10-K

    
    
    SECURITIES AND EXCHANGE COMMISSION
    WASHINGTON, D.C.  20549-1004
    
    FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act of
    1934 [Fee Required]
For the fiscal year ended December 31, 1997.

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act
    of 1934 [No Fee required]
For the transition period from _______ to _______.

Commission file number 33-66014

                              FNB FINANCIAL CORPORATION
                         
    (Exact name of registrant as specified in its charter)

       COMMONWEALTH  OF PENNSYLVANIA                             23-2466821
      
 (State or other jurisdiction of incorporation            (I.R.S. Employer
  or organization)                                      Identification No.)

  101 Lincoln Way West, McConnellsburg, PA                             17233  
   (Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code:    717-485-3123

Securities Registered Pursuant to Section 12(b) of the Act:  None
Securities Registered Pursuant to Section 12(g) of the Act:  None

Indicate the number of shares outstanding of each of the registrant's
 classes of
common stock, as of the latest practicable date.

                   Class                   Outstanding as of March 15, 1998
      Common Stock, $0.63 Par Value                   400,000

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
 405 of
Regulation S-K ( 229.405 of this chapter) is not contained herein, and will
 not be
contained, to the best of registrant's knowledge, in definitive proxy or
 information
statements incorporated by reference in Part III of this Form 10-K or
 any amendment
to this Form 10-K [ ].

The aggregate market value of the voting stock held by non-affiliates of the
registrants as of March 15, 1997:

Common Stock, $0.63 Par Value - $22,000,000.00

DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the annual shareholders report for the year ended December 31,
 1997 are
 incorporated by reference into Parts I, II and IV.

 Portions of the proxy statement for the annual shareholders meeting to be held
 April 28, 1998 are incorporated by reference into Part III.

 Portions of Form SB-2 Registration Statement No. 33-66014 as filed with the  
 Securities and Exchange Commission on September 8, 1993 are incorporated by
 reference into Part IV.



 A copy of a Common Stock Certificate of FNB Financial Corporation as
filed with the   Securities and Exchange Commission with Form 10-K for
the fiscal year ended December
 31, 1995 is incorporated by reference into Part IV.







PART I

Item 1.  Business

       Description of Business

       FNB Financial Corporation (the Company), a Pennsylvania
       business corporation, is a bank holding company registered
       with and supervised by the Board of Governors of the Federal
       Reserve System (the "Federal Reserve Board").  The Company was
       incorporated on June 22, 1987 under the business corporation
       law of the Commonwealth of Pennsylvania for the purpose of
       becoming a bank holding company.  Since commencing operations,
       the Company's business has consisted primarily of managing and
       supervising The First National Bank of McConnellsburg (the
       Bank) and its principal source of income has been dividends
       paid by the Bank.  The Company has one wholly-owned
       subsidiary, the Bank.  

       The Bank was established in 1906 as a national banking
       association under the supervision of the Comptroller of the
       Currency, the Comptroller.  The Bank is a member of the
       Federal Reserve System and customers' deposits held by the
       Bank are insured by the Federal Deposit Insurance Corporation
       to the maximum extent permitted by law.  The Bank is engaged
       in a full service commercial and consumer banking business
       including the acceptance of time and demand deposits and the
       making of secured and unsecured loans.  The Bank provides its
       services to individuals, corporations, partnerships,
       associations, municipalities and other governmental bodies.
       As of January 1, 1998, the Bank had three (3) offices and (1)
       drive-up ATM located in Fulton County, one (1) branch
       office facility located in Fort Loudon, Franklin County
       Pennsylvania and one (1) branch office facility located in
       Hancock, Washington County, Maryland.  During 1995 the Bank
       received regulatory approval from The Comptroller to purchase
       and assume the deposits, real estate and building of the Fort
       Loudon Branch Office of Dauphin Deposit Bank located in Franklin
       County, Pennsylvania.  Due to the location of this office,
       management and the Board felt the acquisition of this office
       was strategically important in order to officially expand the
       Bank's market area into the Franklin County, PA area and
       diversity its current primary market of Fulton County, PA.  It
       is anticipated this office will generate new loan and deposit
       demand for the Bank in the coming years.  During 1996 the Bank
       received regulatory approval from The Comptroller to open its
       first interstate Branch office in Hancock, Maryland after
       management became aware of the closing of a branch office of
       First Federal Savings Bank of Western Maryland.  This office is
       known as "Hancock Community Bank, A Division of The First
       National Bank of McConnellsburg".  The location of this office
       is felt to be strategically important in order to expand the
       Bank's operations into Washington County, Maryland and northern
       Morgan County, West Virginia.  This office will also be the
       Bank's first supermarket branch office.  As soon as the owner of
       the adjacent supermarket completes extensive renovations, the
       wall between the branch office and the supermarket will be
       removed, allowing customers to enter the branch directly from
       the supermarket.  This office is expected to enhance demand for
       the Bank's loan and deposit products as well as retain deposits
       of customers in southern Fulton County, Pennsylvania.
    
       The Bank received permission from the Comptroller to
       expand its main office facilities in downtown McConnellsburg
       to allow for larger customer service, loan department and data
       processing areas.  This expansion was completed on September 1,
       1996 at a cost of approximately $1,700,000. The Bank
       has one wholly-owned subsidiary, First Fulton County Community
       Development Corporation, which is a Community Development
       Corporation formed under 12USC24/2CFR24 whose primary
       regulator is the Office of the Comptroller of the Currency,
       The Comptroller. The First Fulton County Community Development
       Corporation was incorporated with the Commonwealth of
       Pennsylvania on May 30, 1995.  The primary business of this
       community development corporation is to provide and promote
       community welfare through the establishment and offering of
       low interest rate loan programs to stimulate economic
       rehabilitation and development for the Borough of
       McConnellsburg and the entire community of Fulton County, PA.

       Competition

       The Bank's primary market area includes all of Fulton County
       and portions of Huntingdon, Bedford and Franklin Counties,
       portions of Washington County, Maryland and portions of Morgan
       County, West Virginia.  The Bank's major competitor is a one
       bank holding company headquartered in McConnellsburg,
       Pennsylvania which has 4 branches located throughout Fulton and
       Huntingdon Counties.  As of December 31, 1997, the Bank was
       ranked second in total deposits when compared to its major
       competitor.  Also, in this market area the Bank competes with
       regionally-based commercial banks (all of which have greater
       assets, capital and lending limits), savings banks, savings and
       loan associations, money market funds, insurance companies,
       stock brokerage firms, regulated small loan companies, credit
       unions and with issuers of commercial paper and other
       securities.

       Although deregulation has allowed the Bank to become more
       competitive in the market place in regard to pricing of loan
       and deposit rates, there are disparities in taxing law which
       give some of its nonbank competitors advantages which
       commercial banks do not enjoy and many burdensome and costly
       regulations with which it must comply.  These challenges are
       met by the Bank developing and promoting its locally-owned
       community bank image; by offering friendly and professional
       customer service; and by striving to maintain competitive
       interest rates for both loans and deposits.

       Regulation and Supervision

       The operations of the Company are subject to the provisions of
       the Bank Holding Company Act of 1956, as amended (the "Bank
       Holding Company Act"), and to supervision by the Federal
       Reserve Board.  The Bank Holding Company Act requires the
       Company to secure the prior approval of the Federal Reserve
       Board before it owns or controls, directly or indirectly, more
       than five percent (5%) of the voting shares of substantially
       all of the assets of an institution, including another bank.
       The Bank Holding Company Act prohibits acquisition by the
       Company of more than five percent (5%) of the voting shares
       of, or interest in, all or substantially all of the assets of
       any bank located outside of Pennsylvania unless such
       acquisition is specifically authorized by the laws of the
       state in which such bank is located.

       The operations of the Bank are subject to federal and state
       statutes applicable to banks chartered under the banking laws
       of the United States, to members of the Federal Reserve System
       and to banks whose deposits are insured by the FDIC.  The
       operations of the Bank are also subject to regulations of the
       Comptroller, the Federal Reserve Board and the FDIC.  The
       primary supervisory authority of the Bank is the Comptroller,
       which regulates and examines the Bank.  The Comptroller has
       authority to prevent national banks from engaging in unsafe or
       unsound practices in conducting their businesses.

       Legislation and Regulatory Changes

       From time to time, legislation is enacted which has the effect
       of increasing the cost of doing business, limiting or
       expanding permissible activities or affecting the competitive
       balance between banks and other financial institutions.
       Proposals to change the laws and regulations governing the
       operations and taxation of banks, bank holding companies and
       other financial institutions are frequently made in Congress,
       and before various bank regulatory agencies.  No prediction
       can be made as to the likelihood of any major changes or the
       impact such changes might have on the Company and its
       subsidiary, the Bank.  Certain changes of potential
       significance to the Company which have been enacted recently
       are discussed below.

       The Federal Reserve Board, the FDIC and the Comptroller have
       issued risk-based capital guidelines, which supplement
       existing capital requirements.  The guidelines require all
       United States banks and bank holding companies to maintain a
       minimum risk-based capital ratio of 8.0% (of which at least
       3.0% must be in the form of common stockholders' equity).
       Assets are assigned to five risk categories, with higher
       levels of capital being required for the categories perceived
       as representing greater risk.  The required capital will
       represent equity and (to the extent permitted) nonequity
       capital as a percentage of total risk-weighted assets.  On the
       basis of an analysis of the rules and the projected
       composition of the Company's consolidated assets, it is not
       expected these rules will have a material effect on the
       Company's business and capital plans.  The company presently
       has capital ratios exceeding all regulatory requirements.

       The Financial Institution Reform, Recovery and Enforcement Act
       of 1989 ("FIRREA") was enacted in August 1989.  This law was
       enacted primarily to improve the supervision of savings
       associations by strengthening capital, accounting and other
       supervisory standards.  In addition, FIRREA reorganized the
       FDIC by creating two deposit insurance funds to be
       administered by the FDIC:  the Savings Association Insurance
       Fund and the Bank Insurance Fund.  Customers' deposits held by
       the Bank are insured under the Bank Insurance Fund.  FIRREA
       also regulated real estate appraisal standards and the
       supervisory/enforcement powers and penalty provisions in
       connection with the regulation of the Bank.

       In December 1991 the Federal Deposit Insurance Corporation
       Improvement Act of 1991 ("FDICIA") became law.  Under FDICIA,
       institutions must be classified, based on their risk-based
       capital ratios into one of five defined categories (well
       capitalized, adequately capitalized, undercapitalized,
       significantly undercapitalized and critically
       undercapitalized) as outlined below:

                                 Total      Tier 1                    
Under a
                                Risk-      Risk-      Tier 1       
Capital
                                Based      Based      Leverage     
Order or
                                Ratio      Ratio      Ratio        
Directive
         CAPITAL CATEGORY
         Well capitalized            >10.0%     >6.0%      >5.0%         
  No          
         Adequately capitalized      > 8.0%     >4.0%      >4.0%*
         Undercapitalized            < 8.0%     <4.0%      <4.0%*
         Significantly
    Undercapitalized         < 6.0%     <3.0%         <3.0%
         Critically undercapitalized                  <2.0%

       *3.0% for those banks having the highest available regulatory
rating.

       Under FDICIA financial institutions are subject to increased
       regulatory scrutiny and must comply with certain operational,
       managerial and compensation standards to be developed by   
       Federal Reserve Board Regulations.  FDICIA also required the
       regulators to issue new rules establishing certain minimum
       standards to which an institution must adhere including
       standards requiring a minimum ratio of classified assets to
       capital, minimum earnings necessary to absorb losses and
       minimum ratio of market value to book value for publicly held
       institutions.  Additional regulations are required to be
       developed relating to internal controls, loan documentation,
       credit underwriting, interest rate exposure, asset growth and
       excessive compensation, fees and benefits.

       Annual full-scope, on-site examinations are required for all
       FDIC-insured institutions except institutions with assets
       under $100 million which are well capitalized, well managed
       and not subject to a recent change in control, in which case,
       the examination period is every eighteen (18) months.  FDICIA
       also required banking agencies to reintroduce loan-to-value
       ("LTV") ratio regulations which were previously repealed by
       the 1982 Act.  LTV's will limit the amount of money a
       financial institution may lend to a borrower, when the loan is
       secured by real estate, to no more than a percentage to be set
       by regulation of the value of the real estate.

       A separate subtitle within FDICIA, called the "Bank Enterprise
       Act of 1991", requires "truth-in-savings" on consumer deposit
       accounts so that consumers can make meaningful comparisons
       between the competing claims of banks with regard to deposit
       accounts and products.  Under this provision which became
       effective on June 21, 1993, the Bank is required to provide
       information to depositors concerning the terms and fees of
       their deposit accounts and to disclose the annual percentage
       yield on interest-bearing deposit accounts. 

       Neither the Company nor the Bank anticipate compliance with
       environmental laws and regulations will have any material
       effect on their respective capital, expenditures, earnings, or
       competitive position.

       Employees

       As of December 31, 1997, the Company and the Bank employed 55
       persons on a full-time equivalent basis.

       Statistical Data

       Computation of the Company's regulatory capital requirements
            for the periods December 31, 1997 and December 31, 1996 on
       page 43 of the annual shareholders report for the year ended
       December 31, 1997, is incorporated herein by reference.

       Loan Portfolio

       The Bank makes loans to both individual consumers and
       commercial entities.  The types offered include auto,
       personal, mortgage, home equity, school, home repair, small
       business, commercial, and home construction loans.  Within
       these loans types, the Bank makes installment loans, which
       have set payments allowing the loan to be amortized over a
       fixed number of payments, demand loans, which have no fixed
       payment and which are payable in full on demand and are
       normally issued for a term of less than one year, and mortgage
       loans, which are secured with marketable real estate and have
       fixed payment amounts for a pre-established payment period.
       The Bank does not assume undue risk on any loan within the
       loan portfolio, and takes appropriate steps to secure all
       loans as necessary.

       The Bank has adopted the following loan-to-value ratios, in
       accordance with standards adopted by its bank supervisory
       agencies:

       Loan Category                        Loan-to-Value Limit

   Raw Land                                             65%
       Land Development                                     75%
       Construction:
         Commercial, Multifamily, and other
         Nonresidential 1 to 4 Family Residential           80%
       Improved Property                                    85%
       Owner-occupied 1 to 4 Family and Home Equity         90%


       The Bank is neither dependent upon nor exposed to loan
       concentrations to a single customer or to a single industry,
       the loss of any one or more of which would have a material
       adverse effect on the financial condition of the Bank;
       however, a portion of the Bank's customers' ability to honor
       their contracts is dependent upon the construction and land
       development and agribusiness economic sector.  As a majority
       of the Bank's loan portfolio is comprised of loans to
       individuals and businesses in Fulton County, PA, a significant
       portion of the Bank's customers' abilities to honor their
       contracts is dependent upon the general economic conditions in
       South Central Pennsylvania.

       Loan Portfolio composition as of December 31, 1997, and
       December 31, 1996, on page 12 of the annual shareholders
       report for the year ended December 31, 1997, is incorporated
       herein by reference.
     
       Maturities of loans as of December 31, 1997, on page 13 of the
       annual shareholders report for the year ended December 31,
       1997, is incorporated herein by reference.

