SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party Other Than the Registrant [ ]

Check the Appropriate Box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only
(As Permitted by Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

LSB BANCSHARES, INC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)

Payment of Filing Fee (Check the Appropriate Box):

[X] No Fee Required.

[ ] Fee Computed On Table Below Per Exchange Act Rules 14a-6(i)(l) and 0-11.
(1) Title of Each Class of Securities to Which Transaction Applies:
(2) Aggregate Number of Securities to Which Transaction Applies:
(3) Per Unit Price or Other Underlying Value of Transaction
Computed Pursuant to Exchange Act Rule 0-11 (Set Forth the Amount
On Which the Filing Fee is Calculated and State How It was
Determined):
(4) Proposed Maximum Aggregate Value of Transaction: (5) Total
Fee Paid:

[ ] Fee Paid Previously With Preliminary Materials.

[ ] Check Box If Any Part of the Fee is Offset as Provided by
Exchange Act Rule 0-11(a)(2) and Identify the Filing for Which
the Offsetting Fee was Paid Previously. Identify the Previous
Filing by Registration Statement Number, or the Form or Schedule
and the Date of Its Filing.
(1) Amount Previously Paid: $
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:

NOTICE OF ANNUAL MEETING OF THE SHAREHOLDERS OF
LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292

To the Shareholders of LSB Bancshares, Inc.:

Notice is hereby given that the Annual Meeting of Shareholders of LSB
Bancshares, Inc. ("Bancshares"), called under authority of Article 2, Section 2,
of the Bylaws of Bancshares, will be held at the J. Smith Young YMCA, located at
119 West Third Avenue, Lexington, North Carolina 27292, on Wednesday, April 21,
1999 at 1:00 p.m. Shareholders of record at the close of business on March 8,
1999 are entitled to notice of and to vote at the meeting and any adjournment
thereof.

The purposes of the meeting are to consider and act upon the following
proposals:

-- To elect six members of the Board of Directors;

-- To ratify the appointment of Turlington and Company, L.L.P.,
to conduct the independent audit for 1999;

-- To consider and act upon a shareholder proposal by W. Robert
Koontz relating to minimum share ownership requirements for
directors of Bancshares; and

-- To consider such other business as may properly come before
the meeting.

We urge you to attend this meeting. It is extremely important that your
shares be represented regardless of the number you own. Please sign and return
your proxy to Bancshares in the enclosed envelope at your earliest convenience.
Unless you indicate to the contrary, your proxy will be cast FOR the nominees
for director named in the accompanying Proxy Statement, FOR the ratification of
the appointment of Turlington and Company, L.L.P. to conduct the independent
audit for 1999, and AGAINST the shareholder proposal relating to minimum share
ownership requirements for directors of Bancshares, each as described in more
detail in the accompanying Proxy Statement.

This 22nd day of March, 1999.

Yours very truly,

Robert F. Lowe
Chairman, President and
Chief Executive Officer

LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292

PROXY STATEMENT

The accompanying proxy is solicited by and on behalf of the Board of
Directors of LSB Bancshares, Inc. ("Bancshares") for use at the Annual Meeting
of Shareholders to be held on Wednesday, April 21, 1999 at 1:00 p.m. at the J.
Smith Young YMCA, located at 119 West Third Avenue, Lexington, North Carolina
27292, and at any adjournment thereof. The entire cost of such solicitation will
be borne by Bancshares. In addition, personal solicitation may be conducted by
directors, officers and employees of Bancshares and its subsidiary, Lexington
State Bank (the "Bank"). This Proxy Statement and the accompanying proxy card
were first mailed to shareholders on or about March 22, 1999.

The shares of Bancshares common stock (the "Common Stock") represented
by the accompanying proxy card will be voted at the meeting if the proxy card is
properly signed, dated and received by Bancshares prior to the time of the
meeting. Where a choice is specified on the proxy card as to the vote on any
matter to come before the meeting, the proxy will be voted in accordance with
such specification. If no choice is specified, the proxy will be voted for the
nominees for director named herein, for the ratification of the appointment of
Turlington and Company, L.L.P. to conduct the independent audit for 1999, and
against the shareholder proposal relating to minimum share ownership
requirements for directors of Bancshares. Any shareholder giving a proxy has the
right to revoke it at any time before it is voted by delivering a written
revocation or an executed proxy bearing a later date to the Secretary of
Bancshares or by attending and voting in person at the meeting. If a shareholder
is a participant in the Shareholder Dividend Reinvestment and Stock Purchase
Plan, the proxy represents the number of shares of Common Stock in the
shareholder's dividend reinvestment account as well as shares held of record
directly by the shareholder.

VOTING PROCEDURES

Shareholders of record at the close of business on March 8, 1999 will
be entitled to vote at the Annual Meeting of Shareholders. At the close of
business on March 8, 1999, 8,642,988 shares of Common Stock were outstanding and
entitled to vote. There is no other class of authorized stock. On all matters
considered at the meeting, shareholders are entitled to one vote for each share
held.

The laws of North Carolina, under which Bancshares is incorporated,
provide that, in connection with the election of directors, the persons
receiving a plurality of the votes cast will be elected as directors. The
proposal to ratify the appointment of Turlington and Company, L.L.P. to conduct
the independent audit of Bancshares for 1999, and the proposal relating to
minimum share ownership requirements for directors will be approved if the
number of votes cast "for" each such proposal exceeds the number of votes cast
"against" such proposal. Shares held of record by a broker or its nominee
("Broker Shares") and abstentions that are voted on any matter will be counted
for purposes of determining the existence of a quorum at the Annual Meeting.
Broker Shares that are not voted on any matter at the Annual Meeting will not be
included in determining whether a quorum is present at the Annual Meeting.
Abstentions and Broker Shares that are not voted on a particular proposal will
not be counted as votes for or against such proposals and will have the same
effect as negative votes.

