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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934



For the quarterly period ended June 30, 2003



Commission File Number 0-13823



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FNB CORP.

(Exact name of Registrant as specified in its charter)



|North Carolina           |  | 56-1456589                          
|------------------------ |  | ------------------------------------
|(State of incorporation) |  | (I.R.S. Employer Identification No.)



101 Sunset Avenue,
Asheboro, North Carolina 27203

(Address of principal executive offices)



(336) 626-8300

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act.  Yes ̈No  x



The registrant had 5,668,280
shares of $2.50 par value common stock outstanding at August 1, 2003.



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PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



FNB Corp. and Subsidiaries



CONSOLIDATED BALANCE SHEETS



|                                                                                                             |  | June 30, (unaudited)              |         |   | December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ------- | - | ----------------- | -
|                                                                                                             |  | 2003                              |         |   | 2002              |  
|                                                                                                             |  | (in thousands, except share data) |        
|ASSETS                                                                                                       |  |                                   |         |   |                   |  
|Cash and due from banks                                                                                      |  | $                                 | 22,940  |   |                   | $
|Interest-bearing bank balances                                                                               |  |                                   | 28,776  |   |                   |  
|Federal funds sold                                                                                           |  |                                   | 1,951   |   |                   |  
|Investment securities:                                                                                       |  |                                   |         |   |                   |  
|Available for sale, at estimated fair value (amortized cost of $88,374, $154,926 and $125,151)               |  |                                   | 92,276  |   |                   |  
|Held to maturity (estimated fair value of $55,915 and $24,843)                                               |  |                                   | 55,150  |   |                   |  
|Loans:                                                                                                       |  |                                   |         |   |                   |  
|Loans held for sale                                                                                          |  |                                   | 44,143  |   |                   |  
|Loans held for investment                                                                                    |  |                                   | 517,024 |   |                   |  
|Less allowance for loan losses                                                                               |  |                                   | (6,038  | ) |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Net loans                                                                                                    |  |                                   | 555,129 |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Premises and equipment, net                                                                                  |  |                                   | 14,564  |   |                   |  
|Goodwill                                                                                                     |  |                                   | 16,343  |   |                   |  
|Other assets                                                                                                 |  |                                   | 21,653  |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Total Assets                                                                                                 |  | $                                 | 808,782 |   |                   | $
|                                                                                                             |  |                                   |         |   |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                         |  |                                   |         |   |                   |  
|Deposits:                                                                                                    |  |                                   |         |   |                   |  
|Noninterest-bearing demand deposits                                                                          |  | $                                 | 66,933  |   |                   | $
|Interest-bearing deposits:                                                                                   |  |                                   |         |   |                   |  
|Demand, savings and money market deposits                                                                    |  |                                   | 212,368 |   |                   |  
|Time deposits of $100,000 or more                                                                            |  |                                   | 108,943 |   |                   |  
|Other time deposits                                                                                          |  |                                   | 206,948 |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Total deposits                                                                                               |  |                                   | 595,192 |   |                   |  
|Retail repurchase agreements                                                                                 |  |                                   | 20,057  |   |                   |  
|Federal Home Loan Bank advances                                                                              |  |                                   | 53,345  |   |                   |  
|Other borrowed funds                                                                                         |  |                                   | 52,027  |   |                   |  
|Other liabilities                                                                                            |  |                                   | 8,365   |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Total Liabilities                                                                                            |  |                                   | 728,986 |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Shareholders equity:                                                                                        |  |                                   |         |   |                   |  
|Preferred stock$10.00 par value; authorized 200,000 shares, none issued                                     |  |                                   |        |   |                   |  
|Common stock$2.50 par value; authorized 10,000,000 shares, issued shares5,653,800, 4,755,497 and
5,416,731 |  |                                   | 14,135  |   |                   |  
|Surplus                                                                                                      |  |                                   | 11,609  |   |                   |  
|Retained earnings                                                                                            |  |                                   | 51,478  |   |                   |  
|Accumulated other comprehensive income                                                                       |  |                                   | 2,574   |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Total Shareholders Equity                                                                                   |  |                                   | 79,796  |   |                   |  
|                                                                                                             |  |                                   |         |   |                   |  
|Total Liabilities and Shareholders Equity                                                                   |  | $                                 | 808,782 |   |                   | $
|                                                                                                             |  |                                   |         |   |                   |  



See accompanying notes
to consolidated financial statements.