       Nonperforming loans consist of nonaccruing loans and loans 90
       days or more past due.  Nonaccruing loans are comprised of
       loans that are no longer accruing interest income because of
       apparent financial difficulties of the borrower.  Interest on
       nonaccruing loans is recorded when received only after past
       due principal and interest are brought current.  The general
       policy of the Bank is to classify loans as nonaccrual when
       they become past due in principal and interest for over 90
       days and collateral is insufficient to allow continuation of
       interest accrual.  At that time, the accrued interest on the
       nonaccrual loan is reversed from the current year earnings and
       interest is not accrued until the loan has been brought
       current in accordance with contractual terms. Nonaccrual loan
       volume in 1996 more than doubled than that of 1995.
       This increase in volume was attributable to two entities, a
       farming operation in Franklin County, Pennsylvania, the amount
       of which is approximately $400,000, and a personal residence
       in Fulton County, Pennsylvania the amount of which is
       approximately $187,000.  The farm loan is collateralized by a
       first mortgage position on the farm property, a 90% Farm
       Service Agency (an agency of the U. S. Government) guarantee, as
       well as, all machinery, equipment and livestock, of which the
       value of all collateral exceeds the outstanding balance.
       The personal loan is collateralized by a residential
       property and 145 acres in Fulton County, Pennsylvania for which
       the value of the property exceeds the outstanding balance of the
       loan.  Due to both of these loans being brought current in 1997,
       total nonaccrual loans from 1996 to 1997 decreased over $560,000
       in total.
     
       Nonaccrual volume for 1998 may increase as the aforementioned
       farm loan and some commercial loans may experience cash flow
       difficulties in 1998.  Anticipated charge-offs for 1998 are   
       expected to be approximately the same as in 1997 due to a
       commercial loan liquidation in 1998 which may result in a
       charge-off in excess of $50,000. 

       Nonaccrual, Past Due and Restructured Loans as of December 31,
       1997, December 31, 1996, and December 31, 1995, on page 14 of
       the annual shareholders report for the year ended December
       31, 1997, are incorporated herein by reference.

       Allowance for Loan Loss Analysis

       The allowance for loan losses is maintained at a level to
       absorb potential future loan losses contained in the loan
       portfolio and is formally reviewed by Management on a
       quarterly basis.  The allowance is increased by provisions
       charged to operating expense and reduced by net charge-offs.
       Management's basis for the level of the allowance and the
       annual provisions is its evaluation of the loan portfolio,
       current and projected domestic economic conditions, the
       historical loan loss experience, present and prospective
       financial condition of the borrowers, the level of
       nonperforming assets, best and worst case scenarios
       of possible loan losses and other relevant factors.  While
       Management uses available information to make such
       evaluations, future adjustments of the allowance may be
       necessary if economic conditions differ substantially from the
       assumptions used in making the evaluation.  Loans are charged
       against the allowance for loan losses when Management believes
       that the collectability of the principal is unlikely.

       Activity in the allowance for loan losses and a breakdown of
       the allowance for loan losses as of December 31, 1997, and
       December 31, 1996, on page 12 of the annual shareholders
       report for the year ended December 31, 1997, are incorporated
       herein by reference.

       Although loans secured by 1-4 family residential mortgages
       comprise approximately 53% for the entire loan portfolio,
       these mortgages have historically resulted in little or no
       loss.  The allocation of the Allowance for Loan Losses for
       these mortgages is based upon this historical fact.  Due to the    
  potential commercial loan liquidation which may result in a
       charge-off in excess of $50,000 and the problems experienced
       with the farming operation in Franklin County, Pennsylvania, the
       allocation of the Allowance for Loan Losses for commercial,
       industrial, and agriculture loans has been accordingly
       increased.

       Deposits
         
       Time Certificates of Deposit of $100,000 and over as of
       December 31, 1997, and December 31, 1996, totaled $10,333,000
       and $8,581,000 respectively.

       Maturities and rate sensitivity of total interest bearing
       liabilities as of December 31, 1997, on page 39 of the annual
       shareholders report for the year ended December 31, 1997, is
       incorporated herein by reference.

       Returns on Equity and Assets

       Returns on equity and assets and other statistical data for
       1997, 1996 and 1995 on page 18 of the annual shareholders
       report for the year ended December 31, 1997, is incorporated
       herein by reference.

Item 2.  Properties

       The physical properties where the Bank conducts its business
       in the Commonwealth of Pennsylvania are all owned by the
       Bank while the property where the Bank conducts its business
       in the State of Maryland is leased.  The properties owned by the
       Bank are as follows:  the main office located at 101 Lincoln Way
       West, McConnellsburg, Pennsylvania, has been attached by a two
       story brick and frame addition, to a building located at 111
       South Second Street, McConnellsburg, Pennsylvania which houses
       the Bank's loan department on the first floor and future
       expansion space on the second floor; a branch office located
       on Route 522 South, Needmore, Pennsylvania; a property located
       at Routes 16 and 30 East, McConnellsburg, Pennsylvania which
       contains a drive-up automatic teller machine and a five (5)
       lane drive-up branch accessible from both Route 30 and Route
       16; and a branch office located at 30 Mullen Street, Fort
       Loudon, Pennsylvania, for which the Bank received regulatory
       approval from the Office of the Comptroller of the Currency to
       purchase effective November 13, 1995.  The branch office leased
       by the Bank in the state of Maryland is located in the Hancock
       Shopping Center at 343 North Pennsylvania Avenue in Hancock,
       Maryland next to a supermarket.

       The main office located in downtown McConnellsburg is housed
       in a two story brick and frame building, consisting of
       approximately 28,277 square feet.  It has been attached (by a
       two story brick and frame addition which houses the data
       processing/operations center on the first floor and executive
       offices and a meeting room on the second floor) to the
       building located at 111 South Second Street, a brick and frame
       building situated on a one town lot which has been expanded
       and renovated to house the loan department on the first floor
       and future offices and rest rooms on the second floor.  The
       main office contains one (1) external time and temperature
       sign, seven (7) internal teller stations, a customer service
       office area, executive offices, one (1) drive-up teller station,
       an automatic teller machine, three (3) vaults (one containing
       safe deposit boxes for customer use and one containing a fire
       proof/data-secure vault in the operations center), a night
       depository, a data processing center with a security controlled
       computer operations center, a loan department with a large file
       room, a kitchen and a 5,000 square foot basement storage
       area.

       The Needmore Branch Office, a brick and frame building
       situated on approximately five (5) acres, consists of
       approximately 3,000 square feet, of which 750 square feet is
       rented as office space.  The branch office houses three (3)
       internal teller stations, one (1) drive-up teller station, a
       customer service office area, one (1) vault which contains
       safe deposit boxes for customer use, one (1) kitchen, and
       storage areas.

       The East End Express Banking Center, located on a property of
       approximately 68,000 square feet at Routes 16 and 30, has
       situated on it one (1) drive-up automatic teller machine and
       one (1) night depository (both housed in a brick and frame
       building of approximately 121 square feet), and a drive-up
       branch office, a brick and frame building of approximately 576
       square feet, which contains four (4) drive-up teller stations
       with the potential for a total of five (5) drive-up teller
       stations in the future.  

       The Fort Loudon Branch Office, which was expanded and completely
       renovated in 1997 at an approximate cost of $200,000, is a brick
       and frame building situated on approximately .23 acres.  It
       consists of approximately 1,035 square feet.  The branch office
       houses three (3) internal teller stations, one (1) drive-up
       teller station, one (1) vault which contains safe deposit
       boxes for customer use, a manager's office, one (1) kitchen,
       storage areas and a basement for storage which consists of
       approximately 620 square feet.

       The leased office in Hancock, Maryland housing Hancock Community
       Bank is approximately 1,400 square feet and is leased from the
       owner of the shopping center next to a supermarket.  It contains
       two (2) offices, one (1) automated teller machine, two (2)
       drive-up teller lanes, a lobby, a safe deposit box vault for
       customers and three (3) teller stations.

Item 3.  Legal Proceedings

       In the opinion of Management, there are no proceedings pending
       to which the Company or the Bank is a party or to which their
       property is subject, which, if determined adversely to the
       Company or the Bank, would be material in relation to the
       Company's and the Bank's retained earnings or financial
       condition.  There are no proceedings pending other than
       ordinary routine litigation incident to the business of the
       Company and the Bank.  In addition, no material proceedings
        are known to be threatened or contemplated against the     
       Company or the Bank by government authorities.


Item 4.  Submission of Matters to a Vote of Security Holders

       None.



PART II

Item 5.  Market for the Registrant's Common Stock and Related
       Stockholder Matters

   The Company's common stock is not traded on a national
       securities exchange but is traded inactively in the over-the-
       counter market and is only occasionally and sporadically
       traded through local and regional brokerage houses or through
       the facilities of the Bank.

       The Stock Market Analysis and Dividends for 1997 and 1996 on
       page 44 of the annual shareholders report for the year ended
       December 31, 1997, is incorporated herein by reference.

Item 6.  Selected Financial Data

       The Selected Five-Year Financial Data on page 23 of the annual
       shareholders report for the year ended December 31, 1997, is
       incorporated herein by reference.

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

       Management's discussion and analysis of financial condition
       and results of Operations on pages 28 through 45 of the annual
       shareholders report for the year ended December 31, 1997, is
       incorporated herein by reference.



Item 8.  Financial Statements and Supplementary Data

       The financial statements and supplementary data, some of which
       is required under Guide 3 (Statistical Disclosures by Bank
       Holding Companies) are shown on pages 2 through 45 of the
       annual shareholders report for the year ended December 31, 1997,
       are incorporated herein by reference.

       The Summary of Quarterly Financial Data on page 24 of the
       annual shareholders report for the year ended December 31,
       1997 is incorporated herein by reference.
      

Item 9. Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure
    
       None.


PART III

Item 10.  Directors and Officers of the Registrant

        The information contained on pages 3 through 15 of FNB
        Financial Corporation's Proxy Statement Dated March 23, 1998,
        with respect to directors and executive officers of the
        Company, is incorporated herein by reference in response to
        this item. 

Item 11.  Executive Compensation

        The information contained on pages 9 through 13 of FNB
        Financial Corporation's Proxy Statement Dated March 23, 1998,
        with respect to executive compensation, transactions and
        contracts, is incorporated herein by reference in response to
        this item. 

Item 12.  Security Ownership of certain Beneficial Owners and
          Management

        The information contained on pages 3 through 5 and pages 14 and
        15 of FNB Financial Corporation's Proxy Statement Dated March
        23, 1998, with respect to security ownership of certain
        beneficial owners and management, is incorporated herein by
        reference in response to this item. 

Item 13.  Certain Relationships and Related Transactions

        The information contained on pages 8 and 14 of FNB Financial
        Corporation's Proxy Statement Dated March 23, 1998, with
        respect to certain relationships and related transactions, is
        incorporated herein by reference in response to this item. 


PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports of Form
         8-k.

    (a) (1) - List of Financial Statements

        The following consolidated financial statements of FNB
        Financial Corporation and its subsidiary, included in the
        annual report of the registrant to its shareholders for the
        year ended December 31, 1997, are incorporated by reference
        in Item 8:

         Consolidated balance sheets - December 31, 1997 and 1996

         Consolidated statements of income - Years ended December 31,
         1997, 1996, and 1995

         Consolidated statements of stockholders' equity - Years
         ended December 31, 1997, 1996, and 1995

         Consolidated statements of cash flows - Years ended December
         31, 1997, 1996, and 1995

         Notes to consolidated financial statements - December 31,
         1997

         (2) - List of Financial Statement Schedules  

              Schedule I - Marketable Securities - Other Investments
              Schedule III - Condensed Financial Information of
                             Registrant
              Schedule VIII - Valuation and Qualifying Accounts
              
              All other schedules for which provision is made in
              the applicable accounting regulation of the
              Securities and Exchange Commission are not required
              under the related instructions or are inapplicable     
              and therefore have been omitted.

         (3)  Listing of Exhibits
              
              Exhibit (3)(i) Articles of incorporation
              Exhibit (3)(ii) Bylaws
              Exhibit (4) Instruments defining the rights of
                   security holders including indentures
              Exhibit (22) Subsidiaries of the registrant

              All other exhibits for which provision is made in
                 the applicable accounting regulation of the
                 Securities and Exchange Commission are not required
                 under the related instructions or are inapplicable
                 and therefore have been omitted.

    (b)  Reports on Form 8-K filed 

         None.

         (c)  Exhibits

              Exhibit (3)(i) Articles of incorporation - Exhibit 3A
              of Form SB-2 Registration Statement No. 33-66014 are
              incorporated herein by reference.

              Exhibit (3)(ii) Bylaws - Exhibit 3B of Form SB-2
              Registration Statement No. 33-66014 are incorporated
              herein by reference.

              Exhibit (4) Instruments defining the rights of
              security holders including debentures - Document #1 of
              Form 10-K for FNB Financial Corporation for fiscal year
              ended December 31, 1995 is incorporated herein by
              reference.

              Exhibit (13) Annual report to security holders -
              incorporated herein by reference.

              Exhibit (22) Subsidiaries of the registrant - As of
              this report, The First National Bank of
              McConnellsburg is the only subsidiary of the
              Registrant and is explained further within the
              Business Section (Item 1) of this report.
              The First National Bank of McConnellsburg has one
              subsidiary as of the date of this report, First
              Fulton County Community Development Corporation and
              is explained further within the Business Section
              (Item 1) of this report.

              Exhibit (27)  Financial data schedule

         (d)  Financial Statement Schedules                          

              Schedule I - Marketable Securities - Other Investments
              Schedules of Marketable Securities included on page
              11 of the annual report of the registrant to its
              shareholders for the year ended December 31, 1997
              are incorporated herein by reference.

              Schedule III - Condensed Financial Information of
                             Registrant
              Condensed Financial Information of the Registrant
              included on page 19 of the annual report of the
              registrant to its shareholders for the year ended
              December 31, 1997, is incorporated herein by
              reference.

              Schedule VIII - Valuation and Qualifying Accounts
              The schedule of the Allowance for Loan losses included
              on page 14 of the annual report of the registrant to
              its shareholders for the year ended December 31,
              1997, is incorporated herein by reference.











Signatures

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

                             
                                  FNB FINANCIAL CORPORATION 
                                         (Registrant)

                                /s/John C. Duffey   3/25/98 
                                John C. Duffey         Date
                                Director and President
                                of the Corporation
                                President & CEO of the Bank
                                (Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.


H. Lyle Duffey                        Henry W. Daniels            
H. Lyle Duffey          Date          Henry W. Daniels       Date
Director, Chairman                    Director, Vice Chairman


/s/John C. Duffey     3/25/98         /s/Harry D. Johnston  3/25/98
John C. Duffey          Date          Harry D. Johnston, D. O. Date
Director, President                   Director, Vice President


/s/George S. Grissinger 3/25/98       /s/Patricia A. Carbaugh 3/25/98
George S. Grissinger    Date          Patricia A. Carbaugh   Date
Director, Secretary                   Director


/s/Harvey J. Culler   3/25/98         /s/Paul T. Ott        3/25/98
Harvey J. Culler        Date          Paul T. Ott             Date   
Director                              Director

/s/D. A. Washabaugh, III 3/28/98      /s/Daniel E. Waltz    3/25/98
D. A. Washabaugh, III  Date           Daniel E. Waltz         Date
Director                              Director, Treasurer
                                      (Principal Financial and        
                                       Accounting Officer)

                  
          


                              
 



 

 

EX-13

C O N T E N T S


         Page

INDEPENDENT AUDITOR'S REPORT 1

CONSOLIDATED FINANCIAL STATEMENTS

    Balance sheets 2
    Statements of income     3
    Statements of changes in stockholders' equity     4
    Statements of cash flows 5 and 6
    Notes to consolidated financial statements   7 - 22

ACCOMPANYING FINANCIAL INFORMATION

    Selected five year financial data  23
    Summary of quarterly financial data     24
    Distribution of assets, liabilities and stockholders' equity, interest
      rates, and interest differential 25
    Changes in net interest income     26
    Maturities of debt securities 27
    Management's discussion and analysis    28 - 45


INDEPENDENT AUDITOR'S REPORT



Board of Directors
FNB Financial Corporation
McConnellsburg, Pennsylvania


    We have audited the accompanying consolidated
balance sheets of FNB Financial Corporation and its wholly-owned
subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years ended December 31, 1997. 
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
consolidated financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated 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 Financial Corporation and its wholly-owned
subsidiary as of December 31, 1997 and 1996 and the results of their
operations and cash flows for each of the three years ended
December 31, 1997 in conformity with generally accepted accounting
principles.