PROPOSAL 1: ELECTION OF DIRECTORS

The Bylaws of Bancshares provide for a classified Board of Directors
consisting of not less than nine and not more than 24 directors, the number to
be determined by resolution of a majority of the Board of Directors or by
resolution of the shareholders at any meeting thereof. The Board of Directors,
by resolution, has set the number of directors at 14. Other than Marvin D.
Gentry and Sue H. Hunter, the persons nominated by the Board of Directors to
serve as directors for a three-year term expiring at the 2002 Annual Meeting, as
set forth below, were elected as directors at the 1996 Annual Meeting. Mr.
Gentry was initially appointed to the Board of Directors in connection with the
1997 acquisition of Old North State Bank and was subsequently elected by the
shareholders at the 1998 Annual Meeting to serve for a term expiring at the
1999 Annual Meeting. Ms. Hunter was appointed by the Board of Directors on
January 12, 1999 to fill the vacancy left by the retirement of Margaret Lee
Crowell and is being nominated to serve for the unexpired term of Ms. Crowell,
which expires at the 2000 Annual Meeting.

The persons named as proxies in the accompanying proxy card intend to
vote in favor of the nominees named below. Such nominees have consented to serve
as directors of Bancshares if elected. If, at the time of the meeting, any of
such nominees are unable or unwilling to serve, the discretionary authority
provided in the accompanying proxy card will be exercised to vote for such other
person or persons for the office of director as may be nominated by the Board of
Directors. Proxies cannot be voted for a greater number of nominees than the
number named in this Proxy Statement.

The number of years of service on the Board of Directors indicated in
the following table includes service on the Board of Directors of the Bank prior
to the incorporation of Bancshares.

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5

NOMINEES FOR ELECTION AS DIRECTORS
TO SERVE UNTIL THE 2002 ANNUAL MEETING

DIRECTOR PRINCIPAL OCCUPATION
NAME AND AGE SINCE FOR PAST FIVE YEARS
- ------------ -------- --------------------

Leonard H. Beck (63) 1995 President, Green Printing Company; Director of the
National Association of Printers and Lithographers

Marvin D. Gentry (63) 1997 President and CEO of The New Fortis Corporation, a
wholly-owned subsidiary of K. Hovnanian Enterprises

Samuel R. Harris (57) 1990 Physician

David A. Smith (60) 1990 Owner, Red Acres Dairy Farm

Burr W. Sullivan (52) 1987 President, Dorsett Printing and Lithograph Corporation

NOMINEE FOR ELECTION AS A DIRECTOR
TO SERVE UNTIL THE 2000 ANNUAL MEETING

DIRECTOR PRINCIPAL OCCUPATION
NAME AND AGE SINCE FOR PAST FIVE YEARS
- ------------ -------- --------------------

Sue H. Hunter (63) 1999 President and Co-owner of Thomasville Emporium; Vice
President of Side Street Cafe; former Davidson County
Commissioner and Vice Chairperson

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INCUMBENT DIRECTORS
SERVING UNTIL THE 2000 ANNUAL MEETING

DIRECTOR PRINCIPAL OCCUPATION
NAME AND AGE SINCE FOR PAST FIVE YEARS
- ------------ -------- --------------------

Robert F. Lowe (56) 1983 Chairman, President and CEO of Bancshares, the Bank
and Peoples Finance Company of Lexington, Inc., a
subsidiary of the Bank; President and a director of LSB
Financial Services, Inc., a subsidiary of the Bank

Roberts E. Timberlake (62) 1979 Artist/Designer; Chairman, Bob Timberlake, Inc.

Lloyd G. Walter, Jr. (64) 1997 Vice President and Chairman of Walter, Robbs, Callahan
and Pierce, Architects, P.A.

Julius S. Young, Jr. (51) 1988 President, Jay Young Management, Inc.

INCUMBENT DIRECTORS
SERVING UNTIL THE 2001 ANNUAL MEETING

DIRECTOR PRINCIPAL OCCUPATION
NAME AND AGE SINCE FOR PAST FIVE YEARS
- ------------ -------- --------------------

Michael S. Albert (44) 1995 President, CEO and Director of Billings Freight Systems,
Inc.; Treasurer of Cargo Carriers, Inc.; Vice President
of Metro Motor Express, Inc.

Peggy B. Barnhardt (65) 1995 Retired since 1996; formerly Deputy Superintendent,
Davidson County Schools

Walter A. Hill, Sr. (59) 1983 President, Hill Oil Company, Inc.; Vice President and
Secretary, NorthCo, Inc. (construction development)

Robert B. Smith, Jr. (60) 1969 Attorney

MANAGEMENT'S OWNERSHIP OF COMMON STOCK

The following table sets forth information concerning the beneficial
ownership of Common Stock by each director, nominee for director and each
executive officer named under the heading "Executive Compensation" herein, and
by all directors and executive officers as a group as of March 8, 1999.
Management is aware of no person who beneficially owns more than five percent of
the outstanding shares of Common Stock. According to rules promulgated by the
Securities and Exchange Commission (the "SEC"), a person is the "beneficial
owner" of securities if he or she has

4
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or shares the power to vote them or to direct their investment, or has the right
to acquire ownership of such securities within 60 days through the exercise of
an option, warrant, right of conversion of a security or otherwise.

