FNB CORPORATION

                  ANNUAL REPORT TO STOCKHOLDERS

                               1997
<PAGE>

              INDEX TO ANNUAL REPORT TO STOCKHOLDERS                  



                      
Selected Consolidated Financial Information

Management's Discussion and Analysis of Financial Condition and Results of
Operations 
 
Market Price and Dividend Data 

Market Risks Related to Financial Instruments

Independent Auditors' Report on Consolidated Financial Statements

Consolidated Balance Sheets 

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Stockholders' Equity 

Notes to Consolidated Financial Statements 
<PAGE>
<TABLE>
<CAPTION>

SELECTED CONSOLIDATED FINANCIAL INFORMATION           Years Ended December 31,

                                                                               
                                       1997      1996       1995       1994        1993    
Selected income statement data
    (in thousands):
<S>                                <C>        <C>        <C>        <C>        <C>           
          Interest income           $ 33,114     30,526     28,330     24,089     23,200
          Interest expense            16,764     15,016     14,081     11,022     11,339

          Net interest income         16,350     15,510     14,249     13,067     11,861

          Provision for loan losses      550        595        300        360      1,125

          Noninterest income           2,291      2,034      1,869      1,704      2,435
          Noninterest expense         11,602     10,254      9,695      9,010      8,757
          Income tax expense           1,324      1,491      1,449      1,394        824   

          Income before cumulative
            effects of changes in
            accounting principles      5,165      5,204      4,674      4,007      3,590
          Cumulative effect of
            change in accounting 
            for postretirement
            benefits other than 
            pensions                       -          -          -          -       (179) 
          Cumulative effect of change 
            in accounting for income
            taxes                          -          -          -          -        337

          Net income                $  5,165      5,204      4,674      4,007      3,748

Per share data:              
          Net income                $   1.60       1.62       1.48       1.29       1.21
          Cash dividends declared        .42        .60        .55        .73        .37

          Book value per share         12.42      11.14      10.14       8.50       8.49

Average shares outstanding         3,237,731  3,205,132  3,162,872  3,115,710  3,109,920                

Selected balance sheet data at year end
     (in thousands):
         Total securities           $105,276     97,975     87,962     86,013     85,276
         Loans, net                  286,767    269,145    248,305    213,899    201,381
         Allowance for loan losses     4,291      4,179      3,988      3,815      3,471
         Total assets                428,174    395,324    360,533    323,876    307,516  
         Deposits                    352,545    335,402    315,777    286,130    271,406
         Subordinated capital notes        -          -        937      1,044      1,152
         Stockholders' equity         40,213     35,828     32,191     26,777     26,392

Selected ratios (in percentages):
         Return on average assets       1.26       1.41       1.38       1.29       1.26
         Return on average equity      13.59      15.20      15.64      14.93      15.23
         Dividend pay-out ratio        26.08      36.99      37.27      56.25      30.17
         Average equity to 
           average assets               9.31       9.26       8.82       8.68       8.30
</TABLE>
NOTES:     (1)    All share and per share data have been adjusted              
                  retroactively to reflect the 2 for 1 stock split effected    
                  in the form of a 100% stock dividend in 1997 and a 10% stock 
                  dividend in 1994.                  

           (2)    See Note 1 to the consolidated financial statements for      
                  information relating to a change in reporting entity         
                  resulting from a reorganization involving the formation of a 
                  bank holding company (the successor) and the exchange of one 
                  share of the holding company's stock for each share of First 
                  National Bank (the predecessor).  For reasons discussed in   
                  Note 1, the information in the table above for periods prior 
                  to the reorganization are comparable to that for the periods 
                  subsequent to the reorganization.
<PAGE>

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of factors that significantly affected the
financial condition and results of operations of FNB Corporation and
subsidiaries.  This discussion should be read in connection with the
consolidated financial statements, statistical disclosures and other financial
information presented herein.  All amounts presented are denoted in thousands
except per share and percentage data.

In 1996, the Board of Directors of First National Bank (the "Bank") approved a
reorganization whereby a bank holding company (FNB Corporation) was
incorporated under the laws of the Commonwealth of Virginia.  On June 11,
1996, the shareholders of the Bank approved a plan for the holding company,
the successor, to exchange one share of its stock for each share of stock of
the Bank, the predecessor.  A registration statement was filed with the
Securities and Exchange Commission (SEC) to register the stock of the holding
company, and such registration statement was subsequently declared effective
by the SEC.  On July 11, 1996, the Office of the Comptroller of the Currency
(OCC) approved the plan, and the exchange was subsequently consummated.  As a
result, the Bank became a wholly owned subsidiary of the holding company
during the third quarter of 1996.

The financial statements included herein reflect the balances and activity of
the Bank and its subsidiaries for periods ending prior to the consummation of
the reorganization (July 11, 1996) and of the holding company and its
subsidiaries (collectively, the "Corporation") for periods ending subsequent
to the reorganization.  The exchange of stock was accounted for using the
pooling of interests method.  That is, the bases of the assets and liabilities
of the Bank prior to the reorganization were carried forward without
adjustment.  Because of this, and because the holding company's revenues,
expenses and changes in financial position subsequent to the reorganization
have been minimal, the consolidated financial statements for periods
subsequent to the reorganization are comparable to those for periods prior to
the reorganization.  The accompanying consolidated statements of income, cash
flows and changes in stockholders' equity for 1996 include the combined
activity for the portion of 1996 prior to the consummation of the
reorganization as well as that occurring subsequent to the reorganization.

Net Income
Net income for 1997 was $5,165 compared to $5,204 for 1996 and $4,674 for
1995.  This amounted to a decrease of .8% for 1997 compared to an increase of
11.3% for 1996.  Earnings per share were $1.60 for 1997 compared to $1.62 for
1996 and $1.48 for 1995.  The decrease in 1997 earnings resulted from higher
overhead expenses from the opening of two new branch offices during the second
half of 1996 and the new corporate office facility in early 1997.  The
increase in earnings for 1996 was primarily the result of increases in net
interest income and declines in the Federal Deposit Insurance Corporation
insurance assessment.  

The per share earnings for 1996 and 1995 have been restated to reflect the
effects of a two-for-one stock split effected in the form of a 100% stock
dividend declared in the second quarter of 1997.
<PAGE>

Net Interest Income 
The principal source of earnings for the Corporation is net interest income. 
Net interest income is the net amount of interest earned on interest bearing
assets, less the amount of interest paid on deposits and other interest-
bearing liabilities.  Net interest income before provision for loan losses for
1997 was $16,350, up 5.4% from $15,510 for 1996, which was up 8.8% from
$14,249 for 1995.  The increases in net interest income in both 1997 and 1996
were primarily the result of growth in average earning assets, partially
offset by growth in interest bearing liabilities.  Average earning asset
growth totaled $30,842 or 8.71% for 1997 and $28,177 or 8.64% for 1996.  The
largest component of the increase in earning assets was average loans,
reflecting increases of $18,741 or 7.28% for 1997 and $22,667 or 9.65% for
1996.  Growth in the loan portfolio was concentrated primarily in commercial
and real estate loans, reflecting a combined increase of $14,536 for 1997. 
Loan growth for 1996 was concentrated primarily in real estate loans with an
average increase of $15,410.  Average securities increased $9,192 or 9.91% for
1997 and $5,608 or 6.41% for 1996 and were used as an alternative investment
for funds in excess of loan demand.

Average interest-bearing liabilities increased $32,278 or 10.62% for 1997 and
$22,789 or 8.07% for 1996.  The largest component of the increase in interest-
bearing liabilities was average deposits, reflecting an increase of $19,790
for 1997 and $16,199 for 1996.  Growth in the deposit portfolio was
concentrated in time deposits with an average increase of $9,969 for 1997 and
$14,313 for 1996 and in certificates of deposit of $100 and over with an
increase of $4,505 for 1997 and $6,049 for 1996.  Successful deposit
promotions and more aggressive bidding for deposits accounted for the
increases.  Average other borrowed funds increased $12,100 for 1997 and $7,124
for 1996.  The primary reason for the change was an increase in advances from
the Federal Home Loan Bank of Atlanta, as the Corporation increasingly
utilized this source of funds.

Net interest yield decreased to 4.59% for 1997 from 4.80% for 1996 and 4.73%
for 1995.  The yield on average earning assets decreased 13 basis points for
1997 and was essentially unchanged in 1996 from 1995.  The cost of interest-
bearing liabilities increased 3 basis points for 1997 compared to a 6 basis
point decrease in 1996.  Overall, 137.4% and 84.2% of the net interest income
increases in 1997 and 1996, respectively, were attributable to changes in the
volume of net interest-earning assets and interest-bearing liabilities.  The
remainder of the changes in both years was due to changes in average rates.

Management attempts to match, where possible, the maturities and repricing
intervals of its interest earning assets and interest bearing liabilities. 
The largest cumulative interest sensitivity gap for periods up to five years
is $19,200, which represents 4.8% and 5.5% of total interest earning assets
and interest bearing liabilities at December 31, 1997, respectively.  The
sensitivity gap for the period beyond five years is $36,800.  Management
considers the interest rate exposure represented by these gaps to be
acceptable.

Provision for Loan Losses
The provision for loan losses was $550 for 1997, $595 for 1996 and $300 for
1995.  Net charge-offs amounted to $438, $404 and $127 for 1997, 1996 and
1995, respectively.  The increase in net charge-offs for both years was due to
a drop in recoveries of loans previously charged off.  The allowance for loan
losses was $4,291,  1.47% of  outstanding  loans,  at  December 31,  1997 and 
<PAGE>
$4,179, 1.53% of outstanding loans, at December 31, 1996.  Although the
provision for loan losses decreased and net charge-offs increased for 1997 in
comparison to 1996, the allowance for loan losses increased as the result of
the fact that the 1997 provision exceeded net charge-offs.  Management
believes the allowance for loan losses as a percentage of outstanding loans
remains at a prudent level.

Noninterest Income
Noninterest income, which includes service charges on deposit accounts, loan
origination fees, other service charges, other income and net securities gains
(losses), was $2,291, $2,034 and $1,869 for 1997, 1996 and 1995, respectively. 
The increase in noninterest income for 1997 was due primarily to increases in
service charges on deposit accounts, automated teller machine usage fees,
trust fees and net gains on sales of loans.  The 1996 increase in noninterest
income resulted primarily from an increase in fees on Small Business
Administration and real estate loans sold, trust fees, title insurance income
and gain on disposal of fixed assets.  Increases for both 1997 and 1996 were
partially offset by reductions in other areas.