Chambersburg, Pennsylvania
January 30, 1998


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996


           ASSETS
                                                    1997                 1996

Cash and due from banks $   3,491,312  $  2,473,315        
Interest-bearing deposits with banks   6,050,546 327,276        
Investment securities:
    Available for sale  26,338,409     28,870,912          
    Held to maturity (fair value $ 2,988,188 - 1997;
      $ 4,567,903 - 1996)    2,975,841 4,559,739      
Federal Reserve, Atlantic Central Banker's
  Bank and Federal Home Loan Bank stock     389,600   383,700        
Federal funds sold 2,931,000 1,239,000      
Loans, net of unearned discount and allowance
  for loan losses  59,124,012     56,259,929          
Bank building, equipment, furniture and fixtures, net 3,295,474 3,107,960       
Accrued interest and dividends receivable   610,240   675,180        
Deferred income taxes   0    6,548     
Other real estate owned 428,488   318,992        
Other assets               385,313            421,521 
         Total assets   $ 106,020,235  $ 98,644,072        


    LIABILITIES

Deposits:
    Demand deposits     $    9,988,174 $   9,249,700       
    Savings deposits    26,713,986     26,674,628          
    Time certificates   56,293,701     50,957,962          
    Other time deposits         263,829            251,678      
         Total deposits 93,259,690     87,133,968          
Accrued dividends payable    104,000   100,000
Deferred income taxes   67,880    0
Accrued interest payable and other liabilities   738,197         708,072        
Liability for borrowed funds        460,719                 0
         Total liabilities      94,630,486    87,942,040        

    STOCKHOLDERS' EQUITY

Capital stock, common, par value $ .63; 6,000,000 shares
  authorized; 400,000 shares issued and outstanding   252,000   252,000         
Additional paid-in capital   1,789,833 1,789,833      
Retained earnings  9,163,913 8,628,183      
Unrealized holding gains, net of applicable
  deferred income taxes of $ 94,789 - 1997; $ 16,493 - 1996             184,003
             32,016     
         Total stockholders' equity        11,389,749    10,702,032       
         Total liabilities and stockholders' equity   $ 106,020,235  $
98,644,072         

    The Notes to Consolidated Financial Statements are an integral part
 of these statements.

- -2-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995


                                         1997                  1996
                 1995
Interest and Dividend Income
    Interest and fees on loans    $ 5,271,134    $ 4,849,673    $ 4,631,807     
    Interest on investment securities:
         U. S. Treasury securities     35,785    51,045    55,422    
         Obligations of other U. S.
           Government agencies    1,421,340 1,389,073 960,267   
         Obligations of States and
           political subdivisions 430,194   464,979   417,352   
    Interest on deposits with banks    25,594    28,721    38,859    
    Dividends on equity securities     27,078    25,829    25,321    
    Interest on federal funds sold          176,766        155,196       
133,383  
                   7,387,891 6,964,516 6,262,411 
Interest Expense
    Interest on borrowed funds    5,865     0    0
    Interest on deposits       3,841,015       3,694,486      3,247,389   
         Net interest income 3,541,011 3,270,030 3,015,022 
Provision for Loan Losses         232,500          95,500         74,704  
         Net interest income after provision
           for loan losses     3,308,511      3,174,530      2,940,318    

Other Income
    Service charges on deposit accounts     72,707    62,117    66,568    
    Other service charges, collection and
      exchange charges, commissions and fees     193,464   176,145   176,127    
    Other income, net   45,536    36,334    32,039    
    Gain on sale of PHEAA loans   31,211    0    0
    Securities gains (losses)             5,752  (         3,843)    (        
5,210)   
                        348,670       270,753         269,524   
Other Expenses
    Salaries and wages  1,094,033 967,102   818,155   
    Pensions and other employee benefits    286,760   244,302   202,829   
    Net occupancy expense of bank premises  194,148   150,742   115,804   
    Furniture and equipment expenses   223,680   162,065   158,050   
    FDIC assessment     11,047    2,000     84,969    
    Other operating expenses      798,661        743,868        574,490   
                     2,608,329      2,270,079       1,954,297   
         Income before income taxes    1,048,852 1,175,204 1,255,545 

    Applicable income taxes       193,122        218,019        253,781   

         Net income     $    855,730   $   957,185    $ 1,001,764    
Earnings per share of common stock:
         Net income     $         2.14 $        2.39  $         2.51 

         Weighted average shares outstanding     400,000   400,000   400,000    

        The Notes to Consolidated Financial Statements are an integral part of
 these statements.

- -3-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995




                                                               Additional
                                  Unrealized
                                          Common              Paid-In
              Retained             Holding
                                              Stock                Capital
              Earnings         Gains (Losses)

Balance, December 31, 1994   $ 252,000 $ 1,789,833    $ 7,285,234    ($ 397,534)


    Net income     0    0    1,001,764 0
    Cash dividends declared on
      common stock ($ .77 per share)   0    0    (     308,000) 0
    Unrealized gain on securities
      available for sale, net of
      applicable income taxes                 0                0            0  
 
505,164

Balance, December 31, 1995    252,000   1,789,833      7,978,998      107,630

    Net income     0    0    957,185   0
    Cash dividends declared on
      common stock ($ .77 per share)   0    0    (      308,000)     0
    Unrealized loss on securities
      available for sale, net of
      applicable income taxes                 0                0           0   
( 
  75,614)

Balance, December 31, 1996    252,000   1,789,833      8,628,183       32,016

    Net income     0    0    855,730   0
    Cash dividends declared on
      common stock ($ .80 per share)   0    0    (      320,000)     0
    Unrealized gain on securities
      available for sale, net of
      applicable income taxes                 0                0            0  
 
 151,987

Balance, December 31, 1997   $ 252,000 $ 1,789,833    $ 9,163,913    $ 184,003










The Notes to Consolidated Financial Statements are an integral part of these
 statements.

- -4-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995

                                             1997              1996    1995

Cash flows from operating activities:
    Net income     $     855,730  $     957,185  $  1,001,764   
    Adjustments to reconcile net income to net
      cash provided by operating activities:
         Depreciation and amortization 251,405   203,443   135,068   
         Provision for loan losses     232,500   95,500    74,704
         Deferred income taxes    3,868     12,915    (       19,456)
         Loss on sale of other real estate  3,000     0    0
         (Gain) loss on sales/maturities of investments    (          5,752)   
3,8
43  5,210     
         (Gain) loss on disposal of equipment    2,412     (             700)  
0
         (Increase) decrease in accrued interest
           receivable   64,940    (         27,259)   (     161,765) 
         Increase (decrease) in accrued interest
           payable and other liabilities    30,125    (         56,832)   166,90
1 
         Other, net              17,066     (       114,019)            87,562  

Net cash provided by operating activities  1,455,294    1,074,076     1,289,988 


Cash flows from investing activities:
    Net (increase) decrease in interest bearing
      deposits with banks    (    5,723,270)     91,197    202,456   
    Maturities of held-to-maturity securities    1,735,560 941,524   1,781,829  
    Purchases of held-to-maturity securities     (       151,662)    (      
100,000)
    (   6,710,015) 
    Sales of available-for-sale securities  1,278,472 0    196,469   
    Maturities of available-for-sale securities  10,341,312     7,755,603 3,491,
234 
    Purchases of available-for-sale securities   (    8,851,118)     ( 
10,409,030)
    (   6,205,680) 
    Proceeds from sales of other real estate owned    104,375   102,500   26,765
    
    Net (increase) in loans  (    3,313,454)     (    3,587,304)     (   
3,875,215) 
    Purchase of other bank stock  (         11,780)   (        13,700)
    (        30,500) 
    Purchases of bank premises and
      equipment, net    (       424,173)    (    1,171,694)     (      899,649)

    Proceeds from sale of equipment                   0                700     
    
  13,729 

Net cash (used) by investing activities     (     5,015,738)    (    6,390,204)
    (  12,008,577) 

Cash flows from financing activities:
    Net increase in deposits  6,125,722     6,217,681 9,504,272
    Cash dividends paid (       316,000)    (       300,000)    (      304,000)
    Proceeds from borrowings 462,493   0    0
    Principle payments on borrowings   (          1,774)                  0    
   
  0

Net cash provided by financing activities      6,270,441      5,917,681    
9,200,272 




        The Notes to Consolidated Financial Statements are an integral part
 of these statements.

- -5-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1997, 1996 and 1995



                                    1997                  1996        1995

Net increase (decrease) in cash and
  cash equivalents $ 2,709,997    $    601,553   ($ 1,518,317)  

Cash and cash equivalents, beginning balance        3,712,315     3,110,762
       4,629,079   

Cash and cash equivalents, ending balance   $ 6,422,312    $ 3,712,315    $
3,110,762     



Supplemental disclosure of cash flows information:

    Cash paid during the year for: 

         Interest (net of capitalized interest of
           $ 43,905 - 1996)  $ 3,818,501    $ 3,509,832    $ 3,103,611    
         Income taxes   155,987   343,488   152,760   



Supplemental schedule of noncash investing and
  financing activities:

    Unrealized gain (loss) on securities
      available-for-sale, net of income tax effect    $   151,987    ($    
75,614)
    $    505,164   
    Other real estate acquired in settlement of loans 216,871   76,390    139,52
4
    Transfer of securities from held-to-maturity to
      available for sale     0    0    5,072,833
    Property, equipment and other assets acquired
      with assumption of deposit liabilities in
      connection with branch acquisition    0    0    312,974
    Loan advanced for sale of other real estate owned 93,600    50,000    0













The Notes to Consolidated Financial Statements are an integral part of
 these statements.

- -6-


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Significant Accounting Policies

    Nature of Operations

FNB Financial Corporation's primary activity consists of
owning and supervising its subsidiary, The First National
Bank of McConnellsburg, which is engaged in providing
banking and bank related services in South Central
Pennsylvania, and Northwestern Maryland. Its five offices
are located in McConnellsburg (2), Fort Loudon and
Needmore, Pennsylvania, and Hancock, Maryland.

    Principles of Consolidation

The consolidated financial statements include the accounts
of the corporation and its wholly-owned subsidiary, The
First National Bank of McConnellsburg.  All significant
intercompany transactions and accounts have been
eliminated.

First Fulton County Community Development Corporation
(FFCCDC) was formed as a wholly-owned subsidiary of
The First National Bank of McConnellsburg.  The purpose
of FFCCDC is to serve the needs of low-to-moderate
income individuals and small business in Fulton County
under the Community Development and Regulatory
Improvement Act of 1994.

    Basis of Accounting

The Corporation uses the accrual basis of accounting.

    Use of Estimates

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

Material estimates that are particularly susceptible to
significant change relate to the determination of the
allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in
satisfaction of loans.  In connection with the determination
of the allowances for losses on loans and foreclosed real
estate, management obtains independent appraisals for
significant properties.

While management uses available information to recognize
losses on loans and foreclosed real estate, future additions
to the allowances may be necessary based on changes in
local economic conditions.  In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Corporation's allowances for losses
on loans and foreclosed real estate. Such agencies may
require the corporation to recognize additions to the
allowances based on their judgments about information
available to them at the time of their examination.  Because
of these factors, management's estimate of credit losses
inherent in the loan portfolio and the related allowance may
change in the near term.




- -7-


Note 1.  Significant Accounting Policies (Continued)

    Cash Flows

For purposes of the statements of cash flows, the
Corporation has defined cash and cash equivalents as those
amounts included in the balance sheet captions "Cash and
Due From Banks" and "Federal Funds Sold".  As
permitted by Statement of Financial Accounting Standards
No. 104, the Corporation has elected to present the net
increase or decrease in deposits in banks, loans and time
deposits in the Statements of Cash Flows.

    Investment Securities

In accordance with Statement of Financial Accounting
Standards Number 115 (SFAS 115) the Corporation's
investments in securities are classified in three categories
and accounted for as follows:

    d    Trading Securities.  Securities held principally for
resale in the near term are classified as
trading securities and recorded at their fair values. 
Unrealized gains and losses on trading securities are
included in other income.

    d    Securities to be Held to Maturity.  Bonds and notes for
which the Corporation has the
positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums
and accretion of discounts which are recognized in
interest income using the interest method over the
period to maturity.

    d    Securities Available for Sale.  Securities available for
sale consist of equity securities,
         bonds and notes not      classified as trading securities nor
as securities to be held to maturity.       These are securities
    that management intends to use as a part of its asset
and liability      management strategy and  may be sold in
response to changes in interest rates, resultant      prepayment
risk and other     related factors.  Unrealized holding gains
and losses, net of tax,      on securities available for   sale are
reported as a net amount in a separate component of
    shareholders' equity until    realized.  Gains and losses
on the sale of securities available for     sale are determined
using    the specific-identification method.

    Fair values for investment securities are based on quoted
market prices.

    The Corporation had no trading securities in 1997 or 1996.

    Federal Reserve Bank, Atlantic Central Banker's Bank,
and
      Federal Home Loan Bank Stock

These investments are carried at cost.  The Corporation is
required to maintain minimum investment balances in these
stocks, which are not actively traded and therefore have no
readily determinable market value.

    Other Real Estate Owned

Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at the
lower of carrying value or fair value of the underlying
collateral less cost to sell.  After foreclosure, valuations are
periodically performed by management and the real estate
is carried at the lower of carrying amount or fair value less
cost to sell.  Legal fees and other costs related to
foreclosure proceedings are expensed as they are incurred.




- -8-


Note 1.  Significant Accounting Policies (Continued)

    Loans and Allowance for Possible Loan Losses

Loans are stated at the amount of unpaid principal, reduced
by unearned discount, deferred loan origination fees, and
an allowance for loan losses.  Unearned discount on
installment loans is recognized as income over the terms of
the loans by the interest method.  Interest on other loans is
calculated by using the simple interest method on daily
balances of the principal amount outstanding.  The
allowance for loan losses is established through a provision
for loan losses charged to expense.  Loans are charged
against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely. 
The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience.  The
evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrowers'
ability to pay.

In accordance with SFAS No. 91, loan origination fees and
certain direct loan origination costs are being deferred and
the net amount amortized as an adjustment of the related
loan's yield.  The Corporation is amortizing these amounts
over the contractual life of the related loans.  Deferred loan
origination fees were $ 276,654 and $ 264,956 at
December 31, 1997 and 1996, respectively.  Deferred loan
costs were $ 102,162 and $ 103,845 at December 31, 1997
and 1996, respectively.

    Nonaccrual/Impaired Loans

The accrual of interest income on loans ceases when
principal or interest is past due 90 days or more and
collateral is inadequate to cover principal and interest or
immediately if, in the opinion of management, full
collection is unlikely.  Interest accrued but not collected as
of the date of placement on nonaccrual status is reversed
and charged against current income unless fully
collateralized.  Subsequent payments received either are
applied to the outstanding principal balance or recorded as
interest income, depending on management's assessment of
the ultimate collectibility of principal.

    Bank Building, Equipment, Furniture and Fixtures and
Depreciation

Bank building, equipment, furniture and fixtures are
carried at cost less accumulated depreciation.  Expenditures
for replacements are capitalized and the replaced items are
retired. Maintenance and repairs are charged to operations
as incurred.  Depreciation is computed based on straight-
line and accelerated methods over the estimated useful lives
of the related assets as follows:
              Years

              Bank building  10-40
              Equipment, furniture and fixtures  3-20
              Land improvements   10-20
              Leasehold improvements   15-20

    Computer software is amortized over 3 to 5 years.