Amount and Nature of Beneficial Ownership of Common Stock
----------------------------------------------------------------------------
Name of Sole Voting And Shared Voting And %
Beneficial Owner Investment Power Investment Power Total of Total
- -------------------------------------------------------------------------------------------------------------------

Michael S. Albert 4,227 (1) 5,396 9,623 *
Peggy B. Barnhardt 2,808 (2) 2,808 *
Leonard H. Beck 4,077 (3) 4.077 *
Marvin D. Gentry 11,627 (4) 11,266 22,893 *
Samuel R. Harris 4,783 (5) 4,783 *
Walter A. Hill, Sr. 12,759 (6) 8,755 21,514 *
Sue H. Hunter 250 250 500 *
Robert F. Lowe 112,247 (7) 39,243 151,490 1.7
David A. Smith 3,506 (8) 11,190 14,696 *
Robert B. Smith, Jr. 24,159 (9) 24,159 *
Burr W. Sullivan 5,597 (10) 3,889 9,486 *
Roberts E. Timberlake 11,361 (11) 14,615 (12) 25,976 *
Lloyd G. Walter, Jr. 6,478 (13) 1,288 7,766 *
Julius S. Young, Jr. 3,827 (14) 30,847 34,674 *
Monty J. Oliver 43,833 (15) 55 43,888 *
H. Franklin Sherron, Jr. 53,930 (16) 14,287 68,217 *
All directors and executive
officers as a group
(16 persons) 305,469 141,081 446,550 5.1

- ----------------------------------
* An asterisk indicates less than one percent.
(1) Includes 2,500 shares subject to options exercisable on or before May
8, 1999.
(2) Includes 1,500 shares subject to options exercisable on or before May
8, 1999.
(3) Includes 1,250 shares subject to options exercisable on or before May
8, 1999.
(4) Includes 625 shares subject to options exercisable on or before May 8,
1999.
(5) Includes 3,125 shares subject to options exercisable on or before May
8, 1999.
(6) Includes 3,125 shares subject to options exercisable on or before May
8, 1999.
(7) Includes 77,807 shares subject to options exercisable on or before May
8, 1999.
(8) Includes 2,500 shares subject to options exercisable on or before May
8, 1999.
(9) Includes 2,500 shares subject to options exercisable on or before May
8, 1999.
(10) Includes 3,125 shares subject to options exercisable on or before May
8, 1999.
(11) Includes 3,125 shares subject to options exercisable on or before May
8, 1999.
(12) Includes: (a) 4,964 shares held by the Bank as trustee of certain
trusts for the benefit of Mr. Timberlake's wife, over which Mr.
Timberlake shares investment power but has no voting power and (b)
7,564 shares held in trusts for Mr. Timberlake's benefit, over which
Mr. Timberlake shares investment power with the Bank as trustee and
over which the Bank has exclusive voting power.
(13) Includes 625 shares subject to options exercisable on or before May 8,
1999.
(14) Includes 3,125 shares subject to options exercisable on or before May
8, 1999.
(15) Includes 29,372 shares subject to options exercisable on or before May
8, 1999.
(16) Includes 31,872 shares subject to options exercisable on or before May
8, 1999.

5
8

CORPORATE GOVERNANCE

The Board of Directors of Bancshares has standing Executive, Stock
Option and Compensation, and Audit Committees. There are no other committees of
the Board of Directors of Bancshares. The entire Board of Directors of
Bancshares nominates persons to serve as directors.

The Executive Committee of Bancshares reviews various matters and
submits proposals or recommendations to Bancshares' Board of Directors. The
Executive Committee is empowered to and does act for Bancshares' Board of
Directors on certain matters. Members of the Executive Committee are Robert F.
Lowe, David A. Smith, Robert B. Smith, Jr., Burr W. Sullivan and Julius S.
Young, Jr. Bancshares' Executive Committee met once during 1998.

The Stock Option and Compensation Committee administers the 1986
Employee Incentive Stock Option Plan, the 1996 Omnibus Stock Incentive Plan and
the Management Incentive Plan (the "Incentive Plan") and the Old North State
Bank 1990 Incentive Stock Option Plan and the Piedmont BancShares Corporation
Stock Option Plan, both of which were assumed by Bancshares in connection with
its acquisition of Old North State Bank. The Stock Option and Compensation
Committee selects key employees for participation in such plans and determines
the timing, pricing and amount of stock options granted and the amount of
incentive compensation earned pursuant to the plans within the terms of the
plans. The Stock Option and Compensation Committee is also responsible for
administering the 1994 Director Stock Option Plan. The Stock Option and
Compensation Committee was comprised of Michael S. Albert, Robert B. Smith, Jr.,
Mr. Sullivan, Roberts E. Timberlake, Mr. Young, Lloyd G. Walter, Jr. and
Margaret Lee W. Crowell, who retired from the Board of Directors on December 31,
1998. The committee met four times during 1998.

Messrs. Sullivan, Albert, Walter A. Hill, Sr., Robert B. Smith, Jr.,
Marvin D. Gentry and Young are members of Bancshares' Audit Committee.
Bancshares' Audit Committee reviews and approves various audit functions and is
responsible for reviewing and approving the Bank's internal audits and the
separate examinations of the Bank by the Federal Deposit Insurance Corporation
and the North Carolina Commissioner of Banks. Bancshares' Audit Committee met
twice during 1998.

The Board of Directors of the Bank has a standing Executive Committee.
The Executive Committee of the Bank reviews various matters and submits
proposals or recommendations to the Bank's Board of Directors. The Executive
Committee is empowered to and does act for the Bank's Board of Directors on
certain matters. The Bank's Executive Committee is comprised of Messrs. Lowe,
David A. Smith, Robert B. Smith, Jr., Sullivan and Young. During 1998, 19
meetings of the Bank's Executive Committee took place.