Noninterest Expense
Noninterest expense, consisting of salaries and employee benefits, occupancy
costs, credit cards, supplies, FDIC assessment and other expenses was $11,602
for 1997, $10,254 for 1996 and $9,695 for 1995.  The 1997 net increase
resulted from increases in personnel costs, occupancy and equipment expense,
telephone, supplies, education, marketing and donations, the bulk of which was
attributable to the operation of  new branch facilities and the new corporate
office building which opened in February, 1997.  The 1996 net increase in
noninterest expense resulted from increases in several categories, primarily
personnel costs and credit cards.  Personnel costs increased primarily as the
result of merit increases and additional personnel to staff two new branches. 
The increases for both 1997 and 1996 were partially offset by reductions in
other areas.

Income Taxes
Income tax expense as a percentage of pre-tax income was 20.4%, 22.3% and
23.7% in 1997, 1996 and 1995, respectively.  The most significant component of
the rate decrease in 1997 was  anticipated income tax refunds related to
amendments of prior years tax returns.  The decline in the rate for 1996 was
due to the continuing shift from taxable to nontaxable investment securities.

Balance Sheet
Total assets of the Corporation at December 31, 1997, were $428,174, compared
to $395,324 at December 31, 1996.  Total loans were $291,070 at December 31,
1997, an increase of $17,689 from December 31, 1996.  Loan growth was
concentrated in the commercial and real estate-commercial portfolios and
amounted to $11,958.  All other loan portfolios experienced increases of
varying amounts, except the real estate-mortgage portfolio which decreased
$1,153.  The increase in bank premises and equipment of $2,235 resulted
primarily from the construction of the new corporate headquarters building. 
On an amortized cost basis, securities increased $6,898 from $98,033 at
December 31, 1996.  The increase in securities represented funds in excess of
loan demand.
<PAGE>
Total deposits at December 31, 1997, were $352,545, an increase of $17,143
from December 31, 1996.  Certificates of deposit of $100 and over increased
$5,424, time deposits increased $3,116, interest-bearing demand deposits
increased $4,452 and noninterest-bearing demand deposits increased $4,481
since year end 1996.  Depositors continue to shift funds among the various
types of deposit instruments seeking the most advantageous return while
maintaining an acceptable level of liquidity.  Competition for deposits among
local financial institutions continues to be strong.

Other borrowed funds at December 31, 1997, were $26,093, an increase of
$11,689 from December 31, 1996.  The primary reason for the change was an
increase in advances from the Federal Home Loan Bank of Atlanta from $12,779
at December 31, 1996, to $22,601 at December 31, 1997, to provide partial
funding for earning asset growth.

Stockholders' Equity
Stockholders' equity was $40,213 at December 31, 1997, compared to $35,828 at
December 31, 1996.  This increase of $4,385 was the net result of earnings
retention, an improvement of $265 in net unrealized gain or loss (net of tax)
on securities available-for-sale, a decrease of $303 in unearned ESOP shares
resulting from principal repayments on ESOP debt, and dividends paid to
shareholders.  In the second quarter of 1997, the Corporation declared and
paid a two-for-one stock split effected in the form of a 100% stock dividend. 
This resulted in a transfer of $8,309 from retained earnings to the capital
stock account.  There was no effect on total stockholders' equity.

All financial institutions are required to maintain minimum levels of
regulatory capital.  The Federal Reserve and the Office of the Comptroller of
the Currency (OCC) have established substantially similar risk-based and
leveraged capital standards for financial institutions they regulate.  Under
the risk-based capital requirements of these regulatory agencies, the
Corporation is required to maintain a minimum ratio of total capital to risk-
weighted assets of at least 8%. At least half of the total capital is required
to be "Tier 1 capital", which consists principally of common and certain
qualifying preferred shareholders' equity, less certain intangibles and other
adjustments.  The remainder, "Tier 2 capital", consists of a limited amount of
subordinated and other qualifying debt and a limited amount of the general
loan loss reserve.  Tier 1 and total capital to risk-weighted assets ratios as
of December 31, 1997 were 13.2% and 14.5%, respectively, exceeding the
minimums required.

In addition, the federal regulatory agencies have established a minimum
leveraged capital ratio (Tier 1 capital to tangible assets).  These guidelines
provide for a minimum leveraged capital ratio of 3% for banks and their
respective holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion.  All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points
above that minimum.  The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels, without significant reliance on intangible assets.  The leverage ratio
of the Corporation as of December 31, 1997 was 9.6% as compared to a minimum
requirement of 4.0%.
<PAGE>
As of December 31, 1997, the most recent notification from the OCC categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action, established by Section 38 of the Federal Deposit Insurance
Act.  To be categorized as well capitalized, minimum total risk-based capital,
Tier 1 risk-based capital, and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%,
respectively, must be maintained.  As noted above, the Bank exceeded all three
of these minimums as of December 31, 1997.  There are no conditions or events
that management believes have changed the institution's category.

Past Due Loans and Nonperforming Assets
Loans past due 90 days and over at December 31, 1997 totaled $196 compared to
$595 at December 31, 1996.  In addition, nonaccrual loans and other real
estate owned totaled $991 at December 31, 1997, compared to $758 at December
31, 1996.  In spite of the increase in nonaccrual loans and other real estate
owned, the New River Valley economy continues to improve, and such improvement
has been reflected in a declining trend of nonperforming assets in recent
years.  There were no major concentrations in nonaccrual loans at December 31,
1997 or 1996.  

Liquidity
Liquidity is the ability to provide sufficient cash flow to meet financial
commitments and to fund additional loan demand or withdrawal of existing
deposits.  Liquidity remains sufficient, as assets are maintained on a short-
term basis to meet the liquidity demands anticipated by management.  Funding
sources primarily include customer-based core deposits and cash generated by
operations.  Another source of liquidity is additional borrowings from the
Federal Home Loan Bank of Atlanta; in excess of $10,000 of the Corporation's
borrowing capacity under an existing agreement with the FHLB remains unused as
of December 31, 1997, based on the level of qualifying portfolio mortgage
loans available for securitization.  Secondary sources of liquidity are
available should the need arise, including approximately $34,000 in unused
Federal Funds lines of credit and the ability to liquidate assets held for
sale, especially investment securities.

The only significant source of cash for the holding company is transfers from
its bank subsidiary in the form of dividends, loans, or advances.  The most
restrictive regulatory limitation placed on the amount of funds that may be
transferred from the Bank to the holding company is that placed on dividends. 
Specifically, the maximum amount of dividends that may be paid by the Bank in
any calendar year without prior regulatory approval is the net profits of that
year, as defined, combined with the retained net profits for the two preceding
years.  In effect, this limits 1998 dividends (unless prior regulatory
approval is obtained) to $7,096 plus year-to-date 1998 net profits as of the
declaration date.  This limitation had no effect on the liquidity of the
holding company in 1997, and it is not expected to have any material impact in
1998.  During 1997, the bank paid $1,911 in dividends to the holding company.

Effects of Inflation
The income statement generally reflects the effects of inflation.  Since
interest rates, loan activities and deposit levels are related to inflation,
the resulting changes are included in net income.  The most significant item
that does not reflect the effects of inflation is depreciation expense because
historically presented dollar values used to determine this expense do not
reflect the effects of inflation on the market value of depreciable assets.
<PAGE>

Recent Accounting Developments
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
supersedes existing standards for calculating and disclosing earnings per
share (EPS). The new standard requires the disclosure of Basic EPS and, where
potential dilution exists, Diluted EPS.  Basic EPS is calculated using only
the actual weighted average number of common shares outstanding and the income
available to common stockholders.  Diluted EPS adjusts the income and number
of shares to reflect the potential effects of stock options, warrants,
convertible debt, and other potentially dilutive securities.  The Statement
was first effective for the fourth quarter of 1997, but it did not have an
impact on earnings per share for 1997 or prior periods. Based on the current
capital structure of the Corporation, management does not expect SFAS No. 128
to materially impact earnings per share in the future because there are
currently no potentially dilutive securities.

The FASB has also issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities."  This Statement
provides standards for distinguishing between transfers of financial assets
that should be accounted for as sales and those that should be accounted for
as collateralized borrowings.  In essence, transactions in which the
transferor has surrendered control of the financial asset must be recorded as
sales, and those in which control has not been surrendered should be recorded
as borrowings.  Transactions engaged in by the Corporation which are covered
by the Statement include sales of loans with retainage of servicing rights,
securities sold under agreement to repurchase (repurchase agreements),
participations sold or purchased, and borrowings secured by loans.  A portion
of SFAS 125 was adopted in 1997 and resulted in the classification of certain
participations sold with recourse as secured borrowings. Previously these
types of transactions were recorded as sales of loans.  The new standard
resulted in a similar change in the classification of the related interest on
the portion of the loan sold.  There was no impact on net income.  The
adoption of the Statement does not involve the restatement of any previously
issued financial statements.  The remaining portions of SFAS 125 are required
to be adopted in 1998.  Management does not expect SFAS No.125 to have a
significant impact on financial position or results of operations in the
future based on current operations.

The FASB has also issued SFAS No. 130, "Reporting Comprehensive Income."  The
Statement requires enterprises to display "comprehensive income" and its
components in a financial statement that is displayed with the same prominence
as other financial statements in a full set of financial statements. 
"Comprehensive income" reflects net income as reported under current
accounting standards as well as certain items and events that are currently
reflected only in stockholders' equity without impacting the Statement of
Income.  The new standard requires such information to be presented as an
additional financial statement, but the primary financial statements as
currently reported will not be affected.  SFAS No. 130 is effective starting
in the first quarter of 1998.

Other Matters
The "Year 2000 Issue" results from the inability of most computers to process
year-date data accurately beyond the year 1999 unless programmed to do so. 
The Corporation has undertaken substantial measures to identify hardware and
software in its own systems that are not year-2000 compliant, and some
replacements have been effected.  Some systems, however, are still not year-
2000 compliant, and management intends and expects to continue its efforts to
<PAGE>
achieve full year-2000 compliance in all of its significant systems to avoid
any systems failures or malfunctions.  Because a large portion of the
Corporation's software and hardware has been purchased relatively recently,
and because the software for most of the Corporation's major systems is
maintained and updated periodically by outside vendors, management does not
anticipate the year-2000 compliance process to require expenditures that would
be material to the financial statements.  These costs are being expensed as
incurred in accordance with generally accepted accounting principles.
<PAGE>

Market Price and Dividend Data
The following information reflects per share data for the periods indicated
relative to Common Stock trading values and dividends. FNB Corporation Common
Stock began appearing on the OTC Bulletin Board under the symbol FNBP on
November 15, 1996.  Shares are occasionally bought and sold by private
individuals, firms or corporations, and in many instances FNB Corporation does
not have knowledge of the purchase price or the terms of the purchase.  The
information below relating to the trading values for the stock is based upon
information furnished to FNB Corporation by one or more parties involved in
certain purchases and sales of the stock.  No attempt was made to verify or
determine the accuracy of the representations made.  Both the trading values
and per share dividends in the tables below have been adjusted to
retroactively reflect the effects of a two-for-one stock split effected in the
form of a 100% stock dividend in June 1997 as though the split had occurred at
the beginning of 1996.  As of December 31, 1997, there were 1,028 holders of
record of FNB Corporation Common Stock.