    Earnings Per Share

Earnings per common share were computed based upon
weighted average shares of common stock outstanding of
400,000 for 1997, 1996 and 1995.


- -9-


Note 1.  Significant Accounting Policies (Continued)

    Goodwill and Other Intangibles

Goodwill and organization costs are amortized on a
straight-line basis over lives of fifteen and five years,
respectively.

    Federal Income Taxes

As a result of certain timing differences between financial
statement and federal income tax reporting, deferred
income taxes are provided in the financial statements.  See
Note 7 for further details.

    Advertising

    The corporation follows the policy of charging costs of
advertising to expense as incurred.    Advertising expense was $ 65,734,
$ 64,979, and $ 41,439 for 1997, 1996 and 1995,  respectively.

    Fair Values of Financial Instruments

Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance
sheet.  In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques.  Those techniques are
significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows.  In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement
of the instruments.  Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from
its disclosure requirements.  Accordingly, the aggregate
fair value amounts presented do not represent the
underlying value of the Corporation.

The following methods and assumptions were used by the
Corporation in estimating fair values of financial
instruments as disclosed herein:

    d    Cash and Short-Term Instruments.  The carrying
amounts of cash and short-term
         instruments approximate their fair value.

    d    Securities to be Held to Maturity and Securities
Available for Sale.  Fair values for
investment securities are based on quoted market
prices.

    d    Loans Receivable.  For variable-rate loans that reprice
frequently and have no significant
change in credit risk, fair values are based on carrying
values.  Fair values for fixed rate loans are estimated
using discounted cash flow analyses, using interest
rates currently being offered for loans with similar
terms to borrowers of similar credit quality.  Fair
values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral
values, where applicable.

    d    Deposit Liabilities.  The fair values disclosed for
demand deposits are, by definition, equal
to the amount payable on demand at the reporting date
(that is, their carrying amounts).  The carrying
amounts of variable-rate certificates of deposit, and
fixed-term money market accounts approximate their
fair values at the reporting date.  Fair values for fixed-
rate certificates of deposits and IRA's are estimated
using a discounted cash flow calculation that applies
interest rates currently being offered to a schedule of
aggregated expected monthly maturities on time
deposits.

- -10-


Note 1.  Significant Accounting Policies (Continued)

    d    Accrued Interest.  The carrying amounts of accrued
interest approximate their fair values.

    d    Off-Balance-Sheet Instruments.  The Bank generally
does not charge commitment fees.
Fees for standby letters of credit and other off-balance-
sheet instruments are not significant.

Note 2.  Investment Securities

The amortized cost and fair values of investment securities
available for sale at December 31 were:
                                                Gross
           Gross
                                                              Amortized       
Unrealized      Unrealized          Fair
                                                                   Cost
              
Gains            Losses             Value
                                                                
  1997
    U. S. Treasury securities     $     298,831  $     1,013    $          0   
$ 
   299,844
    Obligations of other U.S.
      Government agencies    13,292,047     63,736    (     19,993)  13,335,790
    Obligations of states and
      political subdivisions 8,642,382 126,381   (      2,979)  8,765,784
    Mortgage-backed securities    986,975   22,054    (         225) 1,008,804
    SBA Loan Pool certificates        2,748,982      46,370     (         745) 
2,794,607
    Equities in local bank stock          90,400     43,180                 0 
133,580
         Totals    $ 26,059,617   $ 302,734 ($   23,942)   $ 26,338,409

                                                                
  1996
    U. S. Treasury securities     $     750,075  $     2,741    ($       238)  
$
    752,578
    Obligations of other U.S.
      Government agencies    15,742,003     21,973    (   137,018)   15,626,958
    Obligations of states and
      political subdivisions 6,536,452 64,533    (    19,652)   6,581,333
    Mortgage-backed securities    1,780,747 25,699    (      3,712)  1,802,734
    SBA Loan Pool certificates        3,928,606      65,559     (      2,496)  
 
  3,991,669
    Equities in local bank stock          84,520     31,120            0      
115,640
         Totals    $ 28,822,403   $ 211,625 ($ 163,116)    $ 28,870,912

    The amortized cost and fair values of investment securities
held to maturity at December 31   were:
                                                         Gross
           Gross
                                                              Amortized       
Unrealized      Unrealized          Fair
                                                                   Cost
       
Gains            Losses             Value
                                                             
  1997
    SBA loan pool certificates    $ 1,510,702    $   3,532 ($   3,539)    $
1,510,695
    Obligations of states and
      political subdivisions   1,465,139      12,354            0      1,477,493
         Totals    $ 2,975,841    $ 15,886  ($   3,539)    $ 2,988,188

                                                                     
  1996
    SBA loan pool certificates    $ 1,629,107    $   2,049 ($  10,108)    $
1,621,048
    Obligations of states and
      political subdivisions   2,930,632      17,647  (      1,424)    2,946,855
         Totals    $ 4,559,739    $ 19,696  ($  11,532)    $ 4,567,903


- -11-


Note 2.  Marketable Debt Securities (Continued)

The amortized cost and fair values of investment securities
available for sale and held to maturity at December 31,
1997 by contractual maturity, are shown below.  Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations
with or without call or repayment penalties.

                                                   Securities Available       
                 Securities Held
                                          - - - - - - for Sale - - - - - -   
          - - - - - to Maturity - - - - -
                                              Amortized           Fair      
           Amortized          Fair
                                                   Cost              Value     
              Cost              Value

    Due in one year or less  $  1,983,551   $  1,982,333   $   455,000    $  
455,444
    Due after one year but
      less  than five years  6,788,830 6,818,350 1,010,139 1,022,049
    Due after five years but
      less than ten years    10,719,069     10,819,917     0    0
    Due after ten years     2,741,810      2,780,818                0          
        0
                   22,233,260     22,401,418     1,465,139 1,477,493
    Mortgage-backed securities    986,975   1,008,804 0    0
    SBA loan pool certificates        2,748,982      2,794,607    1,510,702    
1,51
0,695
    Equities in local bank stock          90,400        133,580        0       
   0
         Totals         $ 26,059,617   $ 26,338,409   $ 2,975,841    $ 2,988,188

Proceeds from sales of investment securities available for
sale during 1997 were $ 1,278,472. Gross losses on these
sales were $ 10,395 and gross gains were $ 13,728.

There were no sales of investment securities in 1996.

Proceeds from sales of investment securities available for
sale during 1995 were $ 196,469. Gross losses on these
sales were $ 3,364 and gross gains were $ 0.

There were no sales of investment securities held-to-
maturity in 1997, 1996 or 1995.

Investment securities carried at $ 7,200,891 and $
8,821,866 at December 31, 1997 and 1996, respectively,
were pledged to secure public funds and for other purposes
as required or permitted by law.

Note 3.  Loans

    Loans consist of the following at December 31:
                                                                      
                      1997         1996
                                                                             
                        (000 omitted)
    Real estate loans:
         Construction and land development  $     680 $     799 
         Secured by farmland 4,523     3,978     
         Secured by 1-4 family residential properties 32,045    30,885    
         Secured by multi-family residential properties    357  271  
         Secured by nonfarmland nonresidential properties  3,144     3,149      
         Loans to farmers (except loans secured
           primarily by real estate)   1,848     1,919     
    Commercial, industrial and state and political subdivision
loans    7,495     6,647     
    Loans to individuals for household, family, or other
personal expenditures   9,343     9,476     
    All other loans         1,623        923     
              Total loans    61,058    58,047    
    Less:  Unearned discount on loans  1,508     1,382     
         Allowance for loan losses            426            405     
              Net Loans $ 59,124  $ 56,260  
- -12-


Note 3.  Loans (Continued)

The following table shows maturities and sensitivities of
loans to changes in interest rates based upon contractual
maturities and terms as of December 31, 1997.

                                                                  Due Over 1
                                            Due Within     But Within    
Due Over   Nonaccruing
                      (000 omitted)                1 Year           5 Years   
  5 Years        Loans         Total

    Loans at pre-determined
      interest rates    $    758  $ 10,019  $ 17,197  $   76    $ 28,050
    Loans at floating or
      adjustable interest rates      6,251      2,650   23,769     338     
33,008
              Total (1) $ 7,009   $ 12,669  $ 40,966  $ 414     $ 61,058

    (1)  These amounts have not been reduced by the allowance
for possible loan losses or
         unearned discount.

The Bank has granted loans to the officers and directors of
the corporation and to their associates.  Related party loans
are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not
involve more than normal risk of collectibility.  The
aggregate dollar amount of these loans was $ 3,276,692
and $ 1,366,934 at December 31, 1997 and 1996,
respectively.  During 1997, $ 2,934,585 of new loans were
made and repayments totaled $ 1,024,827.  During 1996, $
1,174,938 of new loans were made and repayments totaled
$ 645,308.

Outstanding loans to Bank employees totaled $ 1,366,203
and $ 776,743 for years ended December 31, 1997 and
1996, respectively.

Note 4.  Allowance for Loan Losses

    Activity in the allowance for loan losses is summarized as
follows:
                                                                        
  1997            1996           1995
                                                                              
                   (000 omitted)

    Allowance for loan losses, beginning of the year  $ 405     $ 405     $ 405 

    Loans charged-off during the year:
         Real estate mortgages    23   51   33   
         Installment loans   70   49   64   
         Commercial and all other loans       134           8         9   
              Total charge-offs   227  108  106  

    Recoveries of loans previously charged-off:
         Real estate mortgages    4    0    1    
         Installment loans   8    12   25   
         Commercial and all other loans           3         1         5   
              Total recoveries    15   13   31   

         Net loans charged-off (recovered)  212  95   75   
         Provision for loan losses charged to  operations     233        95    
   
75  

         Allowance for loan losses, end of the year   $ 426     $ 405     $ 405 

- -13-


Note 4.  Allowance for Loan Losses (Continued)

    A breakdown of the allowance for loan losses as of
December 31 is as follows:

                                        - - - - - - - -1997- - - - - - - -
- -    - - - - - - - - -1996- - - - - - - - - 
                                                                 Percent of   
                              Percent of
                                               Allowance         Loans in   
     Allowance            Loans in
                     (000 omitted)                  Amount       Each
Category     Amount          Each Category

    Commercial, industrial
      and agriculture loans  $ 278     27.16%    $   53    27.24%
    1-4 family residential
      mortgages         69   44.25%    123  47.56%
    Consumer and
      installment loans 50   12.90%    179  14.59%
    Off balance sheet
      commitments  28   15.69%    40   10.61%
    Unsegregated         1      N/A        10      N/A
              Total     $ 426     100.0%    $ 405     100.0%

Impairment of loans having a recorded investment of
$ 112,000 at December 31, 1997 was recognized in
conformity with SFAS No. 114 as amended by SFAS No.
118.  The average recorded investment in impaired loans
during 1997 was $ 174,236.  The total allowance for loan
losses related to these loans was $ 100,000 at
December 31, 1997.  Interest income on impaired loans of
$ 3,318 was recognized for cash payments received in
1997.  There were no impaired loans in 1996.

Impairment of loans having a recorded investment of
$ 152,312 at December 31, 1995 was recognized in
conformity with SFAS No. 114 as amended by SFAS No.
118.  The average recorded investment in impaired loans
during 1995 was $ 161,000.  The total allowance for loan
losses related to this loan was less than $ 1,000 at
December 31, 1995 due to the fact that management felt
the loan is adequately collateralized.  Interest income on
impaired loans of $ 10,924 was recognized for cash
payments received in 1995.  The underlying collateral for
this loan was sold and the loan paid off in 1996.

Note 5.  Nonaccrual, Past Due and Restructured Loans

    The following table shows the principal balances of
nonaccrual loans as of December 31:

                                                                  1997      
          1996               1995

    Nonaccrual loans    $ 414,009 $ 974,480 $ 471,519
    Interest income that would have been
      accrued at original contract rates    $   37,490     $   88,928     $  
46,550
    Amount recognized as interest
      income           18,192         60,073         25,917
              Foregone revenue    $   19,298     $   28,855     $   20,633

    Loans 90 days or more past due (still accruing interest)
were as follows at December 31:

            (000 omitted)                                            1997    
          1996             1995

    Real estate mortgages    $   0     $   0     $   0
    Installment loans   24   32   23
    Demand and time loans        2         1         7
              Total     $ 26 $ 33 $ 30


- -14-


Note 5.  Nonaccrual, Past Due and Restructured Loans
(Continued)

The Bank had two loans classified as restructured troubled
loans.  These loans were restructured in accordance with
agreements with bankruptcy courts regarding the terms of
repayments and interest rates.  One loan was restructured
during the second quarter of 1991 and had a high balance
when restructured of approximately $ 225,000 and this
loan was paid off in 1996.  The other loan was restructured
in the second quarter of 1992.  This loan had a high
balance of approximately $ 41,000 when restructured and
had a balance of $ 5,382 at December 31, 1996.  This loan
was secured with a first mortgage position on real estate
and was paid off in 1997.

    The following table presents the principal balances of
restructured loans as of December 31:

                                                        1997
             1996               1995

    Restructured loans  $ 0  $ 5,382   $ 168,840

    Interest income that would have been
      accrued at original contract rates    $ 0  $ 1,189   $   18,320
    Amount recognized as interest income      0    1,132       13,139
              Foregone revenue    $ 0  $     57  $    5,181

Note 6.  Bank Building, Equipment, Furniture and Fixtures

    Bank building, equipment, furniture and fixtures consisted
of the following at December 31:

                                                                      
  Accumulated        Depreciated
         Description                                            Cost       
   Depreciation             Cost

                                                                     
          1997

    Bank building (including land $ 211,635)     $ 3,110,146    $    731,017   
$
2,379,129
    Equipment, furniture and fixtures  1,916,091 1,169,959 746,132
    Land improvements   237,753   113,172   124,581
    Leasehold improvements          48,819           3,187        45,632
                   $ 5,312,809    $ 2,017,335    $ 3,295,474

                                                                      
          1996

    Bank building (including land $ 211,635)     $ 2,841,202    $    653,298   
$
2,187,904
    Equipment, furniture and fixtures  1,777,010 1,031,716 745,294
    Land improvements   229,947   100,909   129,038
    Leasehold improvements          46,132             408        45,724
                   $ 4,894,291    $ 1,786,331    $ 3,107,960


Depreciation and amortization expense amounted to $
234,643 in 1997, $ 150,294 in 1996, and $ 126,258 in
1995.






- -15-


Note 7.  Income Taxes

    The components of federal income tax expense are
summarized as follows:

                                                                   1997 
             1996               1995

    Current year provision   $ 196,991 $ 205,104 $ 273,237
    Deferred income taxes resulting from:
         Differences between financial
           statement and tax depreciation charges     3,000     13,123    76
         Differences between financial
           statement and tax loan loss
           provision    (      6,869)  (         208) (    19,532)
              Applicable income tax    $ 193,122 $ 218,019 $ 253,781

Federal income taxes were computed after adjusting pretax
accounting income for nontaxable income in the amount of
$ 522,040, $ 633,813, and $ 590,029 for 1997, 1996 and
1995, respectively.

    A reconciliation of the effective applicable income tax rate
to the federal statutory rate is as    follows:
                                                                       
1997         1996          1995

    Federal income tax rate  34.0%     34.0%     34.0%
    Reduction resulting from:
         Nontaxable interest income and other timing
           differences       15.6 15.5 13.8
              Effective income tax rate     18.4%     18.5%     20.2%


    Deferred income taxes at December 31 are as follows:

                                                                       
  1997               1996

         Deferred tax assets $ 26,909  $ 76,398
         Deferred tax liabilities (   94,789)    (  69,850)
                   ($ 67,880)     $  6,548

    The tax effects of each type of significant item that gives
rise to deferred taxes are:

                                                                       
  1997               1996
         Net unrealized (gains) losses on
           securities available for sale    ($ 94,789)     ($ 16,493)
         Depreciation expense     (   56,357)    (   53,357)
         Allowance for loan losses        83,266    76,398
                   ($ 67,880)     $   6,548

The corporation has not recorded a valuation allowance for
the deferred tax assets as they feel that it is more likely
than not that they will be ultimately realized.





