AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER

by and between

FNB FINANCIAL SERVICES CORPORATION

and

LSB BANCSHARES, INC.

_________________

Dated as of February 26, 2007

TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of February 26, 2007 (this "Agreement"), by and between FNB Financial Services Corporation, a North Carolina corporation ("FNB"), and LSB Bancshares, Inc., a North Carolina corporation ("LSB").

WITNESSETH:

WHEREAS, the Boards of Directors of FNB and LSB have determined that it is in the best interests of their respective corporations and shareholders to consummate the strategic business combination transaction provided for herein in which FNB will, subject to the terms and conditions set forth herein, merge with and into LSB (the "Merger"), so that LSB is the surviving corporation (hereinafter sometimes referred to in such capacity as the "Surviving Corporation") in the Merger, and

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

THE MERGER

1.1   The Merger .

(a)   Subject to the terms and conditions of this Agreement, in accordance with Business Corporation Act of the State of North Carolina (the "NCBCA"), at the Effective Time (as defined below), FNB shall merge with and into LSB. LSB shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of North Carolina. Upon consummation of the Merger, the separate corporate existence of FNB shall terminate.

(b)   FNB and LSB may at any time change the method of effecting the combination of FNB and LSB including without limitation the provisions of this Article I, if and to the extent they deem such change to be desirable, including without limitation to provide for a merger of either party with and into a wholly-owned subsidiary of the other; provided, however, that no such change shall (i) alter or change the Exchange Ratio (as defined below) to be provided to holders of FNB Common Stock (as defined below) as provided for in this Agreement, (ii) adversely affect the tax treatment of shareholders of FNB or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement.

1.2   Effective Time . The Merger shall become effective as set forth in the Articles of Merger which shall be filed with the Secretary of State of the State of North Carolina (the "North Carolina Secretary") on the

Closing Date. The term "Effective Time" shall be the date and time when the Merger becomes effective, as set forth in the Articles of Merger.

1.3   Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in Section 55-11-06 of the NCBCA.

1.4   Conversion of FNB Common Stock . At the Effective Time, by virtue of the Merger and without any action on the part of FNB, LSB or the holder of any of the following securities:

(a)   Subject to Section 2.2(e), each share of the common stock, no par value per share, of FNB (the "FNB Common Stock") issued and outstanding immediately prior to the Effective Time, except for shares of FNB Common Stock owned, directly or indirectly, by FNB or LSB or any of their respective wholly-owned Subsidiaries (other than shares of FNB Common Stock held, directly or indirectly, in trust accounts, managed accounts and the like, or otherwise held in a fiduciary capacity, that are beneficially owned by third parties (any such shares, whether held directly or indirectly by FNB or LSB, as the case may be, being referred to herein as "Trust Account Shares") or shares of FNB Common Stock held on account of a debt previously contracted ("DPC Shares")), shall be converted into the right to receive 1.07 shares (the "Exchange Ratio") of the common stock, par value $5.00 per share, of LSB (the "LSB Common Stock").

(b)   All of the shares of FNB Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each such share of FNB Common Stock shall thereafter represent only the right to receive the number of whole shares of LSB Common Stock and cash in lieu of fractional shares into which the shares of FNB Common Stock have been converted pursuant to this Section 1.4 and Section 2.2. If, prior to the Effective Time, the outstanding shares of FNB Common Stock or LSB Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an appropriate and proportionate adjustment shall be made to the Exchange Ratio.

(c)   At the Effective Time, all shares of FNB Common Stock that are owned, directly or indirectly, by FNB or LSB or any of their respective wholly-owned Subsidiaries (other than Trust Account Shares and DPC Shares) shall be cancelled and shall cease to exist (except that they shall become authorized but unissued shares of LSB Common Stock) and no stock of LSB or other consideration shall be delivered in exchange therefor.

1.5   LSB Capital Stock . Except as otherwise provided in Section 1.4(c), at and after the Effective Time, each share of LSB Common Stock issued and outstanding immediately prior to the Closing Date shall remain an issued and outstanding share of capital stock of the Surviving Corporation and shall not be affected by the Merger.

2

1.6   Options . 

(a)   At the Effective Time, each option granted by FNB to purchase shares of FNB Common Stock which is outstanding and unexercised immediately prior thereto shall cease to represent a right to acquire shares of FNB Common Stock and shall be converted automatically into an option to purchase shares of LSB Common Stock in an amount and at an exercise price determined as provided below (and otherwise subject to the terms of the FNB Stock Plans (as defined below) and the agreements evidencing grants thereunder):

(i)   The number of shares of LSB Common Stock to be subject to the new option shall be equal to the product of the number of shares of FNB Common Stock subject to the original option and the Exchange Ratio, provided that any fractional shares of LSB Common Stock resulting from such multiplication shall be rounded to the nearest whole share; and

(ii)   The exercise price per share of LSB Common Stock under the new option shall be equal to the exercise price per share of FNB Common Stock under the original option divided by the Exchange Ratio, provided that such exercise price shall be rounded to the nearest whole cent.

