 of the Company's Annual Report to Shareholders for the year ended
December 31, 1998 is incorporated herein by reference.

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

         None.

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

         In response to this Item, the information contained on page 8 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 27, 1999 is incorporated herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION

         In response to this Item, the information contained on page 7 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 27, 1999 is incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         In response to this Item, the information contained on page 7 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 27, 1999 is incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In response to this Item, the information contained on pages 8 through
9 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 27, 1999 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:

<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)

</TABLE>


                                      12
<PAGE>   14

<TABLE>

<S>         <C>
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, 1998

21.1        Subsidiaries of the Company

27.1        Financial Data Schedule (for SEC use only)

</TABLE>

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


                                      13
<PAGE>   15


(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the fourth quarter of the
year ended December 31, 1998.


                                      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 23, 1999                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.

<TABLE>
<CAPTION>
Signature                                                  Title                                    Date
---------                                                  -----                                    ----
<S>                                                       <C>                                  <C> 

/s/ Richard D. Gardner                                                                         March 23, 1999
----------------------                                                                         --------------
Richard D. Gardner                                        Director

/s/ Barry Hamrick                                                                              March 23, 1999
----------------------                                                                         --------------
Barry Hamrick                                             Director

/s/ Haskell D. Mallory                                                                         March 23, 1999
----------------------                                                                         --------------
Haskell D. Mallory                                        Director

/s/ Bill Mason                                                                                 March 23, 1999
----------------------                                                                         --------------
Bill Mason                                                Director
</TABLE>


<PAGE>   17

<TABLE>
<CAPTION>
Signature                                                  Title                                    Date
---------                                                  -----                                    ----
<S>                                              <C>                                           <C> 

/s/ V. Stephen Moss                                                                            March 23, 1999
-----------------------------                                                                  --------------
V. Stephen Moss                                          Director;
                                                     President and CEO


/s/ Harold D. Pennington, Jr.                                                                  March 23, 1999
-----------------------------                                                                  --------------
Harold D. Pennington, Jr.                                 Director


/s/ Harold D. Pennington, Sr.                                                                  March 23, 1999
-----------------------------                                                                  --------------
Harold D. Pennington, Sr.                                 Director


/s/ Heyward W. Porter                                                                          March 23, 1999
-----------------------------                                                                  --------------
Heyward W. Porter                                         Director

/s/ John W. Hobbs                                 Chief Financial Officer and                  March 23, 1999
-----------------------------                    Principal Accounting Officer                  --------------
John W. Hobbs
</TABLE>

<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)

</TABLE>

<PAGE>   19

<TABLE>


<S>         <C>
13          Annual Report to Shareholders for the year ended December 31, 1998

21.1        Subsidiaries of the Company

27.1        Financial Data Schedule (for SEC use only)

</TABLE>