The information below relating to periods prior to the effective date of the
reorganization discussed under Management's Discussion and Analysis relate to
the Common Stock of First National Bank, the predecessor entity.  The stock of
First National Bank was not reported on any quotation system or traded on any
organized exchange.  See Note 1 to the consolidated financial statements
included herein.
<TABLE>
<CAPTION>
         
                                  Trading Value             Dividends
1997                            High             Low        Per Share
<S>                       <C>                  <C>          <C>                                                                    
First Quarter             $    22.25            20.00           -- 
Second Quarter                 21.00            19.75          0.10
Third Quarter                  23.00            20.00          0.15
Fourth Quarter                 23.75            21.50          0.17
</TABLE>
<TABLE>
<CAPTION> 
                                   Trading Value             Dividends
1996                            High             Low         Per Share
<S>                       <C>                  <C>           <C>
First Quarter             $    21.87            21.25           --   
Second Quarter                 21.87            21.00           0.25
Third Quarter                  22.00            21.75           --
Fourth Quarter                 22.25            21.75           0.35
</TABLE>
<PAGE>

Market Risks Related to Financial Instruments

The Corporation is a party to a variety of financial instruments in the
ordinary course of business, including loans, investment securities and
deposits.  Most financial instruments by their nature carry associated market
risks.  The only substantial market risk associated with the Corporation's
financial instruments is interest rate risk; that is, the risk that the fair
values or future cash flows from an instrument could change as a result of
changes in market interest rates.  For example, a decline in market interest
rates will generally have the effect of reducing the expected future interest
to be received on a loan with a variable contractual interest rate.  However,
such a decline will normally have the effect of increasing the fair value of a
fixed contractual rate investment security.  Management does not expect
significant changes in its market risk exposure positions in the near term
future.

The Corporation is not a party to any material amounts of derivative financial
instruments such as futures, forward interest rate agreements, swaps or option
contracts.  Commitments to lend are entered into in the ordinary course of
business as discussed more fully in the notes to the financial statements, but
the majority of these commitments reflect interest rates that vary with
certain indexes, such as the prime rate.  As a result, those commitments
normally do not expose the Corporation to market interest rate risks prior to
funding the loan.

In general, the Corporation does not enter into financial instruments for
trading purposes.  That is, obtaining short-term profits by buying and selling
instruments is not an objective pursued by management.  The  turnover
frequency associated with financial instruments is, in general, greater when
trading is a short-term objective, and market risks can be enhanced or reduced
by such trading.

The Corporation seeks to manage its interest rate risk by establishing
asset/liability management policies and by continually monitoring the
characteristics of its asset and liability portfolios that bear on interest
rate risk. Interest rate management is conducted in coordination with
management of liquidity and capital adequacy.  The monitoring of interest rate
risk is supervised by an Asset Liability Management Committee comprised of
certain senior officers and certain members of the board of directors. 
Management seeks to minimize the risks to earnings and equity associated with
movements in market interest rates.  To achieve this objective management
monitors such factors as:

     Relative volumes of fixed rate vs. variable rate loans and deposits

     Average interest rate spreads between interest bearing assets and         
     liabilities

     Maturity and repricing schedules of loans, investment securities and      
     deposits, including the extent to which expected maturities of interest   
     sensitive assets align with that of interest sensitive liabilities        
    ("sensitivity gap")

Techniques used by management to adjust exposure to interest rate risk include
but are not limited to selling certain types of loans (especially fixed rate
loans), periodically changing stated interest rates charged on loans and
offered on deposits in conjunction with market trends, redirecting funds upon
maturities of investment securities and loan repayments, and careful selection
among choices of sources of borrowed funds other than deposits.  The
Corporation has not entered into derivative financial instruments such as
futures, forward interest rate agreements, swaps or option contracts in order
to manage interest rate risk.
<PAGE>

A key analytical technique used by management in its efforts to manage
interest rate risk is interest rate shock simulation. This method seeks to
estimate the impact on earnings or on the fair values of interest bearing
assets and liabilities if market interest rates fluctuate by a predetermined
amount by using present value techniques (discounting).  The table below
provides information about the Corporation's financial instruments that are
sensitive to changes in interest rates, including those with fixed contractual
rates and those with variable rates.  The information is presented as of
December 31, 1997.  The expected increases or decreases in the fair values of
financial instruments assuming an increase and a decrease of 200 basis points
in market interest rates are as follows:
<TABLE>
<CAPTION>

                               Percentage Increase (Decrease) in Fair Value    
                        200 Basis Point Increase      200 Basis Point Decrease
<S>                              <C>                      <C>
Total Securities                  (5.74)%                   3.67%

Total Loans                       (2.20)%                   2.49%

Total Deposits                    (2.26)%                   2.37%

Repurchase Agreements and 
     Other Borrowed Funds         (0.76)%                   0.88%
</TABLE>

Excluded from the above table are financial instruments that carry no market
interest rate risk because of their terms, including cash, non-interest
bearing deposits at other financial institutions, accounts payable and similar
liabilities, and accrued interest receivable and payable.  Also excluded are
instruments which carry only an insignificant degree of market risk because
the principal amount of the instrument is not material as a whole, including
federal funds purchased and sold and the loan related to the employee stock
ownership plan.  The table reflects annual loan prepayment assumptions of 5%
for commercial loans and installment loans and 18% for mortgage loans.  These
prepayment assumptions represent estimates derived by management.  Investment
securities are assumed to remain in the Corporation's portfolio until maturity
unless called by the issuer.  No early withdrawals are assumed for deposits
with defined contractual maturity terms.  For other deposits, 30% of the
balance is assumed to mature in three months and another 30% in the next three
months.  The remaining 40% is assumed to mature between two and three years
from the date of the table.
<PAGE>

INDEPENDENT AUDITORS' REPORT





The Board of Directors and Stockholders
FNB Corporation


We have audited the accompanying consolidated balance sheets of FNB
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended.  We have also audited the accompanying
consolidated statements of income, changes in stockholders' equity and cash
flows of First National Bank and subsidiaries for the year ended December 31,
1995.  These consolidated financial statements are the responsibility of the
Corporation's management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. 

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FNB
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended, and the
results of operations and cash flows for First National Bank and subsidiaries
for the year ended December 31, 1995,  in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial statements, FNB
Corporation was formed in 1996 and acquired 100% of the outstanding common
stock of First National Bank, the predecessor reporting entity.



                                            MCLEOD & COMPANY



Roanoke, Virginia
February 27, 1998
<PAGE>
<TABLE>
<CAPTION>

                                                   December 31, 1997 and 1996
CONSOLIDATED BALANCE SHEETS     in thousands, except share and per share data)

                                            FNB  Corporation and Subsidiaries
                                                    1997             1996  
<S>                                             <C>               <C>       
ASSETS
Cash and due from banks                         $  14,406           10,277
Federal funds sold                                  3,500            2,500 
Securities available-for-sale, at fair value       62,856           54,886
Securities held-to-maturity, at amortized cost     42,420           43,089
Mortgage loans held for sale                        1,159              330
Loans:
      Commercial                                   64,247           56,461
      Consumer                                     66,059           62,906
      Real estate- commercial                      56,404           52,232
      Real estate - construction                    8,657            4,926     
  Real estate - mortgage                           95,703           96,856

            Total loans                           291,070          273,381
Less unearned income                                   12               57

            Loans, net of unearned income         291,058          273,324
Less allowance for loan losses                      4,291            4,179

            Loans, net                            286,767          269,145
Bank premises and equipment, net                   12,518           10,283
Other real estate owned                                98              185
Other assets                                        4,450            4,629

            Total assets                        $ 428,174          395,324

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits   
      Noninterest-bearing demand deposits       $  35,279           30,798     
 Interest-bearing demand deposits                  52,055           47,603
      Savings deposits                             47,668           47,998     
  Time deposits                                   174,119          171,003
      Certificates of deposit of $100,000
         and over                                  43,424           38,000

            Total deposits                        352,545          335,402
      Securities sold under agreements to 
         repurchase                                 5,460            4,795
      Other borrowed funds                         26,093           14,404     
 Other liabilities                                  2,962            3,643       
ESOP debt                                             901            1,252

            Total liabilities                     387,961          359,496

Stockholders' equity:
      Common stock, $5.00 par value. 
         Authorized 5,000,000 shares;
         issued and outstanding 3,323,800
         shares in 1997 and 1,661,900 in 1996      16,619            8,310
      Surplus                                      10,782           10,782
      Unearned ESOP shares (77,811 and 50,662 
         shares in 1997 and 1996, respectively)    (1,208)          (1,511)
      Retained earnings                            13,793           18,285     
   Net unrealized gains (losses) on securities
         available-for-sale                           227              (38)

            Total stockholders' equity             40,213           35,828

            Total liabilities and stockholders'
              equity                            $ 428,174          395,324
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

                                   Years Ended December 31,1997, 1996 and 1995
CONSOLIDATED STATEMENTS OF INCOME        (in thousands, except per share data)

                                        FNB Corporation    First National Bank
                                        and Subsidiaries    and Subsidiaries   
                                        1997        1996           1995   
<S>                                  <C>           <C>           <C>
Interest income:
   Interest and fees on loans        $  26,754      24,962        23,072
   Interest on securities:
      Taxable                            3,642       2,998         3,109
      Nontaxable                         2,374       2,378         1,963
      Interest on federal funds sold       344         188           186

            Total interest income       33,114      30,526        28,330

Interest expense:
      Interest on interest-bearing
        demand deposits                  1,367       1,280         1,410
      Interest on savings deposits       1,456       1,395         1,692
      Interest on time deposits         10,070       9,497         8,740
      Interest on certificates of
        deposit of $100,000
        and over                         2,148       1,856         1,603
      Interest on securities sold
        under agreements to
        repurchase                         250         229           232
      Interest on other borrowed funds   1,385         574           144
      Interest on subordinated capital
        notes                                -          67            87
      Interest on ESOP debt                 88         118           173