(b)   The adjustment provided herein with respect to any options which are "incentive stock options" (as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")), shall be and is intended to be effected in a manner which is consistent with Section 424(a) of the Code. The duration and other terms of the new option shall be the same as the original option except that all references to FNB shall be deemed to be references to LSB.

1.7   Charter . Subject to the terms and conditions of this Agreement, at the Effective Time, the Articles of Incorporation, as amended, of LSB, with such amendments as to which the parties may hereafter agree to submit to LSB’s shareholders, including, without limitation, amendments to change the corporate name of LSB to a name mutually agreeable to LSB and FNB, to alter the terms of the directors, and to establish in uncontested elections the election of directors by a vote of the holders of a majority of the shares present at the applicable meeting of shareholders, which may be properly approved by LSB’s Board of Directors and by such shareholders (the "Charter"), shall be the Charter of the Surviving Corporation until thereafter amended in accordance with applicable law.

1.8   By-Laws . Subject to the terms and conditions of this Agreement, at the Effective Time, the By-Laws of LSB shall be the By-Laws of the Surviving Corporation until thereafter amended in accordance with applicable law; provided, however, that the By-Laws shall be amended as of the Effective Time to reflect the amendments to the Charter described in Section 1.7 and as otherwise agreed by LSB and FNB.

1.9   Tax Consequences . It is intended that the Merger shall constitute a "reorganization" within the meaning of Section 368(a) of the Code, that this Agreement shall constitute a "plan of reorganization" for the purposes of Sections 354 and 361 of the Code.

3

1.10   Management . At the Effective Time, Robert F. Lowe shall be Chairman of the Board of Directors, Chairman of the Executive Committee of the Board of Directors, and Chief Executive Officer of the Surviving Corporation, and shall be Chairman of the Board of Directors and Chairman of the Executive Committee of the Board of Directors of the Surviving Bank (as defined in Section 1.11 below). Barry Z. Dodson shall be Vice Chairman and lead independent director of the Boards of Directors of the Surviving Corporation and the Surviving Bank and Vice Chairman of the Executive Committees of both such Boards. Pressley A. Ridgill shall be President of the Surviving Corporation, President and Chief Executive Officer of the Surviving Bank and a member of the Executive Committees of the Boards of Directors of the Surviving Corporation and the Surviving Bank. Michael W. Shelton shall be an Executive Vice President and the Chief Financial Officer of the Surviving Corporation and the Surviving Bank. Monty J. Oliver shall be the Executive Vice President - Finance of the Surviving Corporation.

1.11   Surviving Bank . Following the Effective Time, FNB Southeast shall merge with and into Lexington State Bank (the "Bank Merger"), with Lexington State Bank being the surviving bank of such merger (the "Surviving Bank"). The effects of the Bank Merger, including the name under which the Surviving Bank shall operate, shall be set forth in the separate Agreement and Plan of Bank Merger among FNB, LSB, FNB Southeast, and Lexington State Bank. The name of the Surviving Bank shall be changed to a name mutually agreeable to LSB and FNB.

1.12   Board of Directors .

(a)   Subject to Section 1.12(c), from and after the Effective Time, until duly changed in compliance with applicable law and the Charter and By-Laws of the Surviving Corporation, the Board of Directors of each of the Surviving Corporation and the Surviving Bank shall consist of up to twenty (20) directors, and shall initially include Mr. Lowe, Mr. Dodson and Mr. Ridgill and an equal number, inclusive of Mr. Lowe, Mr. Dodson and Mr. Ridgill, of FNB Directors and LSB Directors (each as defined below). The initial FNB Directors shall be selected by FNB’s Board of Directors and the initial LSB Directors shall be selected by LSB’s Board of Directors. The FNB Directors shall be appointed to either one year or two year terms in such a manner that the number of FNB Directors serving one year terms shall be the same as the number of LSB Directors serving one year terms and that the number of FNB Directors serving two year terms shall be the same as the number of LSB Directors serving two year terms. Subject to Section 1.12(c), from and after the Effective Time and until the second annual meeting of the Surviving Corporation following the 2007 annual meeting, all vacancies on the Board of Directors of the Surviving Corporation created by (i) the cessation of service of a FNB Director shall be filled by a nominee selected by the continuing FNB Directors and (ii) the cessation of service of a LSB Director shall be filled by a nominee selected by the continuing LSB Directors.