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9

During 1998, the Board of Directors of Bancshares met 14 times and the
Board of Directors of the Bank met 15 times. All directors attended at least 75
percent of the aggregate of the total number of meetings of the Board of
Directors of Bancshares and the Bank (held during the period for which each
person was a director) and the total number of meetings held by all committees
of the Boards on which such directors served during 1998.

Shareholders entitled to vote in the election of directors may nominate
candidates for consideration by the Board of Directors of Bancshares. Pursuant
to the Bylaws of Bancshares, notice of nominations made by shareholders with
respect to the 2000 annual meeting must be received in writing by the Secretary
of Bancshares no earlier than January 7, 2000 and no later than February 1, 2000
and must set forth (i) the name, age, business address and, if known, residence
address of the nominee, (ii) the principal occupation or employment of the
nominee, (iii) the nominee's qualifications to serve as a director, (iv) the
number of shares of Common Stock beneficially owned by the nominee, (v) a
representation that the nominee has consented to his name being placed in
nomination, (vi) the name and record address of the shareholder making the
nomination, (vii) the number of shares of Common Stock owned of record and
beneficially by such shareholder, and (viii) any material interest of such
shareholder in the proposed nomination.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation awarded, paid to
or earned by the executive officers of Bancshares during each of the years ended
December 31, 1998, December 31, 1997 and December 31, 1996:

SUMMARY COMPENSATION TABLE

Annual Long-Term
Compensation Compensation
---------------------- --------------
Awards
--------------
Securities All Other
Name and Salary Bonus Underlying Compensation
Principal Position Year ($) ($) Options (#)(1) ($)(2)
------------------ ---- ------- ------ -------------- ------------

Robert F. Lowe 1998 204,000 57,253 10,000 51,055
President and CEO 1997 187,000 71,433 12,500 34,353
1996 175,000 47,819 12,500 34,609

Monty J. Oliver 1998 128,500 21,733 5,000 38,800
Secretary and Treasurer 1997 116,500 24,683 6,250 30,182
1996 110,000 15,404 6,250 29,965

H. Franklin Sherron, Jr. 1998 115,700 30,558 5,000 8,313
Vice President 1997 103,000 38,493 6,250 6,465
1996 97,000 22,337 6,250 5,462

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10

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

(1) The information concerning options gives effect to the 25% stock split
in the form of a stock dividend paid on February 15, 1996 and to the
25% stock split in the form of a stock dividend paid on February 16,
1998.
(2) Compensation set forth in this column represents the following
(i) amounts contributed by the Bank for the account of the executive
officers under the Lexington State Bank Employees Savings Plus Plan for
each of 1998, 1997 and 1996 as follows: Mr. Lowe, $4,800, $4,750 and
$4,750; Mr. Oliver, $3,918, $3,957 and $3,140; and Mr. Sherron, $4,447,
$2,760 and $2,769; and (ii) life insurance premiums paid by Bancshares
for each of 1998, 1997 and 1996 as follows: Mr. Lowe, $46,255, $29,603
and $29,859; Mr. Oliver, $34,882, $26,225 and $26,825; and Mr. Sherron,
$3,866, $2,705 and $2,693.

The following table sets forth certain information regarding the stock
options granted to the executive officers of Bancshares in 1998. Bancshares has
no outstanding stock appreciation rights ("SARs") and granted no SARs during
1998. In addition, in accordance with the rules of the SEC, the table sets forth
the hypothetical gains or "option spreads" that would exist for the respective
options based on assumed rates of annually compounded Common Stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term.

OPTION GRANTS IN LAST FISCAL YEAR(1)

Individual Grants
----------------- Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration ----------------------
Name Granted Fiscal Year ($/Sh) Date(1) 5% ($) 10% ($)
---- ---------- ------------ -------- ---------- -------- -------

Robert F. Lowe 10,000 19.0 $20.75 06/09/08 130,495 330,701

Monty J. Oliver 5,000 9.5 $20.75 06/09/08 65,247 165,350

H. Franklin Sherron, Jr. 5,000 9.5 $20.75 06/09/08 65,247 165,350

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

(1) Options become exercisable in installments of 20% on each anniversary
date following the date of grant, and thereafter may be exercised in
whole or in part at any time prior to the expiration date.

The following table sets forth certain information regarding stock
options exercised during 1998 by the executive officers of Bancshares, including
the aggregate value of gains on the date of exercise. In addition, this table
includes the number of shares of Common Stock subject to exercisable and
unexercisable stock options as of December 31, 1998. The table also sets forth
the values for "in-the-money" options based on the positive spread between the
exercise price of such stock options and the closing sale price of a share of
Bancshares Common Stock on the Nasdaq National Market on December 31, 1998.

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11

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES(1)

Number of Value of
Securities Unexercised
Underlying In-the-Money
Options at Options
FY-End (#) at FY-End ($)
Shares -------------- -----------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------------------- ------------ ------------ --------------- -----------------

Robert F. Lowe 0 0 73,900 / 39,221 654,643 / 172,977

Monty J. Oliver 2,500 10,500 27,809 / 18,439 249,861 / 77,932

H. Franklin Sherron, Jr. 0 0 30,309 / 18,439 265,986 / 77,932

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

PENSION PLAN

The Bank's Employees' Pension Plan is a non-contributory plan that
covers all employees who work at least 1,000 hours annually, are at least 21
years old and have completed one year of service. The plan is a defined benefit
plan, providing for benefits equal to .8% of final average monthly compensation,
multiplied by years of credited service, plus .65% of final average monthly
compensation in excess of the social security compensation amount, multiplied by
years of credited service not to exceed 35 years. Final average compensation is
the average of the five highest consecutive calendar years of compensation paid
during the ten calendar years preceding retirement. The compensation covered by
the plan consists of base salary. A participant's accrued benefit is fully
vested and non-forfeitable upon reaching age 65. If a participant terminates
employment for any reason other than death, disability or retirement, the
participant's accrued benefits will vest after five years of service. Benefits
can be paid in a lump sum only if the distribution is $10,000 or less.
Distributions over $10,000 must be paid in monthly payments. Benefits also are
provided for early retirement, deferred retirement, disability retirement and
death.