- -16-


Note 8.  Employee Benefit Plan

The Bank has a 401-K plan which covers all employees
who have attained the age of 20 and who have completed
six months of full-time service.  The plan provides for the
Bank to match employee contributions to a maximum of
5% of annual compensation.  The Bank also has the option
to make additional discretionary contributions to the plan
based upon the Bank's performance and subject to approval
by the Board of Directors.  The Bank's total expense for
this plan was $ 76,754, $ 65,644, and $ 49,800 for the
years ended December 31, 1997, 1996 and 1995,
respectively.

Note 9.  Deposits

Included in savings deposits are NOW and Super NOW
account balances totaling $ 5,780,398 and $ 5,206,615 at
December 31, 1997 and 1996, respectively.  Also included
in savings deposits at December 31, 1997 and 1996 are
Money Market account balances totaling
$ 7,523,777 and $ 7,479,502, respectively.

Time certificates of $ 100,000 and over as of December 31
were as follows:

                                                                              
1997                  1996
                                                                              
    (000 omitted)

    Three months or less     $   1,374 $   691
    Three months to six months    1,354     214
    Six months to twelve months   1,713     313
    Over twelve months      5,892   7,363
              Total     $ 10,333  $ 8,581


Interest expense on time deposits of $ 100,000 and over
aggregated $ 551,875, $ 601,843 and $ 518,586 for 1997,
1996 and 1995, respectively.

At December 31, 1997 the scheduled maturities of
certificates of deposit are as follows:

         1998 $ 25,074,382
              1999 11,182,335
              2000 8,657,619
              2001 5,643,619
              2002 5,714,746
              Thereafter             21,000
                   $ 56,293,701

The Bank accepts deposits of the officers, directors and
employees of the        corporation and its subsidiary on the
same terms, including interest rates, as those prevailing at
the time for comparable transactions with unrelated
persons.  The aggregate dollar amount of deposits of
officers, directors and employees totaled $ 3,593,950 and $
4,284,064 at December 31, 1997 and 1996, respectively.







- -17-


Note 10. Financial Instruments With Off-Balance-Sheet Risk

The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet
the financial needs of its customers and to reduce its own
exposure to fluctuations in interest rates.  These financial
instruments include commitments to extend credit and
standby letters of credit.  Those instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the balance sheets.  The
contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial
instruments.

The Bank's 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
those instruments.  The Bank uses the same credit policies
in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
                                                                             
  Contract or
                                                                           
Notional Amount
                                                                              
 (000 omitted)
                                                                               
1997               1996
    Financial instruments whose contract amounts
      represent credit risk at December 31:
         Commitments to extend credit  $   9,948 $ 5,368
         Commercial and standby letters of credit         1,411   1,521
                   $ 11,359  $ 6,889

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 Bank evaluates each customer's
creditworthiness on a case-by-case basis.  The amount of
collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit
evaluation of the customer.  Collateral held varies but may
include accounts receivable, inventory, real estate,
equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a
customer to a third party.  Those guarantees are primarily
issued to support public and private borrowing
arrangements.  The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending
loans to customers.  The Bank holds collateral supporting
those commitments when deemed necessary by
management.

Note 11. Concentration of Credit Risk

The Board grants agribusiness, commercial and residential
loans to customers located in South Central Pennsylvania
and Northwestern Maryland.  Although the Bank has a
diversified loan portfolio, a portion of its customers' ability
to honor their contracts is dependent upon the construction
and land development and agribusiness economic sectors.

The Bank evaluates each customer's creditworthiness on a
case-by-case basis.  The amount of collateral obtained if
deemed necessary by the Bank upon the extension of credit
is based on management's credit evaluation of the
customer.  Collateral held varies but generally includes
equipment and real estate.


- -18-


Note 12. FNB Financial Corporation (Parent Company Only)
Financial Information

The following are the condensed balance sheets, income
statements and statements of cash flows for the parent
company.
Balance Sheets
December 31

                                               Assets                  
     1997                     1996

    Cash                $       49,159 $     138,380  
    Marketable equity securities
      available for sale     133,580   115,640
    Investment in the First National Bank
      of McConnellsburg 11,322,894     10,556,551     
    Other assets                            3,180               3,114     
              Total assets   $ 11,508,813   $ 10,813,685   



Liabilities and Stockholders' Equity

    Dividends payable   $     104,000  $     100,000  
    Other liabilities                15,064         11,653 
                             119,064   111,653
    Common stock, par value $ .63; 6,000,000
      shares authorized; 400,000 shares issued
      and outstanding        252,000   252,000
    Additional paid-in capital    1,789,833 1,789,833 
    Retained earnings        9,163,913 8,628,183 
    Unrealized gain on securities available
      for sale, net of tax effects            184,003          32,016     
              Total liabilities and stockholders' equity   $ 11,508,813   $
10,813,685    



Statements of Income
Years Ended December 31

                                                             1997    
              1996                1995

    Cash dividends from wholly-owned
      subsidiary                  $ 240,000 $          0   $             0
    Dividend income - Marketable
      equity securities      3,153     2,868     2,508
    Equity in undistributed income of
      subsidiary                    621,935    976,934        1,014,118
                             865,088   979,802   1,016,626
    Less:  holding company expenses          9,358        22,617           
14,862
              Net income     $ 855,730 $ 957,185 $ 1,001,764





- -19-


Note 12. FNB Financial Corporation (Parent Company Only)
Financial Information (Continued)

Statements of Cash Flows
Years Ended December 31

                                                                    1997  
               1996              1995
    Cash flows from operating activities:
         Net income               $ 855,730 $ 957,185 $ 1,001,764    
         Adjustments to reconcile net
           income to cash provided by
           operating activities:
              Equity in undistributed income
                of subsidiary     (   621,935)   (   976,934)   (   1,014,117)
              (Increase) decrease in other assets     (           66)     (    
    614) 519
              Increase (decrease) in:
                   Other liabilities   (      1,070)       1,070     (        
5,470)
    Net cash provided (used) by operating activities    232,659 (    19,293)
    (       17,304)

    Cash flows from investing activities:
         Purchase of marketable equity securities
           available for sale     (      5,880)             0   (       25,000)

    Cash flows from financing activities:
         Cash dividends paid (   316,000)   (  300,000)    (      304,000)

    Net increase (decrease) in cash    (    89,221)   (  319,293)    (     
346,304)
    Cash, beginning balance    138,380   457,673      803,977
    Cash, ending balance     $  49,159 $ 138,380 $    457,673


Note 13. Regulatory Matters

Dividends paid by FNB Financial Corporation are
generally provided from the dividends it receives from the
Bank.  The Bank, as a National Bank, is subject to the
dividend restrictions set forth by the Comptroller of the
Currency.  Under such restrictions, the Bank may not,
without prior approval of the Comptroller of the Currency,
declare dividends in excess of the sum of the current year's
earnings (as defined) plus the retained earnings (as defined)
from the prior two years.  The dividends that the Bank
could declare without the approval of the Comptroller of
the Currency amounted to approximately $ 2,530,775 and
$ 2,904,720 at December 31, 1997 and 1996, respectively.

    FNB Financial Corporation's balance of retained earnings
at December 31, 1997 is
    $ 9,163,913 and would be available for cash dividends,
although payment of dividends to such
    extent would not be prudent or likely.  The Federal
Reserve Board, which regulates bank
    holding companies, establishes guidelines which indicate
that cash dividends should be covered
    by current period earnings.








- -20-


Note 13. Regulatory Matters (Continued)

In addition, regulatory authorities have established capital
guidelines in the form of the "leverage ratio" and "risk-based
capital ratios." The leverage ratio of the Corporation, defined
as total stockholders' equity less intangible assets to total
assets.  The risk-based ratios compare capital to risk-weighted
assets and off-balance-sheet activity in order to make capital
levels more sensitive to risk profiles of individual banks.  A
comparison of the Corporation's capital ratios to regulatory
minimums at December 31 is as follows:

                                                               FNB Financial
Corporation          Regulatory Minimum
                                                 1997                 
1996                    Requirements

    Leverage ratio      10.41%    10.60%    3%

    Risk-based capital ratios/
      Tier I (core capital)  18.09%    19.30%    4%

      Combined Tier I and
       Tier II (core capital
       plus allowance for loan
       losses)                    18.79%    20.05%    8%

Note 14. Compensating Balance Arrangements

Required deposit balances at the Federal Reserve were $
125,000 and $ 80,000 for 1997 and 1996, respectively. 
Required deposit balances at Atlantic Central Banker's
Bank were
$ 365,000 and $ 282,000 at December 31, 1997 and 1996,
respectively.  These balances are maintained to cover
processing costs and service charges.

Note 15. Fair Value of Financial Instruments

The estimated fair values of the Corporation's financial
instruments were as follows at December 31:
                                        - - - - - - - - 1997 - - -
- - - - -    - - - - - - - 1996 - - - - - - -
                                                     Carrying           
Fair            Carrying           Fair
                                                       Amount           
Value           Amount           Value
    FINANCIAL ASSETS
         Cash and due from banks  $  3,491,312   $  3,491,312   $  2,473,315   
$ 
2,473,315
         Interest-bearing deposits in banks 6,050,546 6,050,546 327,276   327,27
6
         Federal funds sold  2,931,000 2,931,000 1,239,000 1,239,000
         Securities available for sale 26,338,409     26,338,409     28,870,912 
28,870,912
         Securities to be held to maturity  2,975,841 2,988,188 4,559,739 4,567,
903
         Other bank stock    389,600   389,600   383,700   383,700
         Loans receivable    59,549,825     58,029,013     56,665,541     55,484
,110
         Accrued interest receivable   610,240   610,240   675,180   675,180

    FINANCIAL LIABILITIES
         Time certificates   56,293,701     56,762,321     50,957,962     51,580
,258
         Other deposits      36,965,989     36,965,989     36,176,006     36,176
,006
         Accrued interest payable 594,129   594,129   565,751   565,751
         Liability for borrowed funds  460,719   460,719   0    0





- -21-


Note 16. Liability for Borrowed Funds

At December 31, 1997, the Corporation was
carrying a deficit balance of $ 287,493 at one of its
correspondent banks due to a cash letter error by the
Federal Reserve Bank.  The deficit balance cleared
the next business day.

    The Bank received Community Investment Program
funding from the Federal Home Loan
Bank of Pittsburgh for $ 175,000 at a fixed rate of 6.64%
and an amortization term of 20 years.  Required payments
on this loan are as follows:

              1998 $    4,462
              1999 4,768
              2000 5,094
              2001 5,443
              2002 5,816
              Thereafter       147,643
                   $ 173,226

The Bank had available a line of credit totaling $
3,115,000 and $ 3,022,400 at December 31, 1997 and
1996, respectively, with the Federal Home Loan Bank of
Pittsburgh.  There were no outstanding balances against
this line at December 31, 1997 or 1996.  Collateral for
borrowings and the line consists of various securities and
the Corporation's 1-4 family mortgages with a book value
of approximately $ 36,374,000.

Note 17. Operating Lease

    During 1996 the Corporation entered into a lease
agreement for its Hancock, Maryland    office.   The original lease term is
ten years with three separate successive options to extend      the  lease     
for
a term of five years each.  Monthly rent is $ 1,800 and the lessee pays
a   proportionate  share of other operating expenses.  For the
year ended December 31, 1997, rent     expense under  this operating lease
was $ 21,600.  Required lease payments for the next five   years are as
    follows:

              1998 $   21,600
              1999 21,600
              2000 21,600
              2001 21,600
              2002     21,600
              Thereafter         81,000
                   $ 189,000














- -22-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-
OWNED SUBSIDIARY

SELECTED FIVE YEAR FINANCIAL DATA


                                         1997           1996           
1995             1994           1993
Results of Operations (000 omitted)

    Interest income     $ 7,388   $ 6,965   $  6,262  $  5,530  $ 5,510   
    Interest expense    3,847     3,694     3,247     2,784     2,884     
    Provision for loan losses          233          96             75          
   2           62  
    Net interest income after
      provision for loan losses   3,308     3,175     2,940     2,744     2,564 
    Other operating income   349  270  270  177  213
    Other operating expenses   2,608      2,270      1,954    1,903    1,720    
    Income before income taxes    1,049     1,175     1,256     1,018     1,057
    Applicable income tax         193        218       254       166      252   
         Net income     $   856   $    957  $  1,002  $     852 $    805  

Common Share Data

Per share amounts are based on weighted average shares of common
stock outstanding of 400,000 for 1997, 1996, 1995 and 1994; and
359,410 for 1993 after giving retroactive recognition to a 2 for 1 stock
split effective April 23, 1993.

    Income before income taxes    $   2.62  $   2.94  $   3.14  $   2.55  $   
2.94     
    Applicable income taxes  .48  .55  .64  .42  .70  
         Net income     2.14 2.39 2.51 2.13 2.24 
    Cash dividend declared   .80  .77  .77  .64  .55  
    Book value (actual number
      of shares outstanding
      before FAS 115 adjustments) 28.01     26.68     25.05     23.33     21.83 
    Dividend payout ratio    37.39%    32.18%    30.75%    30.04%    24.62%     

Year-End Balance Sheet Figures
  (000 omitted)

    Total assets        $ 106,020 $ 98,644  $ 91,921  $ 80,715  $ 82,458  
    Net loans      59,124    56,260    52,794    49,100    45,011    
    Total investment securities -
      Book value   29,425    33,767    31,944    24,475    27,505    
    Deposits-noninterest bearing  9,988     9,250     7,778     6,781     7,562 
    Deposits-interest bearing     83,272    77,884    73,138    64,318    65,533
    
    Total deposits 93,260    87,134    80,916    71,099    73,095    
    Total stockholders' equity (before
      FAS 115 adjustments)   11,206    10,670    10,021    9,327     8,731      

Ratios (calculated before FAS 115
  adjustments)

    Average equity/average assets 10.74%    10.87%    11.58%    11.21%    9.75% 
    Return on average equity 7.98%     9.18%     10.26%    9.37%     10.40%     
    Return on average assets .86% 1.00%     1.19%     1.05%     1.01%     

- -23-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

SUMMARY OF QUARTERLY FINANCIAL DATA




    The unaudited quarterly results of operations for the years ended
 December 31, 1997 and 1996 are as
follows:
                                                       
       

                          1997                                        1996
($ 000 omitted                               Quarter Ended     Quarter Ended
 except per share)  Mar. 31  June 30   Sept. 30  Dec. 31  Mar. 31  June 30 
Sept. 30   Dec. 31

Interest income    $ 1,789   $ 1,849   $ 1,857   $ 1,893   $ 1,684   $ 1,696   
$
1,778    $ 1,807        
Interest expense        928       952       968       999        936      921  
 
   926        911       
    Net interest income 861  897  889  894  748  775  852  896       

Provision for loan losses            9       44        50       130          7  
     38        18         33      
    Net interest income
      after provision for
      loan losses  852  853  839  764  741  737  834  863       
Other income  71   111  86   81   59   72   65   74        
Other expenses          656       650       634       668       519      541   
  
  570         640       
    Operating income
      before
      income taxes 267  314  291  177  281  268  329  297       
Applicable income taxes       49        69        62        13        52       
56        67        43       
    Net income     $   218   $   245   $   229   $   164   $   229   $   212   
$ 
 262     $   254        



Net income applicable
  to common stock
Per share data:
    Net income     $   .55   $   .62   $   .57   $    .40  $   .57   $   .53   
$ 
 .65     $   .64        


