4

(b)   Subject to Section 1.12(c), from and after the Effective Time until the second annual meeting of the Surviving Corporation following the 2007 annual meeting, each of the committees of the Boards of Directors of the Surviving Corporation and the Surviving Bank shall be comprised of an equal number of FNB Directors and LSB Directors, the identity of the members of such committees to be otherwise mutually determined by Mr. Lowe and Mr. Dodson; provided, however, that Mr. Lowe, Mr. Dodson and Mr. Ridgill shall serve on the Executive Committees of the Boards of Directors of the Surviving Corporation and the Surviving Bank during such period, Mr. Lowe shall serve as the Chairman of each such Executive Committee, and Mr. Dodson shall serve as Vice Chair of each such Executive Committee. In the event Mr. Lowe, Mr. Dodson or Mr. Ridgill shall cease to be a director of the Surviving Corporation and the Surviving Bank during such two year period or unable to assume or continue in the designated positions during such periods, as applicable, (i) an LSB Director selected by the LSB Directors shall succeed Mr. Lowe for the remainder of such period as Chairman of the Boards of Directors and Chair of the Executive Committees of the Surviving Corporation and the Surviving Bank, and (ii) an FNB Director selected by the FNB Directors shall succeed Mr. Dodson for the remainder of such period as Vice Chair of the Boards of Directors and the Executive Committees of the Surviving Corporation and the Surviving Bank and as the lead independent director of the Board of Directors of the Surviving Corporation or Mr. Ridgill for the remainder of such period as a member of the Executive Committees of the Boards of Directors of the Surviving Corporation and the Surviving Bank.

(c)   The term "FNB Director" means (i) any person serving as a director of FNB on the date of this Agreement who continues as a director of the Surviving Corporation at the Effective Time and (ii) any person who becomes a director of the Surviving Corporation and who is designated as such by the continuing FNB Directors prior to his or her election; and the term "LSB Director" means (i) any person serving as a director of LSB on the date of this Agreement who becomes a director of the Surviving Corporation at the Effective Time and (ii) any person who becomes a director of the Surviving Corporation and who is designated as such by the continuing LSB Directors prior to his or her election.

(d)   The Agreement and Plan of Bank Merger shall contain provisions with respect to the Board of Directors of the Surviving Bank, and the committees, to the same effect as the provisions set forth in the items (a), (b) and (c) of this Section 1.12.

1.13   Headquarters of Surviving Corporation and Surviving Bank . From and after the Effective Time until otherwise determined by the Board of Directors of the Surviving Corporation or the Surviving Bank, as applicable, the headquarters and principal executive offices of the Surviving Corporation and the Surviving Bank shall be located at FNB’s headquarters in Greensboro, North Carolina.

ARTICLE II

EXCHANGE OF SHARES

2.1   LSB to Make Shares Available . At or prior to the Effective Time, LSB shall deposit, or shall cause to be deposited, with LSB’s stock transfer agent (the "Exchange Agent"), for the benefit of the holders of FNB Common Stock in certificated or uncertificated form, for exchange in accordance with this Article II, the shares of LSB Common Stock, and cash in lieu of any fractional shares (such cash and shares of LSB Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"), to be issued pursuant to Section 1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of FNB Common Stock.

5

2.2   Exchange of Shares; Notification and Payment Procedures .

(a)   As soon as practicable after the Effective Time, with respect to each share of FNB Common Stock held in certificated form (each such certificate, a "Certificate"), the Exchange Agent shall mail to each such holder of record of one or more Certificates a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for shares of LSB Common Stock and any cash in lieu of fractional shares into which the shares of FNB Common Stock represented by such Certificate or Certificates shall have been converted pursuant to this Agreement. Upon proper surrender of a Certificate or Certificates for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Certificate or Certificates shall be entitled to receive in exchange therefor, as applicable, (i) a book entry on the records of the Surviving Corporation showing such holder to hold of record the number of whole shares of LSB Common Stock to which such holder of FNB Common Stock shall have become entitled pursuant to the provisions of Article I and (ii) a check representing the amount of any cash in lieu of fractional shares which such holder has the right to receive in respect of the Certificate or Certificates surrendered pursuant to the provisions of this Article II, and the Certificate or Certificates so surrendered shall forthwith be cancelled. With respect to shares of FNB Common Stock held in uncertificated ("book entry" form), the Exchange Agent shall (x) enter a book entry on the records of the Surviving Corporation showing the holder of such shares to hold of record the number of shares of LSB Common Stock to which such holder of FNB Common Stock shall have become entitled pursuant to the provisions of Article I, and (y) cause a check representing the amount of cash in lieu of fractional shares which such holder has the right to receive in respect of shares of FNB Common Stock held by such holder in uncertificated form. No interest will be paid or accrued on any cash in lieu of fractional shares or on any unpaid dividends and distributions payable to holders of Certificates. The Exchange Agent, acting as the Surviving Corporation’s stock transfer agent, will maintain a book entry list of the whole shares of LSB Common Stock to which each former holder of record of FNB Common Stock is entitled.

(b)   No dividends or other distributions declared with respect to FNB Common Stock shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article II (including Section 2.2(h) in the case of lost certificates). After the surrender of a Certificate in accordance with this Article II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of LSB Common Stock represented by such Certificate.

6

(c)   If any holder desires the shares of FNB Common Stock to be issued to such holder to be issued in a name other than that in which the Certificates surrendered in exchange therefor are registered or in a name other than the name in which the book entry record thereof is recorded, as applicable, it shall be a condition of the issuance thereof that (i) the Certificate or Certificates so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer or (ii) the book entry holder provide written transfer instructions in the form required by the Exchange Agent, and, in either instance, that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the issuance of shares of LSB Common Stock in any such other name, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.