            Total interest expense      16,764      15,016        14,081

            Net interest income         16,350      15,510        14,249
Provision for loan losses                  550         595           300

            Net interest income 
              after provision for
              loan losses               15,800      14,915        13,949

Noninterest income:
      Service charges on deposit
        accounts                           990         957           910 
      Loan origination fees                205         223           199
      Other service charges and fees       375         332           279
      Other income                         740         517           477
      Securities gains (losses), net       (19)          5             4

            Total noninterest income     2,291       2,034         1,869
Noninterest expense:
      Salaries and employee benefits     6,193       5,745         5,170
      Occupancy and equipment expense,
        net                              1,786       1,285         1,267
      Credit card expense                  560         572           464
      Supplies expense                     456         371           384
      FDIC assessment expense               41           2           333
      Other expenses                     2,566       2,279         2,077

            Total noninterest expense   11,602      10,254         9,695

Income before income tax expense         6,489       6,695         6,123
Income tax expense                       1,324       1,491         1,449

            Net income               $   5,165       5,204         4,674

            Net income per share     $    1.60        1.62          1.48
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                             FNB Corporation   First National Bank
                                             and Subsidiaries  and Subsidiaries  
                                              1997       1996           1995     
<S>                                      <C>           <C>           <C>
Cash flows from operating activities:
      Net income                          $   5,165      5,204         4,674
      Adjustments to reconcile net
         income to net cash provided
         by operating activities:
            Provision for loan losses           550        595           300
            Depreciation and amortization
               of bank premises and
               equipment                        902        549           538
            ESOP compensation                   302        604           302
            Provision for deferred 
               income taxes                     130         64           (90)
            Loss (gain) on sales of 
               securities available-for
               -sale, net                        20         (5)            -
            Amortization of premiums and
               accretion of discounts, net       71         73            20
            Gain on sales of securities
               held-to-maturity, net             (1)         -            (4)
            Decrease in valuation allowance
               for securities                     -          -          (209)
            Loss (gain) on sale of other
               real estate and equipment        (32)       (47)           12
            Proceeds from sales of mortgage
               loans held for sale           13,751      11,843       14,125                 
     Origination of mortgage loans
               held for sale                (14,580)    (11,356)     (14,487)                
     Decrease (increase) in other
               assets                           179        (401)       1,169
            (Decrease) increase in other
               liabilities                     (681)        251          385

               Net cash provided by 
                  operating activities        5,776       7,374        6,735

Cash flows from investing activities:
      Net decrease (increase) in federal 
         funds sold                          (1,000)      2,930       (3,000)
      Proceeds from sales of securities
         available-for-sale                   6,060       9,462            -
      Proceeds from calls and maturities
         of securities available-for-sale    13,269      10,895       15,009
      Proceeds from calls and maturities
         of securities held to maturity       2,640       3,037        2,626
      Purchases of securities available-
         for-sale                           (26,963)    (27,834)      (4,456)
      Purchase of securities held-to-
         maturity                            (1,994)     (6,047)     (11,783)
      Net increase in loans                 (18,673)    (21,739)     (35,989)
      Proceeds from sale of other real
         estate owned                           155         449          197
      Recoveries on loans previously
         charged off                            190         156          238
      Bank premises and equipment 
         expenditures                        (3,130)     (6,203)        (985)

               Net cash used in 
                 investing activities       (29,446)    (34,894)     (38,143)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                  Years Ended December 31, 1997, 1996 and 1995
                                                                (in thousands)

                                          FNB Corporation   First National Bank
                                          and Subsidiaries   and Subsidiaries    
                                          1997       1996           1995          
<S>                                    <C>         <C>            <C>                         
Cash flows from financing activities:
      Net increase (decrease) in 
         demand deposits               $  8,603      (330)          3,799
      Net increase in time deposits
         and certificates of deposit      8,540     19,955         25,848
      Net increase in securities 
         sold under agreements
         to repurchase                      665        853            838
      Net increase in other borrowed
         funds                           11,689     12,036            868
      Principal payments on ESOP debt      (302)      (604)          (302)
      Principal payments on subordinated
         capital notes                       -        (937)          (107)
      Dividends paid                     (1,347)    (1,924)        (1,742)
      Dividends on unallocated ESOP
         shares                             (49)       (70)           (87)

            Net cash provided by 
               financing activities       27,799     28,979        29,115

Net increase (decrease) in cash and due
   from banks                              4,129      1,459        (2,293)
Cash and due from banks at beginning of
   year                                   10,277      8,818        11,111

Cash and due from banks at end of year  $ 14,406     10,277         8,818
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF         Years Ended December 31,1997, 1996 and 1995
CHANGES IN STOCKHOLDERS' EQUITY        (in thousands, except share and per    
                                        share data)

                                                             Net
                                                             Unrealized
                                                             Gains
                                                             (Losses) on
                                      Unearned               Securities
                     Common           ESOP      Retained     Available-         
                     Stock   Surplus  Shares    Earnings     for-Sale    Total

First National Bank
   and Subsidiaries
<S>                 <C>       <C>     <C>       <C>         <C>       <C>
Balances at 
  December 31,
  1994              $ 8,310   10,782   (2,417)    12,074      (1,972)   26,777

Net income                -        -        -      4,674           -     4,674
Cash dividends, 
  $1.10 per share         -        -        -     (1,742)          -    (1,742)
ESOP shares 
  allocated upon
  loan repayment          -        -      302          -           -       302
Change in net 
  unrealized gains
  (losses) on 
  securities
  available for sale,
  net of income tax
  effect of $1,123        -        -        -          -       2,180     2,180

Balances at 
  December 31,
  1995                8,310   10,782   (2,115)    15,006         208    32,191  1995

FNB Corporation and
  Subsidiaries
Net income                -        -        -      5,204           -     5,204
Cash dividends, 
  $1.20 per share         -        -        -     (1,925)          -    (1,925)
ESOP shares 
  allocated upon
  loan repayment          -        -      604          -           -       604
Change in net 
  unrealized gains
  (losses) on 
  securities 
  available
  for sale, net
  of tax effect
  of $127                 -        -        -          -        (246)     (246)
                                                                               
                                                                               
Balances at
  December 31,
  1996                8,310   10,782   (1,511)    18,285         (38)   35,828
                                                     

Net income                                         5,165                 5,165
Cash dividends, 
  $0.42 per share                                 (1,348)               (1,348)
ESOP shares 
  allocated upon
  loan repayment                          303                              303
Two for one stock 
  split effected 
  in form of 100%
  stock dividend      8,309        -        -     (8,309)          -         -
Change in net 
  unrealized gains
  (losses) on 
  securities
  available for
  sale, net of
  tax effect of
  $136                                                           265       265

Balances at 
  December 31,
  1997              $16,619   10,782   (1,208)    13,793         227    40,213                                               
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                   December 31, 1997
                                             (in thousands, except share data)


(1)   Change in Reporting Entity

      In 1996, the Board of Directors of First National Bank (the "Bank")      
      approved a reorganization whereby a bank holding company (FNB            
      Corporation) was incorporated under the laws of the Commonwealth of      
      Virginia.  On June 11, 1996, the shareholders of the Bank approved a     
      plan for the holding company, the successor, to exchange one share of    
      its stock for each share of stock of the Bank, the predecessor.  A       
      registration statement was filed with the Securities and Exchange        
      Commission (SEC) to register the stock of the holding company, and such  
      registration statement was subsequently declared effective by the SEC.   
      On July 11, 1996, the Office of the Comptroller of the Currency (OCC)    
      approved the plan, and the exchange was subsequently consummated.  As a  
      result, the Bank became a wholly owned subsidiary of the holding company 
      during the third quarter of 1996, and the holding company began filing   
      periodic reports under the Securities Exchange Act of 1934. Prior to the 
      consummation of the exchange, the Bank filed periodic reports with the   
      OCC.  The par value per share and the total number of shares outstanding 
      of the holding company immediately after the reorganization was the same 
      as that of the Bank immediately prior to the reorganization.

      The financial statements included herein reflect the balances and        
      activity of the Bank and its subsidiaries for periods ending prior to    
      the consummation of the reorganization (July 11, 1996) and of the        
      holding company and its subsidiaries for periods ending subsequent to    
      the reorganization.  The exchange of stock was accounted for using the   
      pooling of interests method.  That is, the bases of the assets and       
      liabilities of the Bank prior to the reorganization were carried forward 
      without adjustment.  Because of this, and because the holding company's  
      revenues, expenses and changes in financial position subsequent to the   
      reorganization have been minimal, the consolidated financial statements  
      for periods subsequent to the reorganization are comparable to those for 
      periods prior to the reorganization.  The accompanying consolidated      
      statements of income, cash flows and changes in stockholders' equity for 
      1996 include the combined activity for the portion of 1996 prior to the  
      consummation of the reorganization as well as that occurring subsequent  
      to the reorganization.

(2)   Summary of Significant Accounting Policies

      The accounting and reporting policies of FNB Corporation and its wholly- 
      owned subsidiaries (collectively, the "Corporation") conform to          
      generally accepted accounting principles and general practices within    
      the banking industry.  In preparing the financial statements, management 
      is required to make estimates and assumptions that affect the reported   
      amounts of assets and liabilities as of the date of the balance sheet    
      and revenues and expenses for the year.  Actual results could differ     
      significantly from those estimates.

      Material estimates that are particularly susceptible to significant      
      changes in the near term relate to the determination of the allowance    
      for loan losses and the valuation of other real estate owned acquired in 
      connection with foreclosures or in satisfaction of loans.  In connection 
      with the determination of the allowance for loan losses and the          
      valuation of other real estate owned, management obtains independent     
      appraisals for significant properties.

      Management believes that the allowance for loan losses and the valuation 
      of other real estate owned are adequate.  While management uses          
      available information to recognize loan losses and write-downs of other  
      real estate owned, future additions to the allowance and write-downs of  
      other real estate owned may be necessary based on changes in economic    
      conditions.  In addition, various regulatory agencies, as an integral    
      part of their examination process, periodically review the allowance for 
      loan losses and valuation of other real estate owned.  Such agencies may 
      require the Bank to recognize additions to the allowance for loan losses 
      and additional write-downs of other real estate owned based on their     
      judgments of information available to them at the time of their          
      examination.
<PAGE>
   
      The following is a summary of the more significant accounting policies.