- -24-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL
Years Ended December 31

                                                             
          

                                     - - - - - - - -1997- - - - - - - -       -
- - - - - - - -1996- - - - - - - -
     - - - - - - - -1995- - - - - - - -
                                     Average           Average      Average
   (000 omitted)               Balance    Interest    Rate         Balance
    Interest    Rate       Balance   Interest   Rate

     ASSETS

Interest bearing
  deposits with banks
  and federal funds sold     $  3,708  $   202   5.45%     $   3,440 $   184   
5.3
5%
    $   2,943 $    172  5.84%          
Investment securities   31,524    1,915     6.07%     33,129    1,931     5.82% 
25,837   1,458     5.64%          
Loans                 57,794   5,271   9.12%        53,046   4,850   9.14%     
 
51,492     4,632   9.00%          
    Total interest
      earning assets    93,026    $ 7,388   7.94%     89,615    $ 6,965   7.77% 
80,272   $ 6,262
    7.80%          
Cash and due from
  banks            2,770               2,498               1,975                
Bank premises and
  equipment        3,196               2,714               1,397          
Other assets              923                   1,035                  759     
              
    Total assets   $ 99,915            $ 95,862            $ 84,403            
    


LIABILITIES AND STOCKHOLDERS' EQUITY

Interest bearing
  transaction accounts  $  6,965  $    146  2.10%     $  7,228  $   155   2.14%
    $  6,402  $    146  2.28%          
Money market deposit
  accounts         7,123     252  3.54%     6,690     239  3.57%     4,904     
192 3
 .92%     
Other savings deposits  12,229    334  2.73%     12,369    344  2.78%     12,582
    372  2.96%          
All time deposits     53,016   3,109   5.86%        50,192   2,956   5.89%     
 
43,099
      2,537   5.89%          
Liability for borrowed
  funds                    90              6     6.67%               0         
   0      .00%               0
            0   .00%
    Total interest
      bearing
      liabilities  79,423    $ 3,847   4.84%     76,479    $ 3,694   4.83%     
66,98
7   $ 3,247   4.85%          
Demand deposits    8,884               8,153               6,924                
Other liabilities         875                     806                  722     
              
    Total liabilities   89,182              85,438              74,633         
         
Stockholders' equity      10,733               10,424               9,770      
         
    Total liabilities
      and stockholders'
      equity  $ 99,915            $ 95,862            $ 84,403                  

Net interest income/net
  interest margin/margin
  average earning assets          $ 3,541   3.80%          $ 3,271   3.65%     
    $
3,015    3.76%     



- -25-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

CHANGES IN NET INTEREST INCOME
                                                                   
                   



                                           - - -1997 Compared to 1996- - -     
     - - -1996 Compared to 1995 - - -
                                                                           
 Total                                                  Total
                                           Average    Average     Increase     
     Average     Average      Increase
    (000 omitted)                    Volume       Rate       (Decrease)        
Volume        Rate       (Decrease)

Interest Income
    Interest bearing deposits
      with banks and
      federal funds sold     $  14     $  4 $  18     $  29     ($   17)  $  
12  
    Investment securities    (    93)  77   (    16)  411  62   473  
    Loans            434     (  13)      421        140        78       218     

         Total interest income    $ 355     $ 68 $ 423     $ 580     $ 123     
$
703 


Interest Expense
    Interest bearing
      transaction accounts   ($    6)  ($  3)    ($    9)  $  19     ($  10)   
$ 
  9 
    Money market
      deposit accounts  15   (    2)   13   70   (    23)  47        
    Other savings       (     4)  (    6)   (    10)  (      6) (    22)  (    
28)      
    All time deposits     166     (  13)      153        418         1      419 
    Liability for borrowed funds        0       6           6         0       
0         0

         Total interest expense   $ 171     ($ 18)    $ 153     $ 501     ($ 
54) $ 447     
    
         Net interest income           $ 270               $ 256     





















- -26-


FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY

MATURITIES OF INVESTMENT SECURITIES
December 31, 1997


    The following table shows the maturities of investment securities at
 amortized cost
as of December 31, 1997, and weighted average yields of such securities.
  Yields are shown on a
taxable equivalent basis, assuming a 34% federal income tax rate.
                                                            
            

                                                Within              1-5        
      5-10                 Over
      (000 omitted)                        1 Year            Years            
Years              10 Years          Total

U.S. Treasury Securities
    Amortized cost $   199   $    100  $        0     $      0  $     299
    Yield          5.77%     6.27%     0%   0%   5.93%

Obligations of other U.S.
  Government agencies:
    Amortized cost 1,049     3,551     8,192     500  13,292
    Yield          5.45%     6.29%     7.13%     7.43%     6.79%

Obligations of state and
  political subdivisions:
    Amortized cost 1,190     4,148     2,527     2,242     10,107
    Yield          5.96%     6.89%     7.91%     7.70%     7.22%

Mortgage-Backed securities
  and SBA Guaranteed Loan
  Pool Certificates (1):
    Amortized cost 23   273  477  4,474     5,247
    Yield              8.82%     7.78%       8.43%        6.73%      6.95%

         Subtotal amortized cost  $ 2,461   $ 8,072   $ 11,196  $ 7,216   $
28,945
         Subtotal yield 5.76%     6.65%     7.36%     7.08%     6.96%

Equity Securities                           $     480
Yield                                  5.64%

         Total investment
           securities                       $ 29,425
         Yield                               6.94%



(1) It is anticipated that these mortgage-backed securities and SBA Guaranteed
 Loan Pool Certificates will
    be repaid prior to their contractual maturity dates.







- -27-


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

    The following section presents a discussion and analysis of the
financial condition and results of operations of FNB Financial
Corporation (the Corporation) and its wholly-owned subsidiary, The
First National Bank of McConnellsburg (the Bank).  This discussion
should be read in conjunction with the financial tables/statistics,
financial statements and notes to financial statements appearing
elsewhere in this annual report.
    
RESULTS OF OPERATIONS
    
Overview
    Consolidated net income for 1997 was $855,730, a decrease of
$101,455 or 10.60% from the net income of $957,185 for 1996 and a
decrease of $146,034 or 14.58% from 1995.  On a per share basis,
net income for 1997 was $2.14, based upon average shares
outstanding of 400,000, compared to $2.39 for 1996 and $2.51 for
1995..
    Results of operations for 1997 as compared to 1996 were impacted by
the following items: (1) net income was positively impacted by a
3.81% increase in average earning assets which was driven by a
4.34% increase in average deposits, the result of the new deposits
generated at our Hancock Office, Hancock Community Bank, which
opened on November 25, 1996 and increased deposits of our Fort
Loudon Office which opened on November 13, 1995; (2) net income was
positively impacted by an increasing net interest margin which
occurred due to an increase in the yield on earning assets from
7.77% in 1996 to 7.94% in 1997 a direct result of an increase in
the yield on investment securities which increased from 5.82% in
1996 to 6.07% in 1997 while costs of interest bearing liabilities
increased only .01% in 1997 from 4.83% in 1996 to 4.84% in 1997;
(3) net income was negatively impacted by a $137,000 increase in
the provision for loan losses, from $95,500 in 1996 to $232,500 in
1997, an increase which was necessary due primarily to the
unforeseen bankruptcy of a commercial loan; (4) net income was
positively impacted by a $31,211 gain on the sale of PHEAA loans
which were sold due to increasing federal regulations and
bureaucracy diminishing the Bank's ability to profitability
originate these loans; (5) net income was negatively impacted by an
increase in wage and salary expenses of $126,931 and employee
benefits of $42,458 due a) to a full year of expenses for two full
time and four part time employees hired for the operation of the
Bank's first interstate office, Hancock Community Bank, opened on
November 25, 1996 in Hancock, Maryland; b) wage and salary
increases during 1997; and c) increased participation in the Bank's
health care and retirement plans; (6) net income was negatively
impacted by a $43,406 increase in net occupancy expenses and a
$61,615 increase in furniture and equipment expenses as a result of
a full year depreciation on buildings, furniture, equipment and `

28


overhead associated with the Hancock Community Bank office and the
renovation/expansion of the main office completed on September 1,
1996; (8) net income was positively impacted by an accounting
estimate change which decreased the amortization of the cost of the
Fort Loudon deposit acquisition in the amount of $37,356; a $16,241
increase in the cost of data, voice and Automated Teller machine
communication expenses as a main result of the Fort Loudon and
Hancock Community Bank offices; a $5,969 decrease in professional
development expenses due to a decrease in the training costs of new
employees and attendance of banking association conventions; an
$11,544 increase in supplies expenses due to the additional new
accounts acquired at the Fort Loudon Office and start-up supplies
for the Hancock Office; a $15,278 increase in professional fees due
to a $6,500 cost for the professional appraisal of all the
corporation's properties and VISA debit card start up costs of over
$4,000; and a $9,640 increase in costs associated with the
collection and recovery of past due, delinquent and charged off
loans; and (9) net income was positively impacted by a $24,897
decrease in the current year income tax provision resulting from a
general decrease in taxable income in relation to tax-free income.
    Net income as a percent of total average assets for 1997, also
known as return on assets (ROA), was .86% compared to 1.00% for
1996 and 1.19% for 1995.  Net income as a percent of average
stockholders' equity for 1997, also known as return on equity
(ROE), was 7.98% compared to 9.18% for 1996 and 10.26% for 1995.
The ROA and ROE for these periods were impacted by the factors
discussed in the preceding paragraphs.
    During 1996 management became aware of the closing of a branch
office of First Federal Savings Bank of Western Maryland, in
Hancock, Maryland.  As the Board of Directors had targeted for
several years the Hancock market as a future site for expansion
purposes, management felt it prudent to pursue this opportunity. 
Although there are other branch offices of banks and savings and
loans in Hancock, Maryland, there were no locally-owned community
bank offices, and had not been since the late 1970s and early 1980s
when both local banks were taken over by large out-of-the-area,
removed-from-the-community bank holding companies.  Management felt
it wise to pursue the "nitch" of providing community banking to the
Hancock community and supporting the needs of the community while
reenforcing the Banks' ability to maintain and service its current
accounts in the southern part of Fulton County, Pennsylvania.
    The location of this branch office known as, Hancock Community
Bank, A Division of The First National Bank of McConnellsburg, in
the Hancock Shopping Center became reality when The Office of the
Comptroller of the Currency, the Bank's primary regulator, gave
permission for the Bank to open this office on November 25, 1996. 
This office, the Bank's first interstate branch office, is also
unique in that it will also be the Bank's first supermarket branch
office.  As soon as the owner of the adjacent supermarket completes
extension renovations, the wall between the branch office and the
supermarket will be removed, allowing customers to enter the branch 

29


directly from the supermarket.  The operation of this office has
increased operational overhead due to the costs of personnel,
equipment and furniture expenses, utilities and rent expense;
however, the long term benefits from this office through the
generation of new deposits and loans are anticipated to increase
income to the Corporation over the next several years.  The deposit
and loan growth of the Hancock office has exceeded management's
expectations.  At December 31, 1997 balances of new deposits and
loans generated as a direct result of the opening of the Hancock
office were $2,833,403 and $2,393,878 respectively.

Net Interest Income
    Net interest income is the amount by which interest income on loans
and investments exceeds interest incurred on deposits and other
interest-bearing liabilities.  Net interest income is the
Corporation's primary source of revenue.  The amount of net
interest income is affected by changes in interest rates and by
changes in the volume and mix of interest-sensitive assets and
liabilities.
    Net interest income for 1997 increased $270,981 or 8.29% over
1996 and $525,989 or 17.45% over 1995.  Average earning assets for
1997 increased $3,411,000 over 1996 and $12,754,000 over 1995.  The
most significant contribution to this increase in average earning
assets from 1996 to 1997 was the increase in loans in the amount of
$4,748,000 or 8.95% and a decrease in investment securities of
$1,605,000 or 4.84%.  The decrease in the lower yielding investment
securities of 6.07% to the higher yielding loans of 9.12%
contributed to the increase in net interest income.  The earning
asset increase was also funded by an increase in average deposits
of $3,585,000 or 4.23%.  This volume increase is the result of
deposits generated at the Fort Loudon office and new deposits at
the Hancock office of $2,833,403.  The volume growth in earning
assets and interest-bearing liabilities contributed to the increase
in net interest income by the amount of $184,000 in 1997 over 1996.
    The decline in market interest rates which had began in the third
and fourth quarters of 1995, continued into the first quarter of
1996 when the Federal Reserve Board decreased short term interest
rates.  Throughout 1996, interest rates remained relatively the
same with no major changes in Federal Reserve interest rate policy.
 During 1997 the Federal Reserve's interest rate policy remained
the same as that of 1996 with the only change occurring at the end
of the first quarter when the Federal Reserve decreased short term
interest rate by 25 basis points.  Average yields on loans
decreased 2 basis points from those of 1996; however, the average
yield on investment securities increased 25 basis points and the
average yield on federal funds sold increased 10 basis points.  As
a result of the aforementioned increase in the average balance of
higher yielding loans while the average balance of lower yielding
investment securities decreased, the average yield on earning
assets increased in 1997 to 7.94%, a .17% increase from 1996 and
 .14% increase from 1995.  The average cost of 

30


interest-bearing liabilities during 1997 was 4.84%, a .01% increase
from 1996 and .01% decrease from 1995.  This very minimal increase
from 1996 was attributable to management's retention of rates and
decrease in the cost of interest-bearing liabilities from 1996 and
the $2,824,000 increase in the balance of higher yielding
certificates of deposit.  The result of these decreases were a 4
basis point decrease in the cost of interest-bearing transaction
accounts; a 3 basis point reduction in the cost of Money Market
Deposit accounts; a 5 basis point reduction in the cost of Saving
accounts; and a 3 basis point reduction in the cost of time
deposits.  The net effect of all interest rate fluctuations was to
increase net interest income in the amount of $86,000 in 1997 over
1996.  Due to the increase in the yield on earning assets by 17
basis points, which was significantly more than the 1 basis point
increase in the cost of interest-bearing liabilities, and to an
increase of $4,748,000 into higher yielding loans, the Bank has
experienced an increase in its net interest margin during 1997
compared to 1996.  The average net interest margin for 1997 was
3.80% compared to 3.65% for 1996.
    Management anticipates the yield on earning assets to decrease
during the next few quarters as indexes on adjustable rate
securities and loans have decreased and loan competition in the
residential lending environment has forced management to reduce
interest rates on all residential mortgage products.  At the same
time interest rates on investment securities at their current low
interest rate level has resulted in calls of higher yielding
investment securities being invested in lower yielding securities.
 These decreases in yield in both the loan portfolio and the
investment portfolio will result in lower yields on the Bank's
earning assets while the cost of interest-bearing liabilities is
projected to increase slightly during the next few quarters as
lower yielding maturing time deposits are repriced to higher
yielding rates.   As a result, the net interest spread and net
interest margin are projected to decrease during this period.  Bank
management continually monitors the Bank's rate sensitive position
within the next year.  To protect and improve rate sensitive
positions, the strategies available to the Bank are purchasing
short to medium term, fixed rate securities, promoting long-term
lower yielding certificates of deposits, decreasing the yield on
all deposit-bearing liabilities, and promoting all loan products.