(d)   As soon as practical after the Effective Time, the Exchange Agent shall mail to each holder of shares of FNB Common Stock in uncertificated, book entry form a written notice (the "Notice Letter") confirming the whole shares of LSB Common Stock and cash in lieu of fractional shares to be issued and paid to such holder pursuant to this Agreement and containing such other information as is required under Section 55-6-26 of the NCBCA. A check in the amount of such cash shall accompany the Notice Letter.

(e)   After the Effective Time, there shall be no transfers on the stock transfer books of FNB of the shares of FNB Common Stock that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and, as applicable, shares of LSB Common Stock shall be issued in exchange therefor in book entry form as provided by this Article II.

(f)   Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of LSB Common Stock shall be issued upon the surrender for exchange of Certificates or the exchange of shares of FNB Common Stock held in uncertificated, book entry form, no dividend or distribution with respect to LSB Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a shareholder of LSB. In lieu of the issuance of any such fractional share, LSB shall pay to each former shareholder of FNB who otherwise would be entitled to receive such fractional share an amount in cash determined by multiplying (i) the average of the closing-sale prices of LSB Common Stock on the Global Select Market of The NASDAQ Stock Market, LLC (the "Nasdaq") as reported by The Wall Street Journal for the five (5) trading days immediately preceding the date of the Effective Time by (ii) the fraction of a share (rounded to the nearest thousandth when expressed in decimal form) of LSB Common Stock to which such holder would otherwise be entitled to receive pursuant to Section 1.4.

(g)   Any portion of the Exchange Fund that remains unclaimed by the shareholders of FNB for twelve (12) months after the Effective Time shall be paid to LSB. Any former shareholders of FNB who have not theretofore complied with this Article II shall thereafter look only to LSB for payment of the shares of LSB Common Stock, cash in lieu of any fractional shares and any unpaid dividends and distributions on the LSB Common Stock deliverable in respect of each share of LSB Common Stock, as the case may be, such shareholder holds as

7

determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of FNB, LSB, the Exchange Agent or any other person shall be liable to any former holder of shares of FNB Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.

(h)   In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by LSB, the posting by such person of a bond in such amount as LSB reasonably may determine is necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of LSB Common Stock in book entry form and any cash in lieu of fractional shares deliverable in respect thereof pursuant to this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF LSB

Except as disclosed in the LSB disclosure schedule delivered to FNB concurrently herewith (the "LSB Disclosure Schedule"), LSB hereby represents and warrants to FNB as follows:

3.1   Corporate Organization .

(a)   LSB is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina. LSB has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not, either individually or in the aggregate, have a Material Adverse Effect on LSB. LSB is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). True and complete copies of the Charter and By-Laws of LSB, as in effect as of the date of this Agreement, have previously been made available by LSB to FNB.

As used in this Agreement, the term "Material Adverse Effect" means, with respect to FNB, LSB or the Surviving Corporation, as the case may be, a material adverse effect on (i) the business, operations, results of operations or financial condition of such party and its Subsidiaries taken as a whole or (ii) the ability of such party to timely consummate the transactions contemplated hereby on a timely basis; provided that, in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent attributable to or resulting from (A) any changes in laws, regulations or interpretations of laws or regulations generally affecting the banking, bank holding company or financial holding company businesses, (B) any change in generally accepted accounting principles recognized in the United States

8

("GAAP") or regulatory accounting requirements, generally affecting the banking, bank holding company or financial holding company businesses, (C) events, conditions or trends in economic, business or financial conditions generally affecting the banking, bank holding company or financial holding company businesses specifically, (D) changes in national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (E) the effect of the actions expressly permitted or required by this Agreement or that are taken with the prior informed written consent of the other party in contemplation of the transactions contemplated hereby, and (F) the announcement of this Agreement and the transactions contemplated hereby. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any bank, savings bank, corporation, partnership, limited liability company, business trust, or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes or is a special purpose entity which issues trust preferred securities.

(b)   Each LSB Subsidiary (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified and in which the failure to be so qualified would have a Material Adverse Effect on LSB and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted.

3.2   Capitalization .

(a)   The authorized capital stock of LSB consists of (i) 50,000,000 shares of LSB Common Stock, of which, as of February 22, 2007, 8,412,567 shares were issued and outstanding and (ii) 10,000,000 shares of preferred stock, $.01 par value per share (the "LSB Preferred Stock" and, together with the LSB Common Stock, the "LSB Capital Stock"), of which, as of the date hereof, no shares are issued and outstanding. All of the issued and outstanding shares of LSB Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except pursuant to the terms of (i) options to acquire 604,925 shares of LSB Common Stock issued pursuant to employee and director stock plans of LSB in effect as of the date hereof (the "LSB Stock Plans"), and (ii) rights issued under and shares reserved for issuance pursuant to the LSB Rights Agreement, dated as of February 10, 1998 (the "LSB Rights Agreement"), LSB does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of LSB Capital Stock or any other equity securities of LSB or any securities representing the right to purchase or otherwise receive any shares of LSB Capital Stock (collectively, including the items contemplated by clauses (i) and (ii) of this sentence, the "LSB Rights"). As of the date hereof, no shares of LSB Capital Stock were reserved for issuance, except for 10,000,000 shares of LSB Common Stock reserved for issuance under the LSB Rights Agreement and 604,925 shares of LSB Common Stock reserved for issuance upon the exercise of stock options pursuant to the LSB Stock Plans. Since December