2



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FNB Corp. and Subsidiaries



CONSOLIDATED STATEMENTS OF INCOME



|                                                    |  | Three Months Ended June 30, (unaudited) |           | Six Months Ended June 30, (unaudited)
|--------------------------------------------------- |  | --------------------------------------- | --------- | -------------------------------------
|                                                    |  | 2003                                    |           | 2002                                 
|                                                    |  | (in thousands, except per share data)  
|Interest Income                                     |  |                                         |           |                                      
|Interest and fees on loans                          |  | $                                       | 8,170     |                                      
|Interest and dividends on investment securities:    |  |                                         |           |                                      
|Taxable income                                      |  |                                         | 1,358     |                                      
|Non-taxable income                                  |  |                                         | 402       |                                      
|Other interest income                               |  |                                         | 86        |                                      
|                                                    |  |                                         |           |                                      
|Total interest income                               |  |                                         | 10,016    |                                      
|                                                    |  |                                         |           |                                      
|Interest Expense                                    |  |                                         |           |                                      
|Deposits                                            |  |                                         | 2,523     |                                      
|Retail repurchase agreements                        |  |                                         | 48        |                                      
|Federal Home Loan Bank advances                     |  |                                         | 582       |                                      
|Federal funds purchased                             |  |                                         | 1         |                                      
|Other borrowed funds                                |  |                                         | 388       |                                      
|                                                    |  |                                         |           |                                      
|Total interest expense                              |  |                                         | 3,542     |                                      
|                                                    |  |                                         |           |                                      
|Net Interest Income                                 |  |                                         | 6,474     |                                      
|Provision for loan losses                           |  |                                         | 830       |                                      
|                                                    |  |                                         |           |                                      
|Net Interest Income After Provision for Loan Losses |  |                                         | 5,644     |                                      
|                                                    |  |                                         |           |                                      
|Noninterest Income                                  |  |                                         |           |                                      
|Mortgage loan sales                                 |  |                                         | 4,234     |                                      
|Service charges on deposit accounts                 |  |                                         | 1,239     |                                      
|Annuity and brokerage commissions                   |  |                                         | 391       |                                      
|Cardholder and merchant services income             |  |                                         | 226       |                                      
|Other service charges, commissions and fees         |  |                                         | 123       |                                      
|Bank owned life insurance                           |  |                                         | 148       |                                      
|Other income                                        |  |                                         | 128       |                                      
|                                                    |  |                                         |           |                                      
|Total noninterest income                            |  |                                         | 6,489     |                                      
|                                                    |  |                                         |           |                                      
|Noninterest Expense                                 |  |                                         |           |                                      
|Personnel expense                                   |  |                                         | 5,078     |                                      
|Net occupancy expense                               |  |                                         | 365       |                                      
|Furniture and equipment expense                     |  |                                         | 551       |                                      
|Data processing services                            |  |                                         | 269       |                                      
|Other expense                                       |  |                                         | 1,909     |                                      
|                                                    |  |                                         |           |                                      
|Total noninterest expense                           |  |                                         | 8,172     |                                      
|                                                    |  |                                         |           |                                      
|Income Before Income Taxes                          |  |                                         | 3,961     |                                      
|Income taxes                                        |  |                                         | 1,281     |                                      
|                                                    |  |                                         |           |                                      
|Net Income                                          |  | $                                       | 2,680     |                                      
|                                                    |  |                                         |           |                                      
|Net income per common share:                        |  |                                         |           |                                      
|Basic                                               |  | $                                       | .48       |                                      
|Diluted                                             |  |                                         | .45       |                                      
|                                                    |  |                                         |           |                                      
|Weighted average number of shares outstanding:      |  |                                         |           |                                      
|Basic                                               |  |                                         | 5,626,471 |                                      
|Diluted                                             |  |                                         | 5,929,445 |                                      
|                                                    |  |                                         |           |                                      



See accompanying notes
to consolidated financial statements.