      (a)   Consolidation
            The consolidated financial statements include the accounts of FNB  
            Corporation, a bank holding company, and its wholly-owned          
            subsidiaries.  For periods prior to the reorganization discussed   
            above, the consolidated financial statements include the accounts  
            of First National Bank and its wholly-owned subsidiaries.  All     
            significant intercompany balances and transactions have been       
            eliminated.

      (b)   Cash and Cash Equivalents
            For purposes of reporting cash flows, cash and cash equivalents    
            include those amounts in the balance sheet caption, cash and due   
            from banks.  Generally, cash and cash equivalents are considered   
            to have maturities of three months or less.  The Bank maintains    
            amounts due from banks which, at times, may exceed federally       
            insured limits.  No losses have been experienced in such           
            accounts.

      (c)   Securities
            The Corporation follows the provisions of Statement of Financial   
            Accounting Standards No. 115, "Accounting for Certain Investments  
            in Debt and Equity Securities."  Under Statement 115,              
            investments in debt and equity securities are required to be       
            classified in three categories and accounted for as follows:

                  Debt securities which the Corporation has the positive       
                  intent and ability to hold to maturity are classified as     
                  held-to-maturity securities and reported at amortized cost,  
                  computed by the level yield method.

                  Debt and equity securities that are bought and held          
                  principally for the purpose of selling them in the near term 
                  are classified as trading securities and reported at fair    
                  value, with unrealized gains and losses included in income.  
                  The Corporation has no trading securities.  

                  Debt and equity securities not classified as either held-to- 
                  maturity or trading securities are classified as available-  
                  for-sale securities and reported at fair value, with         
                  unrealized gains and losses excluded from income and         
                  reported as a separate component of stockholders' equity,    
                  net of the related income tax effect.

            Gains and losses on sales of securities are based on the net       
            proceeds and adjusted carrying amount of the security sold using   
            the specific identification method.  Declines in fair values of    
            individual securities below their cost that are other  than        
            temporary are charged to income resulting in a new cost basis for  
            the security.

      (d)   Loans
            Loans are stated at the amount of funds disbursed plus the         
            applicable amount, if any, of unearned interest and deferred fees  
            and costs less payments received.  Interest on commercial and real 
            estate mortgage loans is accrued based on the average loans        
            outstanding times the applicable interest rates.  Interest on      
            installment loans is recognized on methods which approximate the   
            level yield method.  Loan origination and commitment fees and      
            certain costs are deferred, and the net amount is amortized over   
            the contractual life of the related loans as an adjustment of the  
            yield.

            Interest related to nonaccrual loans is recognized on the cash     
            basis.  Loans are generally placed on nonaccrual status when the   
            collection of principal or interest is 90 days or more past due,   
            unless the obligation is both well-secured and in the process of   
            collection.

            Mortgage loans held for sale are carried at the lower of aggregate 
            cost or market value.  Loans sold are removed from the accounts    
            and any realized gain or loss is recorded.
<PAGE>

      (e)   Bank Premises and Equipment, Net
            Bank premises and equipment are stated at cost less accumulated    
            depreciation and amortization.  Depreciation and amortization is   
            charged to expense over the estimated useful lives of the assets,  
            principally on the straight-line method.  Costs of maintenance and 
            repairs are charged to expense as incurred, and improvements are   
            capitalized.

      (f)   Other Real Estate Owned
            Other real estate owned represents properties acquired through     
            foreclosure or deed taken in lieu of foreclosure.  At the time of  
            acquisition, these properties are recorded at the lower of the     
            recorded investment in the loan or fair value minus estimated      
            costs to sell.  Expenses incurred in connection with operating     
            these properties and subsequent write-downs, if any, are charged   
            to expense.  Gains and losses on the sales of these properties are 
            credited or charged to income in the year of the sale.

      (g)   Income Taxes
            Deferred tax assets and liabilities are recognized for the future  
            tax consequences attributable to differences between the financial 
            statement carrying amounts of existing assets and liabilities and  
            their respective tax bases and operating loss and tax credit       
            carryforwards.  Deferred tax assets and liabilities are measured   
            using enacted tax rates expected to apply to taxable income in the 
            years in which those temporary differences are expected to be      
            recovered or settled. The effect on deferred tax assets and        
            liabilities of a change in tax rates is recognized in income in    
            the period that includes the enactment date.

      (h)   Net Income Per Share
            Net income per share computations are based on the weighted        
            average number of shares outstanding during each year (3,237,731,  
            3,205,132, and 3,162,872 in 1997, 1996 and 1995, respectively, as  
            restated). The weighted average shares outstanding do not include  
            average unearned shares held by the Employee Stock Ownership Plan  
            (ESOP) totaling 86,069, 118,668 and 160,928 shares for 1997, 1996  
            and 1995, respectively.  The shares held by the ESOP are not       
            considered outstanding for net income per share calculations until 
            the shares are released.  

            During the second quarter of 1997, the Corporation declared a two  
            for one stock split effected in the form of a 100% stock dividend. 
            The split occurred in June 1997.  As a result, the total number of 
            shares outstanding doubled.  Par value per share did not change.   
            Earnings per share, dividends per share and weighted average       
            shares for periods prior to the split have been restated to        
            reflect the change in shares outstanding as though the split had   
            occurred at the beginning of the earliest period presented.  In    
            order to provide comparable earnings per share amounts, the        
            reported per share earnings and dividends for periods prior to the 
            formation of the holding company have also been restated. The par  
            value per share and the total number of shares outstanding were    
            not affected by the reorganization discussed in Note 1.

      (I)   Trust Assets
            Assets held by the Bank's trust department in a fiduciary or       
            agency capacity are not included in the consolidated financial     
            statements as they are not assets of the Corporation.

      (j)   Reclassifications
            Certain reclassifications have been made to prior year amounts to  
            conform to the 1997 presentation.

(3)   Restrictions on cash
      Federal reserve regulations require the Bank to maintain certain         
      average balances as cash reserves.  The reserve requirements             
      approximated $4,285 and $3,328 at December 31, 1997 and 1996,            
      respectively.
<PAGE>

(4)   Securities available-for-sale
      The following sets forth the composition of securities available-for-    
      sale, which are reported at fair value, at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
   
                                        Gross        Gross         Approximate
                          Amortized     Unrealized   Unrealized    Fair
      December 31, 1997   Costs         Gains        Losses        Values
      <S>                 <C>           <C>          <C>           <C>            
      U.S. Treasury        $ 8,109         53             -          8,162
      U.S. Government 
        agencies and
        corporations        46,864        272          (116)        47,020
      States and 
        political 
        subdivisions         2,962        108             -          3,070
      Other securities       4,576         28             -          4,604

      Totals               $62,511        461          (116)        62,856
</TABLE>
<TABLE>
<CAPTION>

                                         Gross       Gross         Approximate
                          Amortized      Unrealized  Unrealized    Fair
      December 31, 1996   Costs          Gains       Losses        Values
      <S>                <C>             <C>         <C>           <C> 
      U.S. Treasury       $  5,634           29         (16)         5,647
      U.S. Government
         agencies and
         corporations       38,165          130        (306)        37,989
      States and 
         political 
         subdivisions        3,981           79         (13)         4,047
      Other securities       7,164           63         (24)         7,203
 
      Totals              $ 54,944          301        (359)        54,886
</TABLE>
      
     The amortized costs and approximate fair values of securities available- 
      for-sale by contractual maturity are shown below.  Expected maturities   
      may differ from contractual maturities because borrowers may have the    
      right to call or prepay obligations with or without call or prepayment   
      penalties.
<TABLE>
<CAPTION>     

                                                       Approximate
                                    Amortized          Fair
      December 31, 1997             Costs              Values
      <S>                          <C>                <C>
      Due in one year or less       $   8,826           8,794
      Due after one year through
         five years                    13,041          13,113
     Due after five years 
         through ten years             37,415          37,717
      Due after ten years               3,229           3,232
      Totals                        $  62,511          62,856             
</TABLE>

      Realized gains and losses on securities available-for-sale were not      
      material in 1997,  1996 or 1995. 
<PAGE>
      The carrying value of securities available-for-sale pledged to secure    
      public and trust deposits and securities sold under agreements to        
      repurchase, and for other purposes as required or permitted by law, was  
      $16,371 at December 31, 1997 and $17,650 at December 31, 1996.

(5)   Securities held-to-maturity
      The amortized costs, gross unrealized gains and losses, and approximate  
      fair values of securities held-to-maturity at December 31, 1997 and 1996 
      are as follows:
<TABLE>
<CAPTION>

                                         Gross       Gross         Approximate
                            Amortized    Unrealized  Unrealized    Fair
      December 31, 1997     Costs        Gains       Losses        Values
      <S>                  <C>          <C>         <C>           <C>
      States and political
        subdivisions       $ 42,360      1,029         (19)        43,370
      Other securities           60          -           -             60
      Totals               $ 42,420      1,029         (19)        43,430
</TABLE>
<TABLE>
<CAPTION> 

                                         Gross       Gross         Approximate
                           Amortized     Unrealized  Unrealized    Fair
      December 31, 1996    Costs         Gains       Losses        Values
      <S>                 <C>           <C>         <C>           <C>
      U.S. Government 
        agencies and
        corporations       $    500          1           -            501
      States and political
         subdivisions        42,394        830        (288)        42,936
      Other securities          195          -           -            195
      Totals               $ 43,089        831        (288)        43,632
</TABLE>
 
      The amortized costs and approximate fair values of securities held-to-   
      maturity at December 31, 1997 by contractual maturity are shown below.   
      Expected maturities may differ from contractual maturities because       
      borrowers may have the right to call or prepay obligations with or       
      without call or prepayment penalties.
<TABLE>
<CAPTION>

                                                      Approximate
                                     Amortized        Fair
      December 31, 1997              Costs            Values
      <S>                          <C>               <C>                 
      Due in one year or less      $   2, 519           2,529
      Due after one year through 
        five years                     19,588          20,034
      Due after five years 
        through ten years              19,665          20,205
      Due after ten years                 648             662
      Totals                       $   42,420          43,430
<PAGE>

      Realized gains and losses on  sales, calls and maturities on securities  
      held-to-maturity were not material in 1997, 1996 and 1995, respectively. 
      The carrying value of securities held-to-maturity pledged to secure      
      public and trust deposits and securities sold under agreements to        
      repurchase, and for other purposes as required or permitted by law, was  
      $16,381 and $14,690 at December 31, 1997 and 1996, respectively.

(6)   Loans
      At December 31, 1997 and 1996, there were direct loans to officers and   
      directors of $5,595 and $4,121, respectively.  During 1997, new direct   
      loans to officers and directors amounted to $2,134 and repayments        
      amounted to $660.  In addition, there were loans of $5,957 and $7,184 at 
      December 31, 1997 and 1996, respectively, which were endorsed by         
      directors or had been made to companies in which directors had an equity 
      interest.