9

31, 2005, LSB has not issued any shares of LSB Capital Stock or any securities convertible into or exercisable for any shares of LSB Capital Stock, other than as would be permitted by Section 5.2(b) hereof and pursuant to employee or director stock options granted prior to that date. LSB has previously provided FNB with a list of the option holders, the date of each option to purchase LSB Common Stock granted, the number of shares subject to each such option, the expiration date of each such option and the price at which each such option may be exercised under an applicable LSB Stock Plan. In no event will the aggregate number of shares of LSB Common Stock outstanding at the Effective Time (including all shares of LSB Common Stock subject to then outstanding LSB Rights) exceed the number specified in Section 3.2(a) of the LSB Disclosure Schedule.

(b)   LSB owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of the LSB Subsidiaries, free and clear of any liens, pledges, charges, encumbrances and security interests whatsoever ("Liens"), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (subject to N.C. Gen. Stat. § 53-42) and free of preemptive rights, with no personal liability attaching to the ownership thereof. No LSB Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. Section 3.2(b) of the LSB Disclosure Schedule sets forth a list of the material investments of LSB in Non-Subsidiary Affiliates. As used in this Agreement, the term "Non-Subsidiary Affiliate" when used with respect to any party means any corporation, partnership, limited liability company, trust, joint venture or other entity other than such party’s Subsidiaries.

(c)   This Agreement and the transactions it contemplates do not give rise to any rights to purchase LSB Common Stock or other Securities under the LSB Rights Agreement.

3.3   Authority; No Violation .

(a)   LSB has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the Board of Directors of LSB. The Board of Directors of LSB has directed that this Agreement and the transactions contemplated hereby be submitted to LSB’s shareholders for adoption at a meeting of such shareholders and, except for the adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of LSB Common Stock, no other corporate proceedings on the part of LSB are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by LSB and (assuming due authorization, execution and delivery by FNB) constitute a valid and binding obligation of LSB, enforceable against LSB in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies).

10

(b)   Neither the execution and delivery by LSB of this Agreement nor the consummation by LSB of the transactions contemplated hereby or thereby, nor compliance by LSB with any of the terms or provisions hereof or thereof, will (i) violate any provision of the LSB Charter or By-Laws or (ii) assuming that the consents and approvals referred to in Section 3.4 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to LSB, any of its Subsidiaries or Non-Subsidiary Affiliates or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of LSB, any of its Subsidiaries or Non-Subsidiary Affiliates under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which LSB, any of its Subsidiaries or its Non-Subsidiary Affiliates is a party, or by which they or any of their respective properties or assets may be bound or affected, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults which, either individually or in the aggregate, will not have a Material Adverse Effect on LSB.

3.4   Consents and Approvals . Except for (i) the filing of applications and notices, as applicable, with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the BHC Act, and approval of such applications and notices, (ii) the filing of any other required applications or notices with any state, federal or foreign agencies and approval of such applications and notices (the "State Approvals"), (iii) the filing with the Securities and Exchange Commission (the "SEC") of a joint proxy statement in definitive form relating to the meetings of LSB’s and FNB’s shareholders to be held in connection with this Agreement and the transactions contemplated hereby (the "Joint Proxy Statement"), and of the registration statement on Form S-4 (the "S-4") in which the Joint Proxy Statement will be included as a prospectus, (iv) the filing of the Articles of Merger with the North Carolina Secretary pursuant to the NCBCA and Chapter 53 of the North Carolina General Statutes, (v) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers, investment advisers or transfer agents, and the rules and regulations thereunder, and of any applicable industry self-regulatory organization ("SRO"), or which are required under consumer finance, mortgage banking and other similar laws, (vi) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of LSB Common Stock pursuant to this Agreement and (vii) the approval of this Agreement by the requisite votes of the shareholders of FNB and LSB (including the approval of the amendments of the Charter contemplated by Sections 1.1 and 1.7), no consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a "Governmental Entity") are necessary in connection with (A) the execution and delivery by LSB of this Agreement and (B) the consummation by LSB of the Merger and the other transactions contemplated hereby.

3.5   Reports . LSB and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 2003 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation ("FDIC"), (iii) any state regulatory authority (each a "State Regulator"), (iv) the SEC, and (v) any SRO (collectively "Regulatory Agencies"), and all other reports and statements required to be filed by them since January 1, 2003, including, without limitation, any report or statement

11

required to be filed pursuant to the laws, rules or regulations of the United States, any state, or any Regulatory Agency ("LSB Reports"), and have paid all fees and assessments due and payable in connection therewith, except where the failure to file such report, registration or statement or to pay such fees and assessments, either individually or in the aggregate, will not have a Material Adverse Effect on LSB. Except for normal examinations conducted by a Regulatory Agency in the ordinary course of the business of LSB and its Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best knowledge of LSB, investigation into the business or operations of LSB or any of its Subsidiaries since January 1, 2003, except where such proceedings or investigation will not, either individually or in the aggregate, have a Material Adverse Effect on LSB. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of LSB or any of its Subsidiaries which, in the reasonable judgment of LSB, will, either individually or in the aggregate, have a Material Adverse Effect on LSB.