3



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FNB Corp. and Subsidiaries



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME



Six Months Ended June 30, 2003 and June 30, 2002 (unaudited)



|                                                               |  | Common Stock                      |   |  | Surplus |        |   | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|-------------------------------------------------------------- |  | --------------------------------- | - |  | ------- | ------ | - | ---------------- | - | ------ | ------------------------------------------ |  | - | ------ | -
|                                                               |  | Shares                            |   |  | Amount  |        |   |                  |   |       
|                                                               |  | (in thousands, except share data) |  
|Balance, December 31, 2001                                     |  | 4,763,261                         |   |  | $       | 11,908 |   |                  | $ |       |                                            |  | $ | 43,032 |  
|Comprehensive income:                                          |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Net income                                                     |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   | 3,679  |  
|Other comprehensive income:                                    |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Unrealized securities gains, net of income taxes of $472       |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   |       |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Total comprehensive income                                     |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   |       |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Cash dividends declared, $.28 per share                        |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   | (1,331 | )
|Common stock issued through:                                   |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Stock option plan                                              |  | 9,479                             |   |  |         | 24     |   |                  |   | 62     |                                            |  |   |       |  
|Common stock repurchased                                       |  | (17,243                           | ) |  |         | (43    | ) |                  |   | (33    | )                                          |  |   | (181   | )
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Balance, June 30, 2002                                         |  | 4,755,497                         |   |  | $       | 11,889 |   |                  | $ | 29     |                                            |  | $ | 45,199 |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Balance, December 31, 2002                                     |  | 5,416,731                         |   |  | $       | 13,542 |   |                  | $ | 8,823  |                                            |  | $ | 48,095 |  
|Comprehensive income:                                          |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Net income                                                     |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   | 4,942  |  
|Other comprehensive income:                                    |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Unrealized securities losses, net of income tax benefit of $27 |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   |       |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Total comprehensive income                                     |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   |       |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Cash dividends declared, $.28 per share                        |  |                                  |   |  |         |       |   |                  |   |       |                                            |  |   | (1,559 | )
|Common stock issued through:                                   |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Stock option plan                                              |  | 120,421                           |   |  |         | 302    |   |                  |   | 614    |                                            |  |   |       |  
|Merger acquisition of subsidiary company                       |  | 126,140                           |   |  |         | 315    |   |                  |   | 2,344  |                                            |  |   |       |  
|Common stock reacquired through:                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Exchange related to issuance of option stock                   |  | (9,492                            | ) |  |         | (24    | ) |                  |   | (172   | )                                          |  |   |       |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  
|Balance, June 30, 2003                                         |  | 5,653,800                         |   |  | $       | 14,135 |   |                  | $ | 11,609 |                                            |  | $ | 51,478 |  
|                                                               |  |                                   |   |  |         |        |   |                  |   |        |                                            |  |   |        |  



See accompanying notes
to consolidated financial statements.