Provision for Loan Losses
    The loan loss provision is an estimated expense charged to earnings
in anticipation of losses attributable to uncollectible loans.  The
provision is based on Management's analysis of the adequacy of the
allowance for loan losses.  The provision for 1997 was $232,500
compared to $95,500 for 1996, and $74,704 for 1995.  This increase
of $137,000 from 1996 to 1997 was the result of an increase in
charged-off loans classified as commercial loans.  Due to a
bankruptcy filing by a loan customer over $100,000 was charged-off
for this customer.  As a result of this charge-off, the 

31


loan loss provision for 1997 was increased accordingly. Total
charged-off loans in 1997 were $227,000 compared to $108,000 in
1996 and $106,000 in 1995.  Total recoveries in 1997 were $15,000
compared to $13,000 in 1996 and $31,000 in 1995.  The increase in
the allowance balance by $20,000 was also based on management's
assessment of the Bank's loan volumes, past historical performance,
and analysis of non-performing and delinquent loans which indicated
the present balance of the allowance was sufficient for anticipated
future charge-offs. See discussion on Allowance for Loan Losses.

Other Operating Income and Other Operating Expenses
    Other operating income for 1997 was $348,670, a $77,917 increase
over the same period in 1996 and a $79,146 increase over the same
period in 1995.  This increase is mainly attributable to the gain
on the sale of PHEAA loans on June 19, 1997 which resulted in a
gain of $31,211.  Service charges on deposit account increased
$10,600 due to increased deposit accounts and managements stricter
enforcement of overdraft fees.  Other service charges increased
$17,319 due to an $18,845 increase in commissions received on the
writing of consumer and residential home life and
accident/disability insurance as a direct result of increased
consumer lending and loans closed which purchased this insurance. 
Other income increased $9,202 due mainly to a $4,400 increase in
rental income.
    Total other operating expenses for 1997 increased by $338,250 or
14.90% over 1996 and $654,032 or 33.47%, over 1995.  As 1997 was
the first full year of operational expenses associated with the
Hancock office, operating expenses increased due to this operation
and are outlined in the following discussion.  Employee wages and
benefits increased $169,389 due to increased employment as a result
of the Fort Loudon and Hancock Community Bank offices, increased
participation in health benefit and pension costs and wage and
salary increases which became effective in 1997.  Net occupancy
expenses of bank premises increased $43,406 and furniture and
equipment expenses increased $61,615 due to increased depreciation
on real estate, furniture and equipment as a result of a full
year's depreciation on the main office renovation and construction
completed on September 1, 1996 and on the Hancock Community Bank
office which opened on November 25, 1996.  Other operating expenses
increased $54,793 due to a $16,241 increase in the cost of data,
voice and Automated Teller machine communication expenses as a main
result of the Fort Loudon and Hancock Community Bank offices; a
$5,969 decrease in professional development expenses due to a
decrease in the training costs of new employees and attendance of
banking association conventions; an $11,544 increase in supplies
expenses due to the additional new accounts acquired at the Fort
Loudon Office and start-up supplies for the Hancock Office; a
$15,278 increase in professional fees due to a $6,500 cost for the
professional appraisal of all the corporation's properties and VISA
debit card start up costs of over $4,000; and a $9,640 increase in 

32


costs associated with the collection and recovery of past due,
delinquent and charged off loans.
    Management has been operating, during the past few years, in an
expansion mode, by increasing the Bank's target market through the
acquisition of the Fort Loudon Branch Office in Franklin County,
Pennsylvania and the opening of Hancock Community Bank in
Washington County, Maryland as well as expanding the main office
facilities to allow for future growth and expansion of operations.
As a result of this growth and expansion, other operating expenses
increased during the 1997 operational year and will for the years
thereafter, due mainly to the following: 1) depreciation of the
main office renovation/construction completed on September 1, 1996;
2) operational expenses and overhead associated with the operation
of Hancock Community Bank which opened on November 25, 1996; and 3)
operational expenses and overhead associated with the
renovation/expansion of the Fort Loudon office which were completed
in November 1997 costing approximately $200,000.  These items will
decrease the Corporation's net income during the next few years as
overhead of these operations impact net income.  The immediate
result will be a decrease in operational income, Earnings per
Share, Return on Assets and Return on Equity.  Although this growth
mode has and will reduce income in the short term, management is
confident that in the long term these growth plans will benefit the
corporation's income producing ability through the addition of new
customers to the Bank's deposit and loan bases and retention of
current customers resulting in increased income to the corporation.

Income Taxes
    The Corporation's income tax provision for 1997 was $193,122
compared to $218,019 for 1996 and $253,781 for 1995.  The 1997
provision of $193,122 includes a $13,551 charge for taxes due as a
result of an IRS audit of the Corporation's 1996 Federal tax
return.  Without this additional 1996 tax, the corporation's
provision for 1997 would have been $179,571.  This decrease in the
tax provision in the amount of $24,897 was due to a decrease in
income before income taxes of $126,352.  The Corporation operated
with a marginal tax rate of 34% in 1997 and in 1996.  The effective
tax rate of the Corporation for 1997 was 18.41% compared to 18.55%
for 1996 and 20.21% for 1995.

Future Impact of Recently Issued Accounting Standards

In June 1997, The Financial Accounting Standards Board (FASB)
issued SFAS 30 "Reporting Comprehensive Income", with the main
objective of disclosing and reporting all changes in equity that
result from recognized transactions; and other economic events of
the period being reported.  This statement is effective for fiscal
years beginning after December 15, 1997, with quarterly reporting
to begin March 31, 1998.  The impact of this statement on the Bank
will be limited to reporting on market value adjustments under SFAS
115 and disclosure of any activity of treasury stock.

33

FINANCIAL CONDITION

Investment Debt Securities
    The book value of the investment debt security portfolio as of
December 31, 1997, decreased by $4,346,684 from December 31, 1996,
representing a 13.02% decrease.  This decrease occurred primarily
due to increases in interest-bearing deposits with banks of
$5,723,270, loan demand of $2,864,083 and federal funds sold of
$1,692,000 while total deposits increased $6,125,722.
    Due to the implementation of SFAS No. 115, management has
segregated securities as Held-to-Maturity (HTM), Available-for-Sale
(AFS) or Trading securities.  This accounting standard requires HTM
securities be reported on the balance sheet at cost and AFS
securities be reported at market value.  As of December 31, 1997
the Corporation had in its portfolio HTM securities of $2,975,841
with a market value of $2,988,188 and AFS securities of $26,338,409
with a book value of $26,059,617.  No securities were classified as
Trading securities as of December 31, 1997.  For the December 31,
1996, Balance Sheet presentations, the Bank carried investment debt
securities classified as Held-to-Maturity of $4,559,739 with a
market value of $4,567,903 and as Available-for-Sale $28,870,912,
with at book value of $28,822,403.  No securities were classified
as Trading as of December 31, 1996. 
    The general policy adopted by the Bank segregates purchases of tax-
free municipals with maturities of 5 years or less as Held-to-
Maturity securities while all other security purchases are
classified as Available-for-Sale.  Policy also allows management on
a case-by-case basis to make a specific determination as to the
classification of a security purchase as Held-to-Maturity or
Available-for-Sale depending upon the reason for purchase. 
Management adheres to the philosophy that Held-to-Maturity
classifications are typically used for securities purchased
specifically for interest rate management or tax-planning purposes
while Available-for-Sale classifications are typically used for
liquidity planning purposes.
    As of December 31, 1997, the net unrealized gain of the HTM
portfolio was $12,347, a .41% increase from book value and on the
AFS portfolio a net unrealized gain of $278,792 or a 1.07% increase
from book value.  As of December 31, 1996, the net unrealized gain
on the HTM portfolio was $8,164, a .18% increase from book value,
and on the AFS portfolio, a net unrealized gain of $48,509 or a
 .17% increase from book value.  Management has reviewed the
fluctuation of market value in each of these portfolios and has
determined that due to the last several months of relatively stable
interest rates, the values of securities contained with the Bank's
investment debt portfolio are a direct result of this stability in
interest rates.  Management determined that 1996's increasing
values were the result of the Federal Reserve Board's stability in 

34


interest rate policy and the "leveling" of longer term interest
rates.  Management has therefore, concluded that the net unrealized
gains and/or losses in the company's investment debt portfolio are
a direct result of current monetary policy and therefore are
temporary in that security values will continue to fluctuate,
either decrease or increase in value, in response to future changes
in interest rates and monetary policy.
    Management has purchased for the portfolio mortgage-backed
securities but presently has no Collateralized Mortgage Obligations
(CMOs) in its portfolio.  The large portion of these mortgage-
backed securities have a variable rate coupon and all have
scheduled principal payments.  During periods of rising interest
rates, payments from variable rate mortgage-backed securities may
accelerate as prepayments of underlying mortgages occur as home-
owners refinance to a fixed rate while during periods of declining
interest rates, prepayments on high fixed rate mortgage-backed
securities may accelerate as home-owners refinance to lower rate
mortgages.  These prepayments cause yields on mortgage-backed
securities to fluctuate as larger payments of principal necessitate
the acceleration of premium amortization or discount accretion. 
Due to the low dollar amount of mortgage-backed securities in
relation to the total portfolio, management feels that interest
rate risk and prepayment risks associated with mortgage-backed
securities will not have a material impact on the financial
condition of the Bank. 

Loans
    The total investment in net loans was $59,124,012 at December 31,
1997, representing a $2,864,083 or 5.09%, increase from the
December 31, 1996 investment of $56,259,929.  The primary reasons
for this increase in the loan portfolio over the past year was due
to 1) a $1,160,000 increase in real estate loans secured by 1 to 4
family residential properties; 2) a $545,000 increase in loans
secured by farmland which occurred due to Farm Service Agency (FSA)
guaranteed loan refinancings from other financial institutions; 3)
a $700,000 increase in a bank holding company line of credit; and
4) an increase in commercial, industrial and state and political
subdivision loans of $848,000 which occurred primarily to a new
equipment loan advanced to a commercial customer of over
$1,000,000.  Total new real estate mortgage loan lending for 1997
increased $1,667,000 or 4.27% from December 31, 1996 in comparison
to a $2,273,000 or 6.18% increase in 1996 from December 31, 1995. 
This decrease in the amount of mortgage lending from 1996 to 1997
reflects the competitive nature of the market in which the Bank
operates.  Competitive loan mortgage rates of other institutions
and mortgage companies in the Corporation's market area has
resulted in the payoff of mortgage loans within the Bank's loan
portfolio.  Overall loan demand during the past year was weaker
than that of 1996 which was a direct result of increased
aggressiveness of competing financial institutions, mortgage loan
companies and financing companies in interest rates and marketing 

35


strategies.  The lending operation of the Bank has been enhanced by
the Bank's operation in a larger market area through the Fort
Loudon office in Franklin County, Pennsylvania and Hancock
Community Bank in Washington County, Maryland.
    To encourage new loan demand, management anticipates offering
additional loan promotions, reviewing loan terms for customer
"friendliness" and seeking longer term fixed rate mortgage loans to
be sold in the secondary market to stimulate lending in the
Corporation's market area.  In addition, the continued operation of
Hancock Community Bank is anticipated to result in an increase in
additional lending in the Washington County, Maryland area as well
as in northern Morgan County, West Virginia and southern Fulton
County, Pennsylvania.

Nonperforming Assets
    Nonperforming loans consist of nonaccruing loans and loans 90 days
or more past due.  Nonaccruing loans are comprised of loans that
are no longer accruing interest income because of apparent
financial difficulties of the borrower.  Interest on nonaccruing
loans is recorded when received only after past due principal and
interest are brought current.
    Other real estate owned includes assets acquired in settlement of
mortgage loan indebtedness and loans identified as impaired loans.
 These assets are carried at the lower of cost or fair value.  The
other real estate balance as of December 31, 1997, was $428,488
compared to $318,992 as of December 31, 1996.  This increase
reflects the addition of three residential dwellings, two in the
borough of McConnellsburg and one in Licking Creek Township.  The
Bank is actively pursuing the sale of all properties contained in
Other Real Estate.  At December 31, 1996, the Bank had a
lease/purchase agreement on a retail property which was contained
in Other Real Estate on that date and is located in downtown
McConnellsburg.  In July 1997 the tenant exercised the right to
purchase the property, and accordingly this property was removed
from Other Real Estate upon settlement of the purchase.

Allowance for Loan Losses
    The allowance is maintained at a level to absorb potential future
loan losses contained in the loan portfolio and is formally
reviewed by Management on a quarterly basis.  The allowance is
increased by provisions charged to operating expense and reduced by
net charge-offs.  Management's basis for the level of the allowance
and the annual provisions is its evaluation of the loan portfolio,
current and projected domestic economic conditions, the historical
loan loss experience, present and prospective financial condition
of the borrowers, the level of nonperforming assets, and other
relevant factors.  While Management uses available information to
make such evaluations, future adjustments of the allowance may be
necessary if economic conditions differ substantially from the
assumptions used in making the evaluation.    

36


    The allowance for loan losses was increased to $425,814 from the
prior year level of $405,600.  The ratio of the allowance to net
loans was .72% at December 31, 1997 and at December 31, 1996. 
Management believes that the current allowance for loan losses of
$425,814 is adequate to meet any potential loan losses, but has
budgeted a monthly addition during 1998 of $10,000 in anticipation
of additional commercial loan problems and general increases in the
total loan portfolio. 

Liquidity and Rate Sensitivity
    The Corporation's objective is to maintain adequate liquidity while
minimizing interest rate risk.  Adequate liquidity provides
resources for credit needs of borrowers, for depositor withdrawals,
and for funding Corporate operations.  Sources of liquidity are
maturing investment securities; maturing overnight investments in
federal funds sold; maturing investments in time deposits at other
banks; readily accessible interest-bearing deposits at other banks;
payments on loans, mortgage-backed securities and SBA Guaranteed
Loan Pool Certificates; and a growing core deposit base.  In order
to assure a constant and stable source of funds, the Bank has
joined the Federal Home Loan Bank of Pittsburgh because of the
availability of both short term and long term fixed rate funds.  As
of December 31, 1997, the Bank had borrowings of $173,226 from this
institution under its Community Investment Program and had readily
available to it a $3,115,000 line of credit. 
    The objective of managing interest rate sensitivity is to maintain
or increase net interest income by structuring interest-sensitive
assets and liabilities in such a way that they can be repriced in
response to changes in market interest rates.  Based upon
contractual maturities of securities and the capability of NOW and
Savings accounts to be repriced within the 3 month time horizon,
the Corporation has maintained a negative rate sensitivity
position, in that, rate sensitive liabilities exceed rate sensitive
assets.  Therefore, in a period of declining interest rates the
Corporation's net interest income is generally enhanced versus a
period of rising interest rates where the Corporation's net
interest margin may be decreased.  However, when savings accounts
are spread based upon their movement to other time deposits and
securities are spread based upon their earliest call date, the Bank
maintains a positive rate sensitivity position, in that, rate
sensitive assets exceed rate sensitive liabilities.  This means
that in a period of declining interest rates, more securities will
most likely be called and be reinvested into lower rate
investments.  Declining rate environments also result in the
likelihood of residential home mortgage customer to refinance their
existing mortgage to lower interest rates.  This movement of
securities and loans to lower interest rates during a declining
rate environment has the effect of decreasing the Corporation's net
interest margin.
    Presently, the interest rate environment is anticipated to remain
relatively stable; however, some indications are that the 