3.6   Financial Statements . LSB has previously made available to FNB true and correct copies of the consolidated balance sheets of LSB and its Subsidiaries as of December 31, 2004 and 2005 and the related consolidated statements of income and changes in stockholders’ equity and cash flows for the fiscal years 2004 and 2005 and its unaudited consolidated balance sheets and related consolidated statements of income and changes in stockholders’ equity and cash flows as of September 30, 2006, and will promptly make available to FNB true and correct copies of the consolidated balance sheets of LSB and its Subsidiaries as of December 31, 2006 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the 2006 fiscal year (the "LSB Financial Statements"), in each case, other than the unaudited statements as of September 30, 2006, accompanied by the audit report of Turlington and Company, LLP, independent registered public accounting firm with respect to LSB. The December 31, 2005 and September 30, 2006 consolidated balance sheet of LSB (including the related notes, where applicable) fairly present, and the December 31, 2006 consolidated balance sheet of LSB (including related notes where applicable) will fairly present, in all material respects the consolidated financial position of LSB and its Subsidiaries as of the dates thereof, and the other financial statements referred to in this Section 3.6 (including the related notes, where applicable) fairly present or will fairly present in all material respects the results of the consolidated operations, changes in stockholders’ equity, cash flows and consolidated financial position of LSB and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth, subject to normal adjustments in the case of unaudited statements; each of such statements (including the related notes, where applicable) complies in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been prepared in all material respects in accordance with GAAP consistently applied during the

12

periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of LSB and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.

3.7   Broker’s Fees . Except for BankersBanc Capital Corporation, neither LSB nor any LSB Subsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement.

3.8   Absence of Certain Changes or Events . 

(a)   Except as publicly disclosed in LSB Reports filed prior to the date hereof, since December 31, 2005, no event or events have occurred that have had, either individually or in the aggregate, a Material Adverse Effect on LSB.

(b)   Except as publicly disclosed in LSB Reports filed prior to the date hereof, since December 31, 2005, LSB and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.

(c)   Since December 31, 2005, neither LSB nor any of its Subsidiaries has (i) except for such actions as are in the ordinary course of business or except as required by applicable law, (A) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount thereof in effect as of December 31, 2005, or (B) granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonuses, which in the aggregate exceed 5% of LSB’s 2005 salary and employee benefits expenses (other than customary year-end bonuses for fiscal years 2005 and 2006) or (ii) suffered any strike, work stoppage, slowdown, or other labor disturbance which will, either individually or in the aggregate, have a Material Adverse Effect on LSB.

3.9   Legal Proceedings .

(a)   Neither LSB nor any of its Subsidiaries is a party to any, and there are no pending or, to the best of LSB’s knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against LSB or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement as to which, in any such case, there is a reasonable probability of an adverse determination and which, if adversely determined, will, either individually or in the aggregate, have a Material Adverse Effect on LSB.

(b)   There is no injunction, order, judgment, decree, or regulatory restriction (other than those that apply to similarly situated bank holding companies or banks) imposed upon LSB, any of its Subsidiaries or the assets of LSB or any of its Subsidiaries that has had, or will have, either individually or in the aggregate, a Material Adverse Effect on LSB or the Surviving Corporation.