4



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FNB Corp. and Subsidiaries



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  | Six Months Ended June 30, (unaudited) |        
|--------------------------------------------------------------------------------- |  | ------------------------------------- | -------
|                                                                                  |  | 2003                                  |        
|                                                                                  |  | (in thousands)                        |        
|Operating Activities:                                                             |  |                                       |        
|Net income                                                                        |  | $                                     | 4,942  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                       |        
|Depreciation and amortization of premises and equipment                           |  |                                       | 885    
|Provision for loan losses                                                         |  |                                       | 1,080  
|Deferred income tax benefit                                                       |  |                                       | (185   
|Deferred loan fees and costs, net                                                 |  |                                       | 55     
|Premium amortization and discount accretion of investment securities, net         |  |                                       | 269    
|Amortization of intangibles                                                       |  |                                       | 37     
|Net decrease (increase) in loans held for sale                                    |  |                                       | (1,763 
|Decrease in other assets                                                          |  |                                       | 177    
|Decrease in other liabilities                                                     |  |                                       | (969   
|                                                                                  |  |                                       |        
|Net Cash Provided by Operating Activities                                         |  |                                       | 4,528  
|                                                                                  |  |                                       |        
|Investing Activities:                                                             |  |                                       |        
|Available-for-sale securities:                                                    |  |                                       |        
|Proceeds from maturities and calls                                                |  |                                       | 38,726 
|Purchases                                                                         |  |                                       | (2,622 
|Held-to -maturity securities:                                                     |  |                                       |        
|Proceeds from maturities and calls                                                |  |                                       | 16,001 
|Purchases                                                                         |  |                                       | (46,544
|Net increase in loans held for investment                                         |  |                                       | (19,447
|Purchases of premises and equipment                                               |  |                                       | (1,289 
|Net cash paid in merger acquisition of subsidiary mortgage company                |  |                                       | (436   
|Other, net                                                                        |  |                                       | 279    
|                                                                                  |  |                                       |        
|Net Cash Used in Investing Activities                                             |  |                                       | (15,332
|                                                                                  |  |                                       |        
|Financing Activities:                                                             |  |                                       |        
|Net increase in deposits                                                          |  |                                       | 3,093  
|Increase (decrease) in retail repurchase agreements                               |  |                                       | 2,630  
|Decrease in federal funds purchased                                               |  |                                       |       
|Increase in other borrowed funds                                                  |  |                                       | 2,080  
|Common stock issued                                                               |  |                                       | 720    
|Common stock repurchased                                                          |  |                                       |       
|Cash dividends paid                                                               |  |                                       | (1,634 
|                                                                                  |  |                                       |        
|Net Cash Provided by (Used in) Financing Activities                               |  |                                       | 6,889  
|                                                                                  |  |                                       |        
|Net Increase (Decrease) in Cash and Cash Equivalents                              |  |                                       | (3,915 
|Cash and cash equivalents at beginning of period                                  |  |                                       | 57,582 
|                                                                                  |  |                                       |        
|Cash and Cash Equivalents at End of Period                                        |  | $                                     | 53,667 
|                                                                                  |  |                                       |        
|Supplemental disclosure of cash flow information:                                 |  |                                       |        
|Cash paid during the period for:                                                  |  |                                       |        
|Interest                                                                          |  | $                                     | 7,035  
|Income taxes                                                                      |  |                                       | 2,379  
|Noncash transactions:                                                             |  |                                       |        
|Foreclosed loans transferred to other real estate                                 |  |                                       | 478    
|Cashless exercise of stock options                                                |  |                                       | 196    
|Unrealized securities gains (losses), net of income taxes                         |  |                                       | (56    
|Merger acquisition of subsidiary mortgage company:                                |  |                                       |        
|Fair value of assets acquired                                                     |  |                                       | 47,001 
|Fair value of common stock issued                                                 |  |                                       | 2,659  
|Cash paid                                                                         |  |                                       | 2,908  
|                                                                                  |  |                                       |        
|Liabilities assumed                                                               |  |                                       | 41,434 



See accompanying notes
to consolidated financial statements.



5



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FNB Corp. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | Basis of Presentation
|-- |  | ---------------------



FNB Corp. is a multi-bank holding company whose wholly-owned subsidiaries are the First National Bank and Trust Company (First National Bank),
Rowan Savings Bank SSB, Inc. (Rowan Bank) and Dover Mortgage Company (Dover). First National Bank and Rowan Bank are collectively referred to as the subsidiary banks. First National Bank has one wholly-owned
subsidiary, First National Investor Services, Inc. Through its subsidiaries, FNB Corp. offers a complete line of consumer, mortgage and business banking services, including loan, deposit, cash management, investment management and trust services, to
individual and business customers. The subsidiary banks have offices in Chatham, Montgomery, Moore, Randolph, Richmond, Rowan and Scotland counties in North Carolina. Dover Mortgage Company operates six mortgage production offices in North Carolina
at Charlotte, Goldsboro, Greenville, Lake Norman, Raleigh and Wilmington.



The accompanying consolidated financial statements, prepared without audit, include the accounts of FNB Corp. and its subsidiaries (collectively the Corporation). All significant intercompany balances and
transactions have been eliminated.



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



|2. |  | Cash and Cash equivalents
|-- |  | -------------------------



For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods.



|3. |  | Merger Information
|-- |  | ------------------



Rowan Bancorp, Inc.