The following table shows estimated annual benefits payable upon
retirement at age 65 to participants under the plan.

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12

PENSION PLAN TABLE

ESTIMATED YEARS OF CREDITED SERVICE
ANNUAL BENEFIT PAYABLE ON RETIREMENT(1)

Five-Year Average 15 20 25 30 35
Salary at Retirement Years Years Years Years Years
-------------------- ------ ------ ------ ------ ------

225,000 31,862 42,483 53,104 63,724 74,345
200,000 31,862 42,483 53,104 63,724 74,345
175,000 31,862 42,483 53,104 63,724 74,345
150,000 29,469 39,292 49,115 58,938 68,761
125,000 24,032 32,043 40,054 48,064 56,075
100,000 18,607 24,809 31,011 37,214 43,416
75,000 13,157 17,524 21,928 26,314 30,699
50,000 7,720 10,293 12,866 15,440 18,013

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

(1) Some of the amounts shown exceed the limits imposed by federal law for
qualified plans.

Benefits payable as shown in the table are computed on a straight-life
annuity basis. Such amounts are not subject to deduction for social security
benefits or other amounts received by participants. Years of credited service
for the persons named in the summary compensation table above are as follows:
Mr. Lowe (28); Mr. Oliver (20); and Mr. Sherron (8).

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13

PERFORMANCE GRAPH

The foregoing graph and the following table compare, for the five-year
period ended December 31, 1998, the cumulative return to shareholders of
Bancshares with the Standard & Poor's 500 Stock Index and an index consisting of
500 major regional banks, assuming investment of $100 at the beginning of the
period and the reinvestment of dividends.

12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------

LSB Bancshares, Inc. $100.00 $115.13 $129.49 $163.73 $222.86 $210.78
S&P 500 Composite $100.00 $101.32 $139.40 $171.40 $228.59 $293.91
Major Regional Banks $100.00 $ 94.65 $149.03 $203.63 $306.20 $338.30

REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE

The following report of the Stock Option and Compensation Committee of
the Board of Directors of Bancshares provides information with respect to the
compensation paid to Bancshares' Chief Executive Officer, Robert F. Lowe, and to
its other executive officers, Mr. Sherron and Mr. Oliver.

Bancshares' executive compensation program is administered by the Stock
Option and Compensation Committee (the "Committee") of the Board of Directors of
Bancshares. The Committee is comprised of the individuals listed below, each of
whom is or was a non-employee director of Bancshares and the Bank. Bancshares'
compensation program for executive officers consists of the following elements:
annual salary; performance-based cash awards under the Management Incentive Plan
(the "Incentive Plan"); annual grants of options under the 1996 Omnibus Stock
Incentive Plan (the "1996 Plan"); annual matching contributions under the
Lexington State Bank Employees Savings Plus Plan (the "Bank Savings Plan"); and
Employment Continuity Agreements. The Committee grants stock options under the
1996 Plan to the executive officers. Under the Incentive Plan, the Committee
recommends to Bancshares' Board of Directors the corporate performance
objectives and recommends to the Bank's Board of Directors the related incentive
compensation amounts for executive officers. The Committee recommends to the
Bank's Board of Directors the salary levels for executive officers, and the
Bank's Board of Directors determines matching contributions under the Bank
Savings Plan.

Bancshares' executive compensation program is designed to enable
Bancshares to attract, retain and reward executive officers. The Committee
intends to keep compensation levels competitive with a representative sample of
the Bank's peer group. The Committee's strategy is to maintain a structure
within the executive compensation program that strengthens the link between
executive compensation, Bancshares' performance, individual performances of the
executive officers and shareholder interests. In accordance with this strategy,
in February 1996, Bancshares' Board of Directors adopted the Incentive Plan.
Under the Incentive Plan, executive officers recommended by the Committee and
approved by the Bank's Board of Directors may earn incentive compensation if
Bancshares achieves operating

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14

performance objectives recommended by the Committee and approved by Bancshares'
Board of Directors and the executive officers achieve individual performance
objectives. The Committee believes that the Incentive Plan motivates Bancshares'
executive officers to attain Bancshares' business goals.

The following sections of this Report describe the compensation program
for executive officers in effect in 1998.

BASE SALARY

Base salaries for executive officers are reviewed and approved by the
Bank's Board of Directors based upon recommendations by the Committee. The
Committee recommends salaries based upon a review of the range of salaries
earned by executive officers within a representative peer group, although there
is no predetermined point within such range at which the Committee targets
salaries. In determining base salaries, the Committee does not establish
performance thresholds or other measures that directly relate base salaries to
operating performance.

The base salary paid to Bancshares' Chief Executive Officer, Robert F.
Lowe, during 1998 reflects the base salary policies described above. Mr. Lowe's
1998 salary was at the midpoint of the range of salaries paid to the chief
executive officers of the Bank's peer group. The Committee believes that Mr.
Lowe's 1998 base salary, which is a 9.1% increase over his 1997 base salary, is
modest in relation to Bancshares' performance and consistent with the salaries
earned by executives of the Bank's peer group.