13

3.10   Taxes and Tax Returns.

(a)   Each of LSB and its Subsidiaries has duly filed all federal, state, foreign and local information returns and tax returns required to be filed by it on or prior to the date hereof (all such returns being accurate and complete in all material respects) and has duly paid or made provisions for the payment of all Taxes (as defined below) and other governmental charges which have been incurred or are due or claimed to be due from it by federal, state, foreign or local taxing authorities on or prior to the date of this Agreement (including, without limitation, if and to the extent applicable, those due in respect of its properties, income, business, capital stock, deposits, franchises, licenses, sales and payrolls) other than (i) Taxes or other charges which are not yet delinquent or are being contested in good faith and have not been finally determined, or (ii) information returns, tax returns, Taxes or other governmental charges as to which the failure to file, pay or make provision for will not, either individually or in the aggregate, have a Material Adverse Effect on LSB. No Tax return or report of LSB or its Subsidiaries has been subjected to audit or examination by the Internal Revenue Service (the "IRS") or the North Carolina Department of Revenue in the last five years and neither LSB nor any of its Subsidiaries has received any indication of a pending audit or examination in connection with any Tax return or report and, to the best of LSB’s knowledge, no such return or report is subject to adjustment. Neither LSB nor any of its Subsidiaries has executed any waiver or extended the statute of limitations (or been asked to execute a waiver or extend a statute of limitations) with respect to any tax year, the audit of any such tax return or report, or the assessment or collection of any tax. To the best of LSB’s knowledge, there are no material disputes pending, or claims asserted for, Taxes or assessments upon LSB or any of its Subsidiaries for which LSB does not have adequate reserves. In addition, (A) proper and accurate amounts have been withheld by LSB and its Subsidiaries from their employees for all prior periods in compliance in all material respects with the tax withholding provisions of applicable federal, state and local laws, except where failure to do so will not, either individually or in the aggregate, have a Material Adverse Effect on LSB, (B) federal, state, and local returns which are accurate and complete in all material respects have been filed by LSB and its Subsidiaries for all periods for which returns were due with respect to income tax withholding, Social Security and unemployment taxes, except where failure to do so will not, either individually or in the aggregate, have a Material Adverse Effect on LSB, (C) the amounts shown on such federal, state or local returns to be due and payable have been paid in full or adequate provision therefor has been included by LSB in its consolidated financial statements, except where failure to do so will not, either individually or in the aggregate, have a Material Adverse Effect on LSB and (D) there are no Tax liens upon any property or assets of LSB or its Subsidiaries except liens for current taxes not yet due or liens that will not, either individually or in the aggregate, have a Material Adverse Effect on LSB. Neither LSB nor any of its Subsidiaries has been required to include in income any adjustment pursuant to Section 481 of the Code by reason of a voluntary change in accounting method initiated by LSB or any of its Subsidiaries, and the IRS has not initiated or proposed any such adjustment or change in accounting method, in either case which has had or will have, either individually or in the aggregate, a Material Adverse Effect on LSB. Except as set forth in the financial statements described in Section 3.6, neither LSB nor any of its Subsidiaries has entered into a transaction which is being accounted for as an installment obligation under Section 453 of the Code, which will have, either individually or in the aggregate, a Material Adverse Effect on LSB.

14

(b)   As used in this Agreement, the term "Tax" or "Taxes" means all federal, state, local, and foreign income, excise, gross receipts, gross income, ad valorem, profits, gains, property, capital, sales, transfer, use, payroll, employment, severance, withholding, duties, intangibles, franchise, backup withholding, and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon.

(c)   Neither LSB nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement solely among LSB and its Subsidiaries). Neither LSB nor any of its Subsidiaries has any liability for the Taxes of any person (other than LSB and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law). Within the past five years, neither LSB nor any of its Subsidiaries has been a "distributing corporation" or a "controlled corporation" in a distribution intended to qualify under Section 355 (a) of the Code.

(d)   No disallowance of a deduction under Section 162(m) of the Code for employee remuneration of any amount paid or payable by LSB or any Subsidiary of LSB under any contract, plan, program, arrangement or understanding will have, either individually or in the aggregate, a Material Adverse Effect on LSB.

3.11   Employees .

(a)   The LSB Disclosure Schedule sets forth a true and complete list of each material employee or director benefit plan, arrangement or agreement that is maintained, or contributed to, as of the date of this Agreement (the "LSB Benefit Plans") by LSB, any of its Subsidiaries or by any trade or business, whether or not incorporated (a "LSB ERISA Affiliate"), all of which together with LSB would be deemed a "single employer" within the meaning of Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

(b)   LSB has heretofore made available to FNB true and complete copies of each of the LSB Benefit Plans and certain related documents, including, but not limited to, (i) the actuarial report for such LSB Benefit Plan (if applicable) for each of the last two years and (ii) the most recent determination letter from the IRS (if applicable) for such LSB Benefit Plan.

(c)   (i) Each of the LSB Benefit Plans has been operated and administered in all material respects in compliance with applicable laws, including, but not limited to, ERISA and the Code, (ii) each of the LSB Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, and there are no existing circumstances or any events that have occurred that will adversely affect the qualified status of any such LSB Benefit Plan, (iii) with respect to each LSB Benefit Plan that is subject to Title IV of ERISA, the present value of accrued benefits under such LSB Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such LSB Benefit Plan’s actuary with respect to such LSB Benefit Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such LSB Benefit Plan allocable to such accrued benefits, (iv) no LSB Benefit Plan provides benefits, including, without limitation, death or medical benefits (whether or not insured), with respect to current or former employees or directors of LSB or its Subsidiaries beyond their retirement or other termination of service, other than (A) coverage mandated by applicable law, (B) death benefits or retirement benefits under any "employee

15

pension plan" (as such term is defined in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities on the books of LSB or its Subsidiaries or (D) benefits the full cost of which is borne by the current or former employee or director (or his beneficiary), (v) no material liability under Title IV of ERISA has been incurred by LSB, its Subsidiaries or any LSB ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to LSB, its Subsidiaries or any LSB ERISA Affiliate of incurring a material liability thereunder, (vi) no LSB Benefit Plan is a "multiemployer pension plan" (as such term is defined in Section 3(37) of ERISA), (vii) all contributions or other amounts payable by LSB or its Subsidiaries as of the Effective Time with respect to each LSB Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) none of LSB, its Subsidiaries or any other person, including any fiduciary, has engaged in a transaction in connection with which LSB, its Subsidiaries or any LSB Benefit Plan will be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to the best knowledge of LSB there are no pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against, any of the LSB Benefit Plans or any trusts related thereto that will have, either individually or in the aggregate, a Material Adverse Effect on LSB.