On August 1, 2002, the Corporation completed a merger for the acquisition of Rowan Bancorp, Inc. (Rowan Bancorp), holding company for Rowan
Savings Bank SSB, Inc. (Rowan Bank), headquartered in China Grove, North Carolina. Per the terms of the merger agreement, Rowan Bank will be operated as a separate subsidiary of FNB Corp. for a period of not less than 24 months;
provided, however, that the Board of Directors of Rowan Bank may elect to cause Rowan Bank to merge with First National Bank or another subsidiary of FNB Corp. prior to the termination of the 24-month period. At the date of merger, Rowan Bank
operated three offices and, based on estimated fair values, had $134,208,000 in total assets, $95,738,000 in loans and $101,205,000 in deposits.



6



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Pursuant to the terms of the merger, each share of Rowan Bancorp common stock was converted into either
2.3715 shares of FNB Corp. common stock or $36.00 in cash or a combination of stock and cash, the overall conversion to stock being limited to 45% of Rowan Bancorp shares. The aggregate purchase price was $21,830,000, consisting of $11,205,000 of
cash payments, 603,859 shares of FNB Corp. common stock valued at $9,094,000 and outstanding Rowan Bancorp stock options valued at $1,531,000.



The merger transaction has been accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and
liabilities of Rowan Bank were recorded based on a preliminary estimate of fair values as of August 1, 2002, subject to possible adjustment during the one-year period from that date. The consolidated financial statements include the results of
operations of Rowan Bank since August 1, 2002. Premiums and discounts that resulted from recording the Rowan Bancorp assets and liabilities at their respective fair values are being amortized using methods that approximate an effective yield over
the life of the assets and liabilities. The net amortization increased net income before income taxes for the three and six months ended June 30, 2003 by $74,000 and $151,000, respectively.



Dover Mortgage Company



On April 1, 2003, the Corporation completed a merger for the acquisition of
Dover Mortgage Company (Dover), headquartered in Charlotte, North Carolina. Operating as a separate subsidiary of FNB Corp., Dover originates, underwrites and closes mortgage loans for sale into the secondary market. Mortgage production
is sold on a service-released basis to a number of national lenders who in turn service the loans. At the date of the merger, Dover operated six offices and, based on estimated fair values, had $47,001,000 in total assets and $5,823,000 in
shareholders equity.



Pursuant to the terms of the
merger, 50% of the outstanding shares of Dover common stock were converted into FNB Corp. common stock and the remaining 50% were converted into cash. The aggregate purchase price was $5,567,000, consisting of $2,908,000 of cash payments and 126,140
shares of FNB Corp. common stock valued at $2,659,000. Subject to a maximum total payment, Dover shareholders will be entitled to additional cash consideration over the four-year period following closing, based on a percentage of Dovers pretax
net income during that four-year period. Any additional cash consideration paid to Dover shareholders will be recorded as an adjustment to goodwill.



The merger transaction has been accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and
liabilities of Dover were recorded based on a preliminary estimate of fair values as of April 1, 2003, subject to possible adjustment during the one-year period from that date. The consolidated financial statements include the results of operations
of Dover since April 1, 2003.



7



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The estimated fair values of the assets acquired and liabilities assumed at the date of merger based on
the information currently available is as follows (in thousands):



|                                       |  | April 1,2003
|-------------------------------------- |  | ------------
|Assets                                 |  |             
|Cash and due from banks                |  | $           
|Interest-bearing bank balances         |  |             
|Loans held for sale                    |  |             
|Premises and equipment, net            |  |             
|Goodwill                               |  |             
|Other assets acquired                  |  |             
|                                       |  |             
|Total assets acquired                  |  |             
|                                       |  |             
|Liabilities                            |  |             
|Borrowed funds                         |  | $           
|Other liabilities                      |  |             
|                                       |  |             
|Total liabilities assumed              |  |             
|                                       |  |             
|Net Assets Acquired and Purchase Price |  | $           
|                                       |  |             