37


Federal Reserve Board may decrease short term interest rates in the
near future.   At the present time, a portion of the Corporation's
adjustable rate loans and securities are repricing to lower
interest rates while management has also decreased the cost of
interest rate sensitive liabilities.  This stable rate environment
and possibility of lower interest rates in the future has resulted
in investment debt securities with higher interest rates and call
features of U. S. Government Agencies and State and Municipal
subdivisions in the U. S. held by the Bank being called.  The
proceeds of these called securities are being reinvested into lower
yielding investment debt securities which will decrease the yield
on the investment debt security portfolio.  The anticipated result
of this current position will be a gradual decrease in the yield on
earning assets while the cost of interest-bearing liabilities
remains relatively the same.  Management therefore expects the net
interest spread and interest margin of the Bank to decrease
slightly during the next few quarters.  Management continually
reviews interest rates on those deposits which can be changed
immediately, specifically NOW accounts, Money Market Accounts, and
Savings Accounts to determine if an interest rate decrease is
necessary to increase the net interest spread and net interest
margin of the Bank.
    Another impact on the net interest spread and interest margin of
the Corporation has been the low loan to deposit ratio which
indicates how much of the Bank's deposits are invested in the loan
portfolio.  This ratio is a primary indicator of a Bank's liquidity
position as the higher the ratio, the less liquid assets are
available to fund deposit withdrawals.  At the same time, this
ratio also indicates to management how many deposits are offset by
the Bank's highest yielding earning asset, loans; therefore, the
higher the ratio, the more deposits are invested in loans and the
less invested in lower yielding investment debt securities.  The
result of a higher loan to deposit ratio is usually a higher net
interest spread and margin.  Management has targeted as the
Corporation's optimal loan to deposit ratio 75% to 80%.  The loan
to deposit ratio at December 31, 1997 was 63.40% and at December
31, 1996 64.57%.  This decrease of 1.17% from December 31, 1996
occurred due to deposit growth during 1997 exceeding that of loan
growth, some of which was temporary in nature in that approximately
$2,000,000 to $3,000,000 of demand deposits and savings deposits at
year end 1997 are expected to be withdrawn from the Bank by mid-
February.  The current loan to deposit ratio indicates that a
significant amount of deposits are invested in lower yielding
investment debt securities which decrease the net interest margin
and spread of the Bank.  With the addition of Hancock Community
Bank, management is anticipating loan growth will accelerate as new
loan customers are generated in this area to offset deposit growth
in other market areas of the organization.
    To minimize the risk of its rate sensitivity position, the Bank
employs many different methods to diversify its risk both on the
asset and the liability side of the Balance Sheet.  The Bank 

38


offers both fixed rate and floating/adjustable rate loans to its
customers.  At December 31, 1997, the Bank's floating and
adjustable rate loans totaled $33,008,000, or 54.06% of the total
loan portfolio.  As of December 31, 1996, the Bank's floating and
adjustable rate loans totaled $32,292,000, 55.63% of the total loan
portfolio.  The bank's debt security investment portfolio as of
December 31, 1997, was comprised of a book value of $5,507,795, or
18.97% of floating rate debt securities which reprice annually or
more frequently while at December 31, 1996, the Bank's debt
security investment portfolio was comprised of a book value of
$7,928,548, or 23.81% of floating rate securities. Specific methods
which have been employed by the Bank to address the rate sensitive
position are the offering of the following deposit products to
encourage the movement of short term deposits to longer term
deposits:  four or five year certificates of deposit with
competitive interest rates and three year annual adjustable
certificates of deposit.

The interest rate sensitivity analysis for the Bank as of December
31, 1997 based upon contractual maturities is as follows:
                                            













 


DECEMBER 31, 1997
























AFTER
AFTER










WITHIN
3 BUT
1 BUT
AFTER
NON-








3
WITHIN
WITHIN
5
INTEREST








MONTHS
12 MONTHS
 5 YEARS
YEARS
BEARING
TOTAL






ASSETS:
 











    FEDERAL FUNDS SOLD
$2,931
$0
$0
$0
$0
$2,931 






    INVESTMENT SECURITIES           (BOOK VALUE)
5,287
2,799
7,511
13,738
0
29,335 






    INTEREST-BEARING BALANCES        DUE FROM
BANKS
5,763
190
98
0
0
6,051 

 




    LOANS
9,981
14,524
18,739
17,400
414
61,058 

 




    UNEARNED DISCOUNT &             ALLOWANCE FOR
LOAN 












      LOSSES (1)
0
0
0
(1,934)
0
(1,934)






    NONINTEREST-EARNING ASSETS




8,260
8,260 

 

















      TOTAL ASSETS
$23,962
$17,513
$26,348
$29,204
$8,674
$105,701 

 

















LIABILITIES:












    NOW ACCOUNTS AND SAVINGS        ACCOUNTS
$26,714
$0
$0
$0
$0
$26,714 






    TIME DEPOSITS
8,605
22,377
25,554
21
0
56,557 

 




    NONINTEREST-BEARING             DEPOSITS
0
0
0
0
10,037
10,037 







39



    OTHER BORROWED MONEY
288
0
0
173
0
461 






    OTHER NONINTEREST-BEARING       SOURCES TO
FUND












      EARNING ASSETS
0
0
0
0
791
791 



















      TOTAL LIABILITIES
$35,607
$22,377
$25,554
$194
$10,828
$94,560 



















INTEREST SENSITIVITY GAP
($11,645)
($4,864)
$794
$29,010 








CUMULATIVE INTEREST SENSITIVITY GAP
(11,645)
(16,509)
(15,715)
13,295 








GAP RATIO
0.67
0.78
1.03
N/A








CUMULATIVE GAP RATIO
0.67
0.72
0.81
1.16 










IT HAS BEEN ARBITRARILY ASSIGNED TO THE "AFTER FIVE YEARS" CATEGORY FOR PURPOSE
OF ANALYSIS.
Market Risk Management

The corporation has risk management policies to monitor and limit
exposure to market risk.  By monitoring reports which assess the
corporation's exposure to market risk, management strives to
enhance the corporation's net interest margin and take advantage of
opportunities available in interest rate movements.

The continual monitoring of liquidity and interest rate risk is a
function of the corporation's ALCO reporting.  Upon review and
analysis of these reports, management determines the appropriate
methods it should use to reprice its products, both loans and
deposits, and the types of securities it should purchase in order
to achieve desired net interest margin and interest spreads. 
Management continually strives to attract lower cost deposits,
competitively price its time deposits and loan products in order to
maintain favorable interest spreads while minimizing interest rate
risk.

The following table sets forth the projected maturities and average
rate for all rate sensitive assets and liabilities.  The following
assumptions were used in the development of this table:
    *    All fixed and variable rate loans were based on the original
maturity of the note as the Bank has not experienced a significant
rewriting of loans.
    *    All fixed and variable rate U. S. Agency and Treasury securities
and obligations of state and political subdivisions in the U.S.
were based upon the maturity date or the call date, whichever was
earlier.
    *    All fixed and variable rate Mortgage-backed securities and SBA
GLPCs were based upon original maturity as the Bank has not
experienced a significant prepayment of these securities.
    *    The Bank has experienced very little run-off in its history of
operations and has experienced net gains in deposits.

40


    *    The Bank has large business and municipal deposits in noninterest
bearing checking and savings and interest bearing checking.  These
balances may fluctuate significantly and were at high levels on
December 31, 1997.  Therefore, a 50% maximum runoff of both
noninterest bearing checking and savings and interest bearing
checking was used as an assumption in this table.
    *    The Bank currently has on deposit one large municipal deposit
which alternates between the two local community banks every two
years.  This deposit account, with an average balance in excess of
$1,000,000, has been assumed to move to the other institution in
1998 and return in 2000 and continue this cycle every two years.
    *  Fixed and variable rate time deposits were based upon original
contract maturity dates.
                                        





































































(IN MILLIONS)
- ---------------PRINCIPAL/NOTIONAL AMOUNT MATURING IN----------
- ----






FAIR














RATE SENSITIVE ASSETS
1998
1999
2000
2001
2002
THEREAFTER
TOTAL
VALUE















 





















FEDERAL FUNDS SOLD
$2,931
$0
$0
$0
$0
$0
$2,931
$2,931 














AVERAGE INTEREST RATE
5.45%
- --
- --
- --
- --
- --
5.45%
















 





















INTEREST BEARING DEPOSITS
 





















IN BANKS
$5,953
$98
$0
$0
$0
$0
$6,051
$6,051 














AVERAGE INTEREST RATE
5.49%
6.25%
- --
- --
- --
- --
5.50%






































FIXED INTEREST RATE LOANS
$819
$2,113
$2,298
$2,416
$1,984
$16,912
$26,542
$25,021 














AVERAGE INTEREST RATE
11.30%
10.11%
9.97%
9.31%
8.66%
9.81%
9.32%






































VARIABLE INTEREST RATE






















LOANS
$6,712
$730
$327
$778
$1,624
$22,837
$33,008
$33,008 














AVERAGE INTEREST RATE
7.45%
8.04%
8.93%
9.32%
7.54%
8.83%
8.82%






































FIXED INTEREST RATE






















U. S. AGENCY & TREASURY






















SECURITIES
$8,943
$2,551
$650
$450
$203
$294
$13,091
$13,138 















41



AVERAGE INTEREST RATE
6.71%
7.21%
6.88%
6.83%
6.88%
6.70%
6.82%






































VARIABLE INTEREST RATE 






















U. S. AGENCY & TREASURY






















SECURITIES
$250
$250
$0
$0
$0
$0
$500
$498 














AVERAGE INTEREST RATE
5.08%
5.48%
- --
- --
- --
- --
5.28%






































FIXED INTEREST RATE






















MORTGAGE-BACKED AND SBA






















GLPC SECURITIES
$5
$80
$26
$0
$9
$179
$299
$304 














AVERAGE INTEREST RATE
7.50%
6.65%
8.21%
- --
8.98%
8.58%
8.03%






































VARIABLE INTEREST RATE






















MORTGAGE-BACKED AND SBA






















GLPC SECURITIES
$18
$0
$34
$123
$0
$4,773
$4,948
$5,010 














AVERAGE INTEREST RATE
9.18%
- --
7.82%
8.31%
- --
6.83%
6.88%






































FIXED INTEREST RATE






















OBLIGATIONS OF STATE AND






















POLITICAL SUBDIVIONS IN






















THE US
$3,143
$680
$2,617
$947
$843
$1,877
$10,107
$10,243 














AVERAGE INTEREST RATE
6.81%
6.48%
7.39%
7.35%
7.38%
7.46%
7.16%






































RATE SENSITIVE LIABILITIES













































NONINTEREST BEARING






















CHECKING
$2,497
$624
$624
$624
$625
$0
$4,994
$4,994 














AVERAGE INTEREST RATE
- --
- --
- --
- --
- --
- --
- --






































SAVINGS AND INTEREST
 





















BEARING CHECKING
$6,679
$1,670
$670
$1,670
$2,669
$0
$13,357
$13,357 















AVERAGE INTEREST RATE
2.96%
2.96%
2.96%
2.96%
2.96%
- --
2.96%















42























FIXED INTEREST RATE























TIME DEPOSITS
$21,743
$7,952
$6,398
$5,644
$5,715
$21
$47,473
$47,681 














AVERAGE INTEREST RATE
5.59%
6.16%
6.68%
6.10%
6.22%
6.66%
5.97%






































FIXED INTEREST RATE






















TIME DEPOSITS
$3,610
$3,212
$2,259
$0
$0
$0
$9,081
$9,081 














AVERAGE INTEREST RATE
5.88%
5.52%
5.59%
- --
- --
- --
5.68%






































FIXED INTEREST RATE






















BORROWINGS
$287
$0
$0
$0
$0
$174
$461
$460 














AVERAGE INTEREST RATE
- --
- --
- --
- --
- --
6.64%
2.51%

















Capital
The primary method by which the Corporation increases total
stockholders' equity is through the accumulation of earnings.  The
Corporation maintains ratios that are well above the minimum total
capital levels required by federal regulatory authorities including
the new risk-based capital guidelines.  Regulatory authorities have
established capital guidelines in the form of the "leverage ratio"
and "risk-based capital ratios." The leverage ratio of the
Corporation, defined as total stockholders' equity less intangible
assets to total assets, was 10.41% as of December 31, 1997,
compared to 10.60% as of December 31, 1996.  The risk-based ratios
compare capital to risk-weighted assets and off-balance-sheet
activity in order to make capital levels more sensitive to risk
profiles of individual banks.  A comparison of the Corporation's
capital ratios to regulatory minimums at December 31 is as follows:
                                                 

FNB FINANCIAL CORPORATION


REGULATORY












MINIMUM









1997
1996

REQUIREMENTS





















LEVERAGE RATIO
10.41%
10.60%

3.00%





















RISK-BASED CAPITAL RATIO TIER I
18.09%
19.30%

4.00%








  (CORE CAPITAL)












COMBINDED TIER I AND TIER II (CORE CAPTIAL 












  PLUS ALLOWANCE FOR LOAN LOSSES)
18.79%
20.05%

8.00%











43


FNB Financial Corporation has traditionally been well-capitalized
with ratios well above required levels and expects equity capital
to continue to exceed regulatory guidelines and industry averages.
Certain ratios are useful in measuring the ability of a company to
generate capital internally.  The following chart indicates the
growth in equity capital for the past three years.
                                                 













1997
1996
1995








EQUITY CAPITAL AT DECEMBER 31 BEFORE FAS 115











  ADJUSTMENTS & REDUCED BY INTANGIBLE         ASSETS( 000 OMITTED)
11,206
10,670
10,021 




















EQUITY CAPITAL AS A PERCENT OF ASSETS AT

 









    DECEMBER 31
10.41%
10.60%
10.63%




















RETURN ON AVERAGE ASSETS
 .86
1.00
1.19




















RETURN ON AVERAGE EQUITY
7.98
9.18
10.26




















CASH DIVIDEND PAYOUT RATIO
37.39%
32.18
30.75












STOCK MARKET ANALYSIS AND DIVIDENDS

The Corporation's common stock is traded inactively in the over-
the-counter market.  As of December 31, 1997 the approximate number
of shareholders of record was 421.
                                 

MARKET
CASH
MARKET
CASH









PRICE
DIVIDEND
PRICE
DIVIDEND










1997
        1996









FIRST QUARTER
$46.00
$0.17
$35.00
$0.17 








SECOND QUARTER
$50.00
$0.18
$45.00
$0.17 








THIRD QUARTER
$55.00
$0.19
$45.00
$0.18 








FOURTH QUARTER
$55.00
$0.26
$45.00
$0.25 











YEAR 2000 ISSUES
During the past several months many newspaper and magazine articles
have been written concerning the YEAR 2000 and the potential effect
the change from the year 1999 to the year 2000 will have on
computer systems.  Due to the age of some computer programs,
computer software and computer chips, it is very possible that some
older computers, software and equipment containing computer chip
technology may not function properly when the year 2000 rolls
around and may indeed not function at all.  

44



The Corporation has recognized this potential problem and had
developed and implemented in September 1997 a Year 2000 Management
team/policy to assure all of the corporation's computers, software
and equipment are compatible with the year 2000 in order to avoid
disruption to financial services provided by the corporation.  This
team is headed by Senior Management and the Data Processing
Department which reports findings and results to the CEO, the EDP
Committee, and ultimately to the Board of Directors.

The policy of the Corporation is to assure current equipment,
computers and software are Year 2000 compatible; to test on-site
compatibility of equipment and software in the first quarter of
1998; to assure to the best of its ability each vendor and major
business customer is Year 2000 compatible; to have all
modifications and updates required in place by December 1998 so any
unforeseen problems may be addressed in early 1999; and to have a
contingency plan in place should it be necessary.  In addition the
Corporation has approved a specific budget for modifications,
replacements and testing necessary to assure Year 2000 compliance.
 This budget is reviewed and updated by the EDP Committee as
necessary.

In the Corporation's policy addressing the Year 2000, the
Corporation recognized the importance of assuring, to the best of
its ability, its major business customers and vendors on which it
relies for electricity, voice communication, data processing, all
equipment, data communication, supplies, and any other function
vital to the corporation's operation are aware of this issue and
have addressed it by having their computer equipment and software
analyzed and tested for compatibility with the Year 2000.  To
assess the status of each major business customer and vendor, the
corporation in November 1997 sent to each a short
questionnaire/survey regarding their Year 2000 implementation
plans.  As each vendor and business customer returns the survey,
management is assessing the capability of each and following up to
assure, to the best of the corporation's ability, each is
compatible.














45

 



 

 

   

EX-27

 

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