      At December 31, 1997 and 1996, the Corporation had sold without recourse 
      to financial institutions and other customers of the Corporation         
      participations in various loans in the amount of approximately  $30,000  
      and $29,200, respectively.

(7)   Allowance for Loan Losses and Impaired Loans
      Impaired loans are measured based on the present value of expected       
      future cash flows discounted at the loan's effective interest rate or,   
      as a practical expedient, at the loan's observable market price or the   
      fair value of the collateral if the loan is collateral dependent.   A    
      loan is considered impaired when, based on management's judgment, it is  
      probable that the Corporation will not be able to collect on all amounts 
      due according to the contractual terms of the loan.  In making such      
      assessment, management considers the individual strength of borrowers,   
      the strength of particular industries, the payment history of individual 
      loans, the value and marketability of collateral and general economic    
      conditions.  Management's methodology for evaluating the collectibility  
      of a loan after it is deemed to be impaired does not differ from the     
      methodology used for nonimpaired loans.

      As of December 31, 1997 and 1996, the investment in impaired loans       
      approximated $1,256 and $1,963, respectively.  The December 31, 1997 and 
      1996 allowances for loan losses includes allowances of $183 and $335,    
      respectively, for these loans.  Impaired loans averaged $1,694, $2,933   
      and $2,166 during 1997, 1996 and 1995, respectively.  Interest on        
      impaired loans is recognized in the same manner as loans that are not    
      considered impaired;  that is, interest is generally recognized on the   
      cash basis once the collection of principal or interest is 90 days or    
      more past due.
      
      A summary of the changes in the allowance for loan losses (including     
      allowances for impaired loans) follows:

</TABLE>
<TABLE>
<CAPTION>


      Years Ended December 31,           1997     1996      1995
      <S>                            <C>        <C>       <C> 
      Balance at beginning of year    $ 4,179    3,988     3,815
      Provisions for loan losses          550      595       300
      Loan recoveries                     190      156       238
      Loan charge-offs                   (628)    (560)     (365)

      Balance at end of year          $ 4,291    4,179     3,988
</TABLE>
<PAGE>
      Nonperforming assets consist of the following:
<TABLE>
<CAPTION> 

      December 31,                       1997     1996       1995
      <S>                            <C>         <C>       <C> 
      Nonaccrual loans                $   893      573      1,769
      Other real estate owned              98      185        387

      Total nonperforming assets      $   991      758      2,156
</TABLE>

      There were no material commitments to lend additional funds to customers 
      whose loans were classified as nonperforming at December 31, 1997.

      The following table shows the pro forma interest that would have been    
      earned on impaired loans if interest had been recorded using the cash    
      basis and the recorded interest that was included in income on these     
      loans:
<TABLE>
<CAPTION>

      Years Ended December 31,          1997      1996       1995
      <S>                            <C>         <C>        <C>
      Cash basis interest - 
        impaired loans                $   64       122         81

      Recorded interest - 
        impaired loans                $    7       131         51
</TABLE>

(8)   Bank Premises and Equipment, Net
      Bank premises and equipment are stated at cost less accumulated 
      depreciation and amortization as follows:
<TABLE>
<CAPTION>

      December 31,                               1997       1996
      <S>                                    <C>          <C>
      Land                                    $  1,359      1,174
      Buildings                                  9,820      2,763
      Furniture and equipment                    6,461      4,936
      Leasehold improvements                       383        379
      Construction in progress                       -      5,736
                                                18,023     14,988
      Less accumulated depreciation and 
        amortization                             5,505      4,705

      Totals                                  $ 12,518     10,283
</TABLE>

      In 1997 and 1996, a total of $22 and $132 of interest was capitalized,   
      respectively, related to the construction of a new headquarters          
      facility.
<PAGE>

(9)   Deposits

      At December 31, 1997 and 1996, there were deposits from officers and     
      directors of $2,066 and $1,366, respectively.  Time deposits and         
      certificates of deposit of $100,000 and over as of December 31, 1997     
      mature as follows:
<TABLE>
            <S>           <C> 
            1998           $128,255
            1999             43,542
            2000             33,963
            2001              4,786
            2002              6,593
            Thereafter          404
                           $217,543
</TABLE>

(10)  Securities Sold Under Agreements to Repurchase and Other Borrowed Funds

      Advances from the Federal Home Loan Bank of Atlanta were $22.6 million   
      and $12.8 million on December 31, 1997 and 1996, respectively.  The      
      fixed interest rates on the advances as of December 31, 1997 range from  
      5.38 to 7.15 percent.  The advances are collateralized under a blanket   
      floating lien agreement whereby the Corporation gives a blanket pledge   
      of residential first mortgage loans for 1-4 units.  Of the total balance 
      at December 31, 1997, $1,000 matures in 1998, $10,000 matures in 2000,   
      and $10,000 matures in 2001.  The remainder matures after 2001.

      Securities sold under agreements to repurchase (repurchase agreements)   
      at December 31, 1997 were collateralized by investment securities        
      controlled by the Corporation with a book value of approximately $8.9    
      million.  The maximum amount of repurchase agreements outstanding during 
      1997 was $6.6  million, and the average amount outstanding during 1997   
      was $5.4 million.  

(11)  Employee Benefit Plans

      The Corporation sponsors a leveraged Employee Stock Ownership Plan       
      (ESOP) which covers all employees following the completion of one year   
      of service and attainment of age 21.  The ESOP invests substantially in  
      stock of the Corporation.  Employer contributions and dividends received 
      by the ESOP are used to pay debt service.

      In May 1994, the Bank sold 106,940 shares of its stock to the ESOP for a 
      price of $28.25 per share as determined by an independent third-party    
      valuation.  The acquisition cost of $3,021 was financed by a loan from   
      another financial institution, collateralized by the shares purchased,   
      and guaranteed by the Bank.  In 1996, the ESOP tendered the stock of the 
      Bank in exchange for the stock issued by the holding company pursuant to 
      the reorganization discussed in Note 1.  As debt is repaid, shares are   
      released from collateral and allocated to active participants as of the  
      end of the plan's year based on the participants' pro rata interest in   
      the plan.  The ESOP debt is reported as debt and the corresponding       
      shares pledged as collateral are reported as unearned ESOP shares in the 
      accompanying consolidated balance sheet.  As shares are released from    
      collateral, compensation expense is recorded,  and the released shares   
      are included in income per share computations.  Dividends on allocated   
      ESOP shares are recorded as a reduction of retained earnings while       
      dividends on unallocated ESOP shares are recorded as a reduction of ESOP 
      debt and related accrued interest.  ESOP compensation expense of $302,   
      $604 and $302 and related ESOP interest expense of $88, $118 and $173    
      were recorded for 1997, 1996 and 1995, respectively. 
<PAGE>
      
      As of December 31, 1997, ESOP debt of $901, consisting of actual debt of 
      $1,209 and dividends on unallocated shares available for future debt     
      reduction of $308, was outstanding.  ESOP shares as of December 31, 1997 
      consisted of 558,777 shares allocated prior to January 1, 1994, 132,336  
      released for allocation subsequent to January 1, 1994 and 77,811         
      unreleased and unearned shares (as restated for the 1997 100% stock      
      dividend).  Based on quoted trading prices, the fair value of the        
      unreleased and unearned shares as of December 31, 1997 was $22.50 per    
      share.

      In 1997 the Corporation instituted a 401(k) plan that covers             
      substantially all  employees who work at least 1,000 hours per year.     
      Participants have the option to have up to 12% of their salary withheld  
      on a pre-tax basis to be contributed to the plan.  The Corporation       
      matches 100% of the first 3% of the participants' contributions.         
      Participants may choose among several investment options comprised       
      primarily of mutual funds, but there is no stock of the Corporation in   
      the plan.  Matching contributions totaled $26 for 1997.

(12)  Income Taxes

      Total income tax taxes are allocated as follows:
<TABLE>
<CAPTION>

      Years Ended December 31,               1997       1996       1995
      <S>                                 <C>          <C>        <C>
      Income                               $ 1,324      1,491      1,449
      Stockholders' equity, for net 
        unrealized gains and losses 
        on securities available-for-sale 
        recognized for financial 
        reporting purposes                     136       (127)     1,123

      Totals                               $ 1,460      1,364      2,572
</TABLE>

      The components of federal income tax expense are as follows:
<TABLE>
<CAPTION>

      Years Ended December 31,            1997       1996       1995
      <S>                             <C>          <C>        <C>
      Current                          $ 1,194      1,427      1,539
      Deferred                              30         64        (90)

      Totals                           $ 1,324      1,491      1,449
<PAGE>

      The reconciliation of expected income tax expense at the statutory       
      federal rate with the reported tax expense at the effective rate is as   
      follows:

</TABLE>
<TABLE>
<CAPTION>

      Years Ended December 31,       
                                   1997              1996              1995
                                       Percent           Percent           Percent
                                       of                of                of
                                       Pretax            Pretax            Pretax
                              Amount   Income   Amount   Income   Amount   Income
      <S>                   <C>       <C>      <C>      <C>      <C>      <C>      
      Expected tax expense 
        at statutory rate    $ 2,206    34.0%    2,276    34.0%    2,082    34.0%
      Increase (decrease) in
       taxes resulting from:
         Tax-exempt interest    (970)  (15.0)   (1,007)  (15.0)     (746)  (12.1)
         Nondeductible 
          interest expense       142     2.2       140     2.1       113     1.8
      Other, net                 (54)   (0.8)       82     1.2         -       -

      Reported tax expense at
      effective rate         $ 1,324    20.4%    1,491    22.3%    1,449    23.7%
</TABLE>

      The  tax  effects  of  temporary  differences  that  give  rise  to      
      significant portions of deferred tax assets and deferred tax liabilities 
      are as follows:
<TABLE>
<CAPTION>

      December  31,                                     1997       1996
     <S>                                             <C>          <C>
      Deferred tax assets:
      Loans, principally due to allowance for loan 
        losses and unearned fees                      $ 1,145      1,078
      Securities, principally due to valuation 
        allowance established for financial 
        reporting purposes                                  -         20
      Accrued post-retirement benefits due to 
        accrual for financial reporting purposes
        in excess of actual contributions                 150        139
      Bank premises and equipment, due to
        differences in depreciation                         -         76
      Other                                                22         29
            Total gross deferred tax assets             1,317      1,342
      Less valuation allowance                              -          -
            Net deferred tax assets                     1,317      1,342

      Deferred tax liabilities:
        Bank premises and equipment, due to 
          differences in depreciation                      72          -
        Securities, due principally to valuation 
          allowance                                       116          -
        Investment securities, due to differences
           in discount accretion                          106         73
        Other                                              69         48
            Total gross deferred tax liabilities          363        121
            Net deferred tax asset, included in
              other assets                             $  954      1,221
</TABLE>
<PAGE>

      The Corporation has determined that a valuation allowance for gross      
      deferred tax assets is not necessary at  December 31, 1997 or 1996 since 
      deferred tax assets can be recognized during the carryback period        
      available under current tax laws.