(d)   Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) (i) result (either alone or upon the occurrence of any additional acts or events) in any payment (including, without limitation, severance, unemployment compensation, "excess parachute payment" (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any director or any employee of LSB or any of its affiliates from LSB or any of its affiliates under any LSB Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any LSB Benefit Plan or (iii) other than the LSB Corporation Directors’ Stock Deferral Plan with respect to directors of LSB not continuing their service on the Board of Directors of the Surviving Corporation, result in any acceleration of the time of payment or vesting of any such benefits which will, either individually or in the aggregate, have a Material Adverse Effect on LSB.

(e)   The Lexington State Bank Employees’ Pension Plan was "frozen" by LSB and Lexington State Bank, effective as of December 31, 2006.

3.12   SEC Reports . LSB has previously made available to FNB an accurate and complete copy of each (a) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 2003 by LSB (the "LSB SEC Reports") with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act") and prior to the date hereof and (b) communication mailed by LSB to its shareholders since January 1, 2003 and prior to the date hereof, and no such LSB SEC Report or communication, as of the date thereof, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date (but before the date hereof) shall be deemed to modify

16

information as of an earlier date. Since January 1, 2003, as of their respective dates, all LSB SEC Reports filed under the Securities Act and the Exchange Act complied in all material respects with the published rules and regulations of the SEC with respect thereto.

3.13   Compliance with Applicable Law .

(a)   LSB and each of its Subsidiaries hold all material licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to each, and have complied in all material respects with and are not in default in any material respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to LSB or any of its Subsidiaries, except where the failure to hold such license, franchise, permit or authorization or such noncompliance or default will not, either individually or in the aggregate, have a Material Adverse Effect on LSB.

(b)   Except as will not have, either individually or in the aggregate, a Material Adverse Effect on LSB, LSB and each LSB Subsidiary have properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents, applicable state and federal law and regulation and common law. None of LSB, any LSB Subsidiary, or any director, officer or employee of LSB or of any LSB Subsidiary, has committed any breach of trust with respect to any such fiduciary account that will have a Material Adverse Effect on LSB, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account.

3.14   Certain Contracts .

(a)   Neither LSB nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers or employees, other than in the ordinary course of business consistent with past practice, (ii) which, upon the consummation or shareholder approval of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from FNB, LSB, the Surviving Corporation, or any of their respective Subsidiaries to any officer or employee thereof which, individually or in the aggregate, will have a Material Adverse Effect on LSB, (iii) which is a "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement that has not been filed or incorporated by reference in the LSB Reports, (iv) which materially restricts the conduct of any line of business by LSB or upon consummation of the Merger will materially restrict the ability of the Surviving Corporation to engage in any line of business in which a bank holding company may lawfully engage, (v) with or to a labor union or guild (including any collective bargaining agreement) or (vi) (including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan) any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any shareholder approval or the consummation of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement which, individually or in the aggregate, will

17

have a Material Adverse Effect on LSB. LSB has previously made available to FNB true and correct copies of all employment and deferred compensation agreements which are in writing and to which LSB is a party. Each contract, arrangement, commitment or understanding of the type described in this Section 3.14(a), whether or not set forth in the LSB Disclosure Schedule, is referred to herein as a "LSB Contract", and neither LSB nor any of its Subsidiaries knows of, or has received notice of, any violation of the above by any of the other parties thereto which, either individually or in the aggregate, will have a Material Adverse Effect on LSB.

(b) (i) Each LSB Contract is valid and binding on LSB or any of its Subsidiaries, as applicable, and in full force and effect, (ii) LSB and each of its Subsidiaries has in all material respects performed all obligations required to be performed by it to date under each LSB Contract, except where such noncompliance, either individually or in the aggregate, will not have a Material Adverse Effect on LSB, and (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material default on the part of LSB or any of its Subsidiaries under any such LSB Contract, except where such default, either individually or in the aggregate, will not have a Material Adverse Effect on LSB.

3.15   Agreements with Regulatory Agencies . Neither LSB nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been since January 1, 2003, a recipient of any supervisory letter from, or since January 1, 2003, has adopted any board resolutions at the request of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its credit policies, its management or its business (each, whether or not set forth in the LSB Disclosure Schedule, an "LSB Regulatory Agreement"), nor has LSB or any of its Subsidiaries been advised since January 1, 2003, by any Regulatory Agency or other Governmental Entity that it is considering issuing or requesting any such Regulatory Agreement.

3.16   Interest Rate Risk Management Instruments . All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements, whether entered into for the account of LSB or for the account of a customer of LSB or one of its Subsidiaries, were entered into in the ordinary course of business and, to the best of LSB’s knowledge, in accordance with prudent banking practice and applicable rules, regulations and policies of any Regulatory Authority and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations of LSB or one of its Subsidiaries enf