The base salaries paid to Bancshares' other executive officers, Mr.
Sherron and Mr. Oliver, are recommended by Mr. Lowe to the Committee. The 1998
base salary paid to Mr. Sherron was at the 33rd percentile of the range of
salaries paid to executive officers of the Bank's peer group and is based on
years of experience. Mr. Sherron's base salary during 1998 reflects a 12.3%
increase over his 1997 base salary. During 1998, Mr. Oliver's base salary was at
the 93rd percentile of the range of salaries paid to executive officers of the
Bank's peer group and is based on years of experience. Mr. Oliver's base salary
during 1998 reflects a 10.3% increase over his 1997 base salary. The Committee
believes that the base salaries paid to Mr. Sherron and Mr. Oliver give fair
consideration to their individual contributions and are competitive with the
Bank's peer group.

INCENTIVE COMPENSATION

Incentive compensation awards for executive officers of Bancshares
granted under the Incentive Plan are recommended by the Committee and approved
by the Bank's Board of Directors based on each executive officer's achievement
of his individual performance

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objectives. These objectives are tied to measurements of corporate objectives,
such as return on average assets, asset growth, deposit growth, efficiency ratio
and delinquency and charge off percentages, and, in some instances, other
objectives that are specific to the executive officer's job function. In January
1999, the Committee amended the Incentive Plan by changing the criteria for
determining the maximum cash incentive award under the Incentive Plan from
return on average assets to net income. The Committee's action reflects their
commitment to maintaining a strong incentive compensation plan that is directly
related to maximizing long-term shareholder value.

For performance during 1998, Bancshares awarded cash incentive
compensation under the Incentive Plan totaling $275,000 to 30 officers, which
amount includes an aggregate of $109,544 paid to Bancshares' executive officers.
In 1998, other participants in the Incentive Plan were key employees who, in the
judgment of the Committee, made a substantial contribution to the success of
Bancshares and its subsidiaries and who the Committee believes should
participate in that success and be motivated to contribute to future success.
The incentive compensation awards granted to Mr. Lowe and to Mr. Sherron were
based solely upon Bancshares' performance as measured by the corporate
objectives set forth above, while the incentive compensation award granted to
Mr. Oliver was based on such corporate objectives and his management of the
annual budget process, investor and analyst relations and compliance with
regulations promulgated by the SEC and The Nasdaq Stock Market, Inc. Each of the
executive officers met or exceeded the performance objectives established for
him for 1998.

STOCK OPTIONS

The Committee awards stock options to executive officers as a long-term
incentive to align the executives' interests with those of other shareholders
and to encourage significant stock ownership. Under the 1996 Plan, the Committee
grants to selected key employees options to purchase Bancshares' Common Stock at
a price equal to the fair market value of Bancshares' Common Stock on the date
of grant. Employees under the 1996 Plan are those key employees who, in the
judgment of the Committee, are in a position to materially affect the overall
success of Bancshares and its subsidiaries by reason of the nature and extent of
their duties.

In 1998, pursuant to the 1996 Plan, the Committee granted options for
52,500 shares of Bancshares' Common Stock to employees of Bancshares and the
Bank, including options for 10,000 shares granted to Mr. Lowe and 5,000 shares
granted to each of Messrs. Oliver and Sherron. The Committee has not adopted any
objective criteria that relates the level of options granted to the executive
officers to performance of Bancshares or the individuals. In approving the grant
to Mr. Lowe, the Committee considered numerous factors, including Bancshares'
operating performance, Mr. Lowe's prior contributions and potential to
contribute

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in the future and practices within the Bank's peer group with respect to
granting options, although none of these factors was individually determinative.

The stock options granted under the 1996 Plan become exercisable in
twenty percent (20%) installments on each of the first five anniversaries of the
date of grant. The option recipients, including Mr. Lowe, will receive value
from these grants only to the extent that the price of Bancshares' Common Stock
exceeds the grant price.

MATCHING CONTRIBUTIONS

The Bank Savings Plan is a voluntary defined contribution benefit plan
designed to provide additional incentive and retirement security for eligible
employees of the Bank. All Bank employees over the age of 21 are eligible to
participate in the Bank Savings Plan. The executive officers of Bancshares
participate in the Bank Savings Plan on the same basis as all other eligible
employees of the Bank. Under the Bank Savings Plan, each eligible employee of
the Bank may elect to contribute on a pre-tax basis to the Bank Savings Plan 2%
to 15% of his or her compensation, subject to certain limitations that may lower
the maximum contributions of more highly compensated participants.

At the beginning of each year, the Bank determines the amount of its
matching contributions to be made during the year. In 1998, the Bank's matching
contributions totaled $180,045.98, including $4,800 contributed to Mr. Lowe,
$3,919 contributed to Mr. Oliver and $4,447 contributed to Mr. Sherron.

EMPLOYMENT CONTINUITY AGREEMENTS

In June 1996, the Committee, after careful consideration and upon
advice of legal counsel, voted to recommend to Bancshares' Board of Directors
approval of Employment Continuity Agreements (the "Agreements") for Messrs.
Lowe, Oliver and Sherron. In July 1996, the Bancshares' Board of Directors
approved the Agreements for such executive officers. In June 1998, the Committee
adopted resolutions terminating the Agreements and recommended to Bancshares'
Board of Directors approval of new Employment Continuity Agreements (the "New
Agreements") for the executive officers. Concurrently, the Committee recommended
to Bancshares' Board of Directors approval of New Agreements for six other key
management employees. On June 9, 1998, Bancshares' Board of Directors approved
the nine New Agreements at their regular meeting.

In January 1998, the Committee ratified management's approval of a New
Agreement with Mr. Nicholas A. Daves, Senior Vice President, and recommended the
same to Bancshares' Board of Directors, which approved the New Agreement at its
regular meeting on January 13,

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1998. Upon approving the New Agreement with Mr. Daves, his prior employment
agreement with Old North State Bank was terminated.