(13)  Dividend restrictions and capital requirements
      The holding company's principal asset is its investment in the Bank, a   
      wholly-owned consolidated subsidiary.  The only significant source of    
      income for the holding company is dividends from the Bank.  Regulatory   
      agencies limit the amount of funds that may be transferred from the Bank 
      to the holding company in the form of dividends, loans, or advances.

      Under applicable federal laws, the Comptroller of the Currency           
      restricts, without prior approval, the total dividend payments of the    
      Bank in any calendar year to the net profits of that year, as defined,   
      combined with the retained net profits for the two preceding years.  The 
      total dividends that may be declared in 1998 without the approval of the 
      Comptroller totals $7,096  plus year-to-date 1998 net profits as of the  
      declaration date.

      The Corporation is subject to various regulatory capital requirements    
      administered by the federal banking agencies.  Failure to meet minimum   
      capital requirements can initiate certain mandatory--and possibly        
      additional discretionary--actions by regulators that, if undertaken,     
      could have a direct material effect on the Corporation's financial       
      statements.  Under capital adequacy guidelines and the regulatory        
      framework for prompt corrective action, established by Section 38 of the 
      Federal Deposit Insurance Act (FDI Act), the Corporation must meet       
      specific capital guidelines that involve quantitative measures of        
      assets, liabilities, and certain off-balance-sheet items as calculated   
      under regulatory accounting practices.  The Corporation's capital        
      amounts and classification are also subject to qualitative judgments by  
      the regulators about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital        
      adequacy require the Corporation to maintain minimum amounts and ratios  
      (set forth in the table below) of total and Tier 1 capital (as defined   
      in the regulations) to risk-weighted assets (as defined), and of Tier 1  
      capital to average assets (as defined).  Management believes, as of 
      December 31, 1997, that the Corporation meets all capital adequacy       
      requirements to which it is subject.

      As of December 31, 1997, the most recent notification from the Office of 
      the Comptroller of the Currency categorized the Bank as well capitalized 
      under the regulatory framework for prompt corrective action (Section 38  
      of the FDI Act).  To be categorized as well capitalized, minimum total   
      risk-based capital, Tier 1 risk-based capital, and Tier 1 leverage       
      ratios as set forth in the table below must be maintained.  There are no 
      conditions or events since that notification that management believes    
      have changed the institution's category.
<PAGE>
<TABLE>
 <CAPTION>

    As of December 31, 1997:                       Minimum Requirements       
                                                                Section 38 of  
                                              For Capital      Federal Deposit 
                            Actual             Adequacy         Insurance Act  
                        Amount   Ratio     Amount     Ratio     Amount   Ratio 
   <S>                 <C>      <C>       <C>        <C>       <C>      <C> 
    Total Capital 
     (to Risk Weighted
      Assets)           $44,195  14.5%     24,418      8.0%     30,523   10.0%
    Tier 1 Capital 
     (to Risk Weighted
      Assets)            40,374  13.2%     12,209      4.0%     18,313    6.0%
    Tier 1 Capital 
     (to Average 
      Assets)            40,374   9.6%     16,843      4.0%     21,054    5.0%
</TABLE>
<TABLE>
<CAPTION>

    As of December 31, 1996:
                       Amount   Ratio     Amount     Ratio     Amount   Ratio
   <S>                <C>      <C>       <C>        <C>       <C>      <C>
    Total Capital 
     (to Risk Weighted
      Assets)          $40,646  14.3%     22,668      8.0%     28,335   10.0%
    Tier 1 Capital 
     (to Risk Weighted
      Assets)           37,096  13.1%     11,334      4.0%      17,001   6.0%
    Tier 1 Capital 
     (to Average
      Assets)           37,096   9.7%     15,244      4.0%      19,055   5.0%
</TABLE>

(14)  Supplemental Cash Flow Information

      The Corporation paid $16,325, $14,899 and $13,901 for interest and       
      $1,057,  $1,413, and $1,710 for income taxes in 1997, 1996 and 1995,     
      respectively.  Noncash investing activities included $98, $343, and $61  
      of loans transferred to other real estate owned in 1997, 1996 and 1995,  
      respectively.

(15)  Commitments and Contingencies

      The Corporation is involved from time to time in litigation arising in   
      the normal course of business.  Management believes that any resulting   
      settlements and disposition of these matters will not have a material    
      effect on the Corporation's consolidated results of operations or        
      financial position.

(16)  Financial instruments with off-balance-sheet risk

      The Corporation is a party to financial instruments with  off-balance-   
      sheet risk in the normal course of business to meet the financing needs  
      of its customers.  The financial instruments include commitments to      
      extend credit and standby letters of credit.  Those instruments involve, 
      to varying degrees, elements of credit risk in excess of the amount      
      recognized in the balance sheets.  The contract amounts of those         
      instruments reflect the extent of involvement the Corporation has in     
      particular classes of financial instruments.  Exposure to credit loss in 
      the event of nonperformance by the other party to the financial          
      instrument for commitments to extend credit and standby letters of       
      credit is represented by the contractual amount of these instruments.    
      The Corporation uses the same credit policies in making commitments and  
      conditional obligations as it does for on-balance-sheet instruments.

      Except for home equity lines totaling $14,526 at December 31, 1997, and  
      $12,732 at December 31, 1996, the Corporation may not require collateral 
      or other security to support the following financial instruments with    
      credit risk:
<PAGE>
<TABLE>
<CAPTION>

                                                  Contract Amounts

      December 31,                                1997        1996
     <S>                                       <C>          <C>
      Financial instruments whose contract
        amounts represent credit risk:
      Commitments to extend credit              $ 63,194     50,209
      Standby letters of credit                    4,300      3,479            
</TABLE>

      Commitments to extend credit are agreements to lend to a customer as     
      long as there is no violation of any condition established in the 
      contract.  Commitments generally have fixed expiration dates or other    
      termination clauses and may require payment of a fee.  Since many of the 
      commitments are expected to expire without being drawn upon, the total   
      commitment amounts do not necessarily represent future cash              
      requirements.  The Corporation evaluates each customer's                 
      creditworthiness on a case-by-case basis.  The amount of collateral      
      obtained, if deemed necessary by the Corporation upon extension of       
      credit, is based on management's credit evaluation of the customer.      
      Collateral held varies but may include securities, accounts receivable,  
      inventory, property, plant and equipment, and income-producing           
      commercial properties.

      Standby letters of credit are conditional commitments issued by the      
      Corporation to guarantee the performance of a customer to a third party. 
      Those guarantees are primarily issued to support public and private      
      borrowing arrangements, including commercial paper, bond financing and   
      similar transactions.  The credit risk involved in issuing letters of    
      credit is essentially the same as that involved in extending loans to    
      customers.  Collateral held varies but may include securities, accounts  
      receivable, inventory, property, plant and equipment, and income-        
      producing properties.

      Commitments to extend credit, standby letters of credit and financial    
      guarantees written are not reflected in the financial statements except  
      to the extent of fees collected, which are generally reflected in        
      income.  The fulfillment of these commitments would normally result in   
      the recording of a loan at the time the funds are disbursed.

      The Corporation originates mortgage loans for sale to secondary market   
      investors subject to contractually specified and limited recourse        
      provisions.  In 1997, the Corporation originated $14,580 and sold        
      $13,751 to investors, compared to $11,356 originated and $11,843 sold in 
      1996. Every contract with each investor contains certain recourse        
      language.  In general, the Corporation may be required to repurchase a   
      previously sold mortgage loan if there is major noncompliance with       
      defined loan origination or documentation standards, including fraud,    
      negligence or material misstatement in the loan documents.  Repurchase   
      may also be required if necessary governmental loan guarantees are       
      canceled or never issued, or if an investor is forced to buy back a loan 
      after it has been resold as a part of a loan pool.  In addition, the     
      Corporation may have an obligation to repurchase a loan if the mortgagor 
      has defaulted early in the loan term.  This potential default period     
      ranges from six to twelve months after sale of a loan to the investor.   
      Historically, repurchases under these recourse provisions have been      
      minimal.

(17)  Concentrations of Credit Risk

      The Corporation does a general banking business, serving the commercial, 
      agricultural and personal banking needs of its customers in its trade    
      territory, commonly referred to as the New River Valley, which consists  
      of Montgomery County, Virginia and portions of adjacent counties.        
      Operating results are closely correlated with the economic trends within 
      this area which are, in turn, influenced by the area's three largest     
      employers - Virginia Polytechnic Institute and State University, Radford 
      University and the Radford Arsenal.  Other industries include a wide     
<PAGE>
      variety of manufacturing concerns and agriculture-related enterprises.   
      The ultimate collectibility of the loan portfolios and the recovery of   
      the carrying amounts of repossessed property are susceptible to changes  
      in the market conditions of this area.  The commercial portfolio is      
      diversified with no significant concentrations of credit within a single 
      industry.  The consumer loan portfolio included approximately $55        
      million and $52 million of loans to individuals for household, family    
      and other personal expenditures at December 31, 1997 and 1996,           
      respectively.  The real estate  mortgage portfolio consists primarily of 
      loans secured by 1-4 family residential properties.

(18)  Disclosures About Fair Values of Financial Instruments
      Statement of Financial Accounting Standards No. 107, "Disclosures about  
      Fair Value of Financial Instruments," requires the Corporation to        
      disclose estimated fair values of its financial instruments.  The        
      following methods and assumptions were used to estimate the approximate  
      fair value of each class of financial instrument for which it is         
      practicable to estimate that value:

      (a)   Cash and Due from Banks and Federal Funds Sold
            The carrying amounts in the consolidated balance sheets are        
            reasonable estimates of fair values.
      (b)   Securities
            The fair value of securities, except certain state and municipal   
            securities, is estimated based on bid prices published in financial 
            newspapers or bid quotations received from securities dealers.     
            The fair value of certain state and municipal securities is not    
            readily available through market sources other than dealer         
            quotations, so fair value estimates are based on quoted market     
            prices of similar instruments, adjusted for differences between    
            the quoted instruments and the instruments being valued.