The Board believes that Bancshares, as a publicly-held corporation, is
subject to the possibility of a change in control and that the possibility of
such may generate uncertainty on the part of the executive officers and other
key management employees and may result in their departure from Bancshares or
their distraction from operating responsibilities. Both the Committee and
Bancshares' Board of Directors recognizes that outstanding management is
essential to advancing the best interests of Bancshares and its shareholders.
The Board of Directors believes that the New Agreements will give Bancshares'
executive officers and key management employees certain employment security,
which the Board of Directors will secure their continued services in the
performance of both regular duties and any extra duties required of them during
periods of uncertainty. Mr. Lowe's New Agreement includes a three-year change of
control provision, and the other New Agreements have one-year rolling change of
control provisions.

This report is submitted by the Stock Option and Compensation Committee
of the Board of Directors of Bancshares.

STOCK OPTION AND COMPENSATION COMMITTEE:

Robert B. Smith, Jr., Chairman
Michael S. Albert
Margaret Lee W. Crowell
Burr W. Sullivan
Roberts E. Timberlake
Lloyd G. Walter, Jr.
Julius S. Young, Jr.

COMPENSATION OF DIRECTORS

Each member of the Board of Directors of Bancshares receives a fee of
$250 for each Board meeting that he or she attends, plus an annual retainer of
$4,000. Each non-management director receives a fee of $150 for each committee
meeting of Bancshares and the Bank that he or she attends. Each year Bancshares
also grants each non-management director a five-year option to purchase 500
shares of Common Stock. The exercise price of each option is the fair market
value of the Common Stock on the date of grant. The option is granted on the
date of the annual shareholders' meeting.

In addition, directors may participate in Bancshares' Deferred
Compensation Plan for Directors, under which a director may defer a designated
amount of his or her annual compensation

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until he or she retires, dies while still a director, becomes permanently
disabled or otherwise discontinues service as a director. Interest on each
director's deferred account is credited at the end of each month at a rate of
six percent per annum. Each director's interest in the plan is nonassignable,
although each director may name a beneficiary to receive his or her deferred
compensation in the event of the director's death. During the last fiscal year,
each director allocated 100% of his or her 1998 director's fees to his or her
deferred account.

SECTION 16 REPORTING DELINQUENCIES

Section 16(a) of the Securities Exchange Act of 1934 requires the
executive officers and directors of Bancshares and persons who beneficially own
more than ten percent of the outstanding shares of Common Stock to file with the
SEC reports disclosing their initial ownership of Common Stock, as well as
subsequent reports disclosing changes in such ownership. To Bancshares'
knowledge, based solely on a review of copies of such reports furnished to
Bancshares and written representations that no other reports were required
during the year ended December 31, 1998, the executive officers and directors of
Bancshares complied with all Section 16 (a) filing requirements.

CERTAIN TRANSACTIONS

Certain directors and officers of Bancshares and companies with which
directors or officers are associated are customers of the Bank and as such may
from time to time borrow from the Bank within prescribed limitations. Any such
loans and commitments are made in the ordinary course of business, on terms no
more favorable, including interest rates and collateral, than those prevailing
at the time for comparable transactions with other persons, and do not involve
more than the normal risk of collectability or present other unfavorable
features. The indebtedness of all directors and officers as a group represents
17.4% of Bancshares' shareholders' equity.

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PROPOSAL 2: INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors of Bancshares has appointed the firm of
Turlington and Company, L.L.P., for the purpose of auditing the financial
statements of Bancshares and its subsidiaries for the fiscal year ended December
31, 1999, and shareholders are being asked to ratify this appointment.
Turlington and Company, L.L.P., has been employed in this capacity by Bancshares
since 1982. Fees charged by this firm are furnished at rates and upon terms that
are customarily charged by other independent auditing firms. A representative of
the firm will be present at the Annual Meeting and will have an opportunity to
make a statement if he desires to do so and to respond to appropriate questions.

PROPOSAL 3: SHAREHOLDER PROPOSAL RELATING TO
MINIMUM SHARE OWNERSHIP BY DIRECTORS

Bancshares has been advised that W. Robert Koontz, 4630 W. Old U.S. 64,
Lexington, North Carolina 27295, has proposed the following resolution to be
considered by the shareholders of Bancshares:

"RESOLVED: That the shareholders of LSB Bancshares, Inc. recommend that
the Board of Directors take the necessary steps to amend the company's
governing instruments to adopt the following:

"Beginning on the 1999 LSB Bancshares Annual Shareholders
meeting, excluding those directors elected in 1997, 1998,
1999, each director before qualifying as a director of LSB
Bancshares and at all times while serving as a director,
excluding stock options, convertible securities and warrants,
shall own 500 shares of common LSB Bancshares, Inc. Should any
director fail to comply with this ownership requirement, such
director shall have sixty (60) days from the date of
non-compliance to again comply. Failure to again comply, shall
result in disqualification and such director's position shall
be declared vacant."

In support of the foregoing resolution, Mr. Koontz states:

"REASONS: One of the most important issues before the American people
today is accountability. In our government, our schools, our legal
system and our corporations, we have lost accountability. Every one
wants to be under the umbrella of tenure, seniority, guarantee, and
Golden Parachutes. Why would management or the Board of Directors
object to its directors being mandated to own 500 shares? Generally
speaking, corporate

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management has created a monopoly. It does not matter if a director
knows anything about banking or financial matters, just as long as
he/she has a degree from a prestigious school or a relationship with
the officers or other directors. I am not suggesting that the Board of
Directors invest in 500 shares in some new or unproven company, but a
company with solid assets. If the Board of Directors does not have
confidence in themselves to direct LSB profitably, surely they should
not serve on the Board of Directors of LSB Bancshares.

If you AGREE, please mark your proxy FOR a beginning to
Accountability."

STATEMENT OF OPPOSITION

The Board of Directors UNANIMOUSLY recommends a vote AGAINST this
proposal.

Mr. Koontz's resolution is substantially identical to a resolution he
introduced at each of the 1993, 1994, 1995, 1996, 1997 and 1998 Annual Meetings.
Shares representing less than 21% of the outstanding Common Stock were voted in
favor of Mr. Koontz's resolution at each of the five previous shareholders'
meetings.

The Board of Directors of Bancshares does not believe that minimum
share ownership requirements for directors of Bancshares will serve any useful
purpose. Under North Carolina law, each director of Bancshares who is also a
director of the Bank is required to own shares of Common Stock having an
aggregate book value of at least $1,000, or 119 shares at December 31, 1998. The
Board of Directors of Bancshares continues to believe that minimum share
ownership requirements for directors, over and above those imposed by North
Carolina law, would not benefit Bancshares but would unnecessarily restrict
Bancshares' ability to attract and retain qualified candidates to serve as
directors of Bancshares.

In addition, the Board of Directors believes that the reasons given by
Mr. Koontz in support of his proposal are untrue as applied to the members of
the Board of Directors of Bancshares. The Board of Directors believes that
historically there has been no relationship between a director's contributions
to Bancshares and the level of his or her investment in Common Stock. Moreover,
contrary to Mr. Koontz's statements, directors of Bancshares are not selected on
the basis of their relationships with other directors or officers, the schools
they attended or any other improper factors. Directors are nominated by the
Board of Directors, and elected by the shareholders of Bancshares, on the basis
of their experience, individual accomplishments, knowledge, ability, judgment
and a number of other factors that may or may not include a special knowledge of
the banking industry. Bancshares has for a number of years sought to maintain
diversity on its Board of Directors, and the current composition of the Board
reflects this policy. Bancshares believes a diverse group of directors will
enhance the perspectives and collective talents of Board members and enable the
Board to better manage all

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facets of the business and affairs of Bancshares. Accordingly, based on these
facts, the Board of Directors strongly believes Mr. Koontz's proposal is without
merit and should not be supported by the shareholders.

SHAREHOLDER PROPOSALS

Any shareholder proposal to be included in the proxy materials relating
to the 2000 Annual Meeting must be received by the Secretary of Bancshares, One
LSB Plaza, Lexington, North Carolina 27292, by November 23, 1999.

In addition to any other applicable requirements, for business to be
properly brought before the 2000 Annual Meeting by a shareholder, even if the
proposal is not to be included in Bancshares' proxy statement, pursuant to
Bancshares' Bylaws, the shareholder must give notice in writing to the Secretary
of Bancshares not later than January 22, 2000. As to each matter, the notice
must contain (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for addressing it at the annual
meeting, (ii) the name and record address of the shareholder proposing such
business, (iii) the number of shares of Common Stock owned of record and
beneficially by such shareholder and (iv) any material interest of the
shareholder in such business.

OTHER MATTERS

The Board of Directors of Bancshares knows of no other matters intended
to be presented for consideration at the meeting. If, however, any other matters
properly come before the meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their best
judgment.

Robert F. Lowe, President
March 22, 1999

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APPENDIX A---Form of Proxy Card

LSB BANCSHARES, INC.
One LSB Plaza
Lexington, North Carolina 27292

This Proxy is solicited on behalf of the Board of Directors

The undersigned hereby appoints Robert F. Lowe and Robert B. Smith, Jr., and
each of them, as proxies (and if the undersigned is a proxy, as substitute
proxies), with power of substitution, and hereby authorizes each of them to
represent and to vote, as designated on the reverse, all the shares of LSB
BANCSHARES, INC. held of record by the undersigned at the close of business on
March 8, 1999, at the Annual Meeting of Shareholders to be held on April 21,
1999, at 1:00 p.m. at the J. Smith Young YMCA and at any adjournments thereof.

This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted for all nominees for Director, for Proposal 2 and against Proposal 3.

If the shareholder is a participant in the Shareholders Dividend Reinvestment
and Stock Purchase Plan, the proxy card represents the number of shares in the
dividend reinvestment account as well as shares owned of record directly by the
shareholder.

--------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON THE REVERSE AND RETURN PROMPTLY,
IN THE ENCLOSED ENVELOPE
--------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the reverse. When shares are
held by joint owners, both should sign. When signing as an executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in the partnership name by an
authorized person.
------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED?

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

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[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE

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

LSB BANCSHARES, INC.

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

Mark box at right if an address change has been noted [ ]
on the reverse side of this card.

------------------------------
Please be sure to sign and date this Proxy Date
------------------------------
- --------------------------------------------------------------------------------

Shareholder sign here Co-owner sign here
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" proposal 1 and 2.
- --------------------------------------------------------------------------------
For All With- For All
1. Election of Directors. Nominees hold Except

Leonard H. Beck Sue H. Hunter
Marvin G. Gentry David A. Smith [ ] [ ] [ ]
Samuel R. Harris Burr W. Sullivan

INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"For All Except" box and strike a line through the names(s) of the nominee(s) in
the list provided above. Your shares will be voted for the remaining nominee(s).

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For Against Abstain

2. Proposal to ratify the appointment of Turlington
and Company, L.L.P., Certified Public Accountants, [ ] [ ] [ ]
for the year ending December 31, 1999.

- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "AGAINST" proposal 3.
- --------------------------------------------------------------------------------

For Against Abstain

3. Shareholder proposal by W. Robert Koontz
relating to minimum share ownership [ ] [ ] [ ]
requirement for directors.

4. In their discretion, the proxies are authorized to vote upon such other
business and matters as may properly come before the meeting or at any
adjournment(s) thereof.

DETACH CARD