      (c)   Loans
            Fair values are estimated for portfolios of loans with similar     
            financial characteristics.  Loans are segregated by type           
            (commercial, mortgage, consumer, etc.), by interest rate terms     
            (fixed and adjustable rate) and by performing and nonperforming    
            categories.  The fair value of performing loans is calculated by   
            discounting scheduled cash flows through the estimated maturity    
            using estimated market discount rates that reflect the credit and  
            interest rate risk inherent in the loan as well as estimates for   
            operating expenses and prepayments.  The estimate of maturity is   
            based on the Corporation's historical experience with repayments   
            for each loan classification, modified, as required, by an         
            estimate of the effect of current economic and lending conditions.

            Fair value for significant nonperforming loans is based on         
            estimated cash flows which are discounted using a rate             
            commensurate with the risk associated with the estimated cash      
            flows.  Assumptions regarding credit risk, cash flows and discount 
            rates are judgmentally determined using available market           
            information and specific borrower information.

      (d)   Deposits
            The fair value of demand and savings deposits is the amount        
            payable on demand.  The fair value of fixed maturity time deposits 
            and certificates of deposit is estimated using the rates currently 
            offered for deposits of similar remaining maturities.

      (e)   Securities Sold Under Agreements to Repurchase and Other Borrowed  
            Funds
            Rates currently available  for debt with similar terms and         
            remaining maturities are used to estimate fair value of existing   
            debt.

      (f)   ESOP Debt
            Rates currently available for debt with similar terms and          
            remaining maturities are used to estimate fair value of existing   
            debt.
<PAGE>
      
      (g)   Commitments to Extend Credit and Standby Letters of Credit
            The only amounts recorded for commitments to extend credit and     
            standby letters of credit are the deferred fees arising from these 
            unrecognized financial instruments.  These deferred fees are not   
            deemed significant at December 31, 1997 and 1996, and as such, the 
            related fair values have not been estimated.

      The carrying amounts and approximate fair values of the Corporation's    
      financial instruments are as follows:
<TABLE>
<CAPTION>

      December 31,                      1997                    1996 

                                            Approximate              Approximate
                                  Carrying  Fair         Carrying    Fair       
                                  Amounts   Values       Amounts     Values    
     <S>                         <C>       <C>          <C>         <C>
      Financial assets:
        Cash and due from banks  $ 14,406    14,406       10,277     10,277
        Federal funds sold          3,500     3,500        2,500      2,500
        Securities available-for-
          sale                     62,856    62,856       54,886     54,886
        Securities held-to-
          maturity                 42,420    43,430       43,089     43,632  
        Loans, net                286,767   289,832      269,145    268,814

            Total financial 
              assets             $409,949   414,024      379,897    380,109


Financial liabilities:
      Deposits                   $352,545   353,418      335,402    336,262
      Securities sold under
        agreements to 
        repurchase and
        other borrowed funds       31,553    31,559       19,199     19,143
      ESOP debt                       901       901        1,252      1,252

            Total financial
              liabilities        $384,999   385,878      355,853    356,657
</TABLE>

      Fair value estimates are made at a specific point in time, based on      
      relevant market information and information about the financial          
      instrument.  These estimates do not reflect any premium or discount that 
      could result from offering for sale at one time the Corporation's entire 
      holdings of a particular financial instrument.  Because no market exists 
      for a significant portion of the Corporation's financial instruments,    
      fair value estimates are based on judgments regarding future expected    
      loss experience, current economic conditions, risk characteristics of    
      various financial instruments and other factors.  These estimates are    
      subjective in nature and involve uncertainties and matters of            
      significant judgment and therefore cannot be determined with precision.  
      Changes in assumptions could significantly affect the estimates.

      Fair value estimates are based on existing on and off-balance sheet      
      financial instruments without attempting to estimate the value of        
      anticipated future business and the value of assets and liabilities that 
      are not considered financial instruments.  In addition, the tax          
      ramifications related to the realization of the unrealized gains and     
      losses can have a significant effect on fair value estimates and have    
      not been considered in the estimates.                  
<PAGE>
(19)  Parent Company Financial Information
      
      Condensed financial information of FNB Corporation (the parent or        
      holding company) is presented below:
<TABLE>
<CAPTION>

                        Condensed Balance Sheets

                                      December 31, 1997      December 31, 1996
     <S>                                 <C>                     <C>
       Assets
      Investment in bank subsidiary        $39,699                35,829
      Receivable from bank subsidiary          514                 1,162
        Total  Assets                      $40,213                36,991

            Liabilities
      Dividends payable                    $     -                 1,163
            Total  Liabilities                   -                 1,163

      Stockholders' Equity
      Common stock and surplus              27,401                19,092
      Retained earnings                     13,793                18,285
      Other                                   (981)               (1,549)
            Total Stockholders' Equity      40,213                35,828

            Total Liabilities and 
            Stockholders' Equity           $40,213                36,991
</TABLE>
<TABLE>
<CAPTION>

                           Condensed Statements of Income

                                      January 1, 1997 to      July 6, 1996  to 
                                      December 31, 1997      December 31, 1996
     <S>                                 <C>                      <C>        
      Equity in earnings of bank 
        subsidiary                        $ 5,165                  2,570
      Other expenses                            -                      1
      Income before income taxes            5,165                  2,569      
      Income tax expense                        -                      - 
      Net income                          $ 5,165                  2,569
</TABLE>

      NOTES:  
      (1)   July 6, 1996 represents the inception of operations of the         
            holding company.  See Note 1 to the consolidated financial         
            statements.  The equity in earnings of bank subsidiary represents  
            the net income of its wholly-owned bank subsidiary.

      (2)   Cash flows for the parent company during 1997 and 1996 were not    
            significant, other than dividends  from the Bank.  Total dividends 
            declared by the Bank payable to the parent company were $1,911 and 
            $1,163 in 1997 and 1996, respectively.
<PAGE>

(20)  Interim Financial Information (Unaudited)

      Consolidated quarterly results of operations were as follows:
<TABLE>
<CAPTION>
                                                                                
                                                1997                                
                                         Three Months Ended             
                         March 31     June 30     September 30    December 31
<S>                      <C>          <C>            <C>             <C>
Interest income           $7,775       8,172          8,618           8,549
Interest expense           3,890       4,126          4,385           4,363
Provision for loan losses    175         100            125             150
Noninterest income           613         553            565             560
Noninterest expense        2,712       2,722          2,997           3,171
Income before income
   tax expense             1,611       1,777          1,676           1,425
Income tax expense           351         390            304             279
Net income                $1,260       1,387          1,372           1,146

Net income per share
  (as restated)           $ 0.39        0.43           0.42            0.36
</TABLE>
<TABLE>
<CAPTION>        

                                               1996                                
                                        Three Months Ended                  
                         March 31     June 30     September 30    December 31
<S>                       <C>         <C>            <C>             <C>     
Interest income            $7,349      7,531          7,669           7,977
Interest expense            3,677      3,741          3,782           3,816
Provision for loan losses     105        105            135             250
Noninterest income            538        497            503             496
Noninterest expense         2,342      2,516          2,640           2,756
Income before income
      tax expense           1,763      1,666          1,615           1,651
Income tax expense            421        373            358             339
Net income                 $1,342      1,293          1,257           1,312

Net income per share 
     (as restated)         $ 0.42       0.40           0.39            0.41
</TABLE>

      The quarterly data above reflects the results of operations of the Bank  
      and its subsidiaries for periods prior to July 11, 1996 (the date of the 
      consummation of the reorganization discussed in Note 1), and of the      
      holding company and its subsidiaries for periods subsequent to that      
      date.  Because the reorganization did not result in the adjustment of    
      the carrying values of assets and liabilities, and because revenues and  
      expenses related to the holding company have been minimal, management    
      considers the pre-organization and post-reorganization amounts in the    
      above tables to be comparable.  See Note (1).

      Net income per share in the above tables for periods prior to the second 
      quarter of 1997 have been restated to reflect retroactively a two-for-   
      one stock split effected in the form of a 100% stock dividend. 
<PAGE>

(21)  Recent Accounting Developments

      The Financial Accounting Standards Board (FASB) has issued Statement of  
      Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers 
      and Servicing of Financial Assets and Extinguishments of Liabilities."   
      This Statement provides standards for distinguishing between transfers   
      of financial assets that should be accounted for as sales and those that 
      should be accounted for as collateralized borrowings.  In essence,       
      transactions in which the transferor has surrendered control of the      
      financial asset must be recorded as sales, and  those in which control   
      has not been surrendered should be recorded as borrowings. The Statement 
      specifies various circumstances that would indicate whether control has  
      been effectively surrendered or not.  Transactions engaged in by the     
      Corporation which are covered by the Statement include sales of loans    
      with retainage of servicing rights, securities sold under agreement to   
      repurchase (repurchase agreements), participations sold or purchased,    
      and borrowings secured by loans.  The Statement as issued was required   
      to be adopted prospectively to transfers and servicing of financial      
      assets and extinguishment of liabilities occurring after December 31,    
      1996.  However, the FASB has since issued SFAS No. 127, which deferred   
      the adoption date for certain portions of SFAS No. 125 for one year.

      The portion of the SFAS 125 which was adopted in 1997 resulted in the    
      classification of certain participations sold with recourse as secured   
      borrowings.  Previously these types of transactions were recorded as     
      sales of loans.  The new standard resulted in a similar change in the    
      classification of the related interest on the portion of the loan sold.  
      There was no impact on net income.  The adoption of the Statement does   
      not involve the restatement of any previously issued financial           
      statements.  Management does not expect SFAS No. 125 to have a           
      significant impact on financial position or results of operations.

      The Financial Accounting Standards Board has also issued Statement of    
      Financial Accounting Standards No. 128, "Earnings per Share," which      
      supersedes existing standards for calculating and disclosing earnings    
      per share (EPS).  The new standard requires the disclosure of Basic EPS  
      and, where potential dilution exists, Diluted EPS.  Basic EPS is         
      calculated using only the actual weighted average number of common       
      shares outstanding and the income available to common stockholders.      
      Diluted EPS adjusts the income and number of shares to reflect the       
      potential effects of stock options, warrants, convertible debt, and      
      other potentially dilutive securities.  The Statement was first          
      effective for the fourth quarter of 1997, but it did not have an impact  
      on earnings per share for 1997 or prior periods.  Based on the current   
      capital structure, management does not expect SFAS No. 128 to materially 
      impact earnings per share in the future because there are currently no   
      potentially dilutive securities.