The portion of the
purchase price allocated to goodwill is presented below (in thousands):



|                                                                             |  | April 1,2003
|---------------------------------------------------------------------------- |  | ------------
|Purchase price                                                               |  | $           
|Tangible shareholders equity of Dover                                       |  |             
|                                                                             |  |             
|Excess of purchase price over carrying value of net tangible assets acquired |  |             
|Direct acquisition costs                                                     |  |             
|Deferred income taxes                                                        |  |             
|                                                                             |  |             
|Goodwill                                                                     |  | $           
|                                                                             |  |             



The following
unaudited pro forma financial information presents the combined results of operations of FNB Corp. and Dover as if the merger had occurred as of the beginning of the period for each period presented. Net income for Dover prior to the merger does not
include a provision for income taxes since Dover had been operating as a Subchapter S corporation and hence was not subject to Federal and state income taxes. The pro forma financial information does not necessarily reflect the results of operations
that would have occurred had FNB Corp. and Dover constituted a single entity during such periods.



8



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|                             |  | Three Months EndedJune 30,            |       | Six Months EndedJune 30,
|---------------------------- |  | ------------------------------------- | ----- | ------------------------
|                             |  | 2003                                  |       | 2002                    
|                             |  | (in thousands, except per share data)
|Net interest income          |  | $                                     | 6,474 |                         
|Noninterest income           |  |                                       | 6,489 |                         
|Net income                   |  |                                       | 2,680 |                         
|                             |  |                                       |       |                         
|Net income per common share: |  |                                       |       |                         
|Basic                        |  |                                       | .48   |                         
|Diluted                      |  |                                       | .45   |                         



Direct acquisition
costs of $568,000 associated with the merger are included in goodwill and are summarized as follows:



|                                         |  | June 30, 2003 
|---------------------------------------- |  | --------------
|                                         |  | TotalCosts    
|                                         |  | (in thousands)
|Investment banking and professional fees |  | $             
|                                         |  |               



|4. |  | Earnings Per Share (EPS)
|-- |  | ------------------------



Basic net income per share, or basic earnings per share (EPS), is computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur if the Corporations dilutive stock options were exercised. The numerator of the basic EPS computation is the same as the numerator of the diluted EPS
computation for all periods presented. A reconciliation of the denominators of the basic and diluted EPS computations is as follows:



|                                                                           |  | Three Months EndedJune 30, |  | Six Months Ended June 30,
|-------------------------------------------------------------------------- |  | -------------------------- |  | -------------------------
|                                                                           |  | 2003                       |  | 2002                     
|Basic EPS denominatorWeighted average number of common shares outstanding |  | 5,626,471                  |  | 4,754,396                
|Dilutive share effect arising from assumed exercise of stock options       |  | 302,974                    |  | 146,496                  
|                                                                           |  |                            |  |                          
|Diluted EPS denominator                                                    |  | 5,929,445                  |  | 4,900,892                
|                                                                           |  |                            |  |                          



For the three months
ended June 30, 2003 and 2002, there were 2,500 and 5,500 stock options, respectively, that were antidilutive since the exercise price exceeded the average market price, and for the six months ended June 30, 2003 and 2002, there were 2,500 and 7,853
stock options, respectively, that were antidilutive. These common stock equivalents were omitted from the calculations of diluted EPS for their respective periods.



9



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|5. |  | Stock Options
|-- |  | -------------



The Corporation accounts for awards under employee stock-based compensation plans using the intrinsic value method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees and, accordingly, no compensation cost has been recognized for such awards in the consolidated financial statements. The pro forma effect on net income and earnings per share as if the
compensation cost that would have been determined under the fair value method had been recorded in the consolidated financial statements, pursuant to the provisions of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation and Statement No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123, is disclosed as follows, for stock option grants in 1995 and subsequent
years.



|                                                                                                   |  | Three Months EndedJune 30,            |       | Six Months EndedJune 30,
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- | ------------------------
|                                                                                                   |  | 2003                                  |       | 2002                    
|                                                                                                   |  | (in thousands, except per share data)
|Net income, as reported                                                                            |  | $                                     | 2,680 |                         
|Less: Stock-based compensation cost determined under fair value method, net of related tax effects |  |                                       | 84    |                         
|                                                                                                   |  |                                       |       |                         
|Net income, pro forma                                                                              |  | $                                     | 2,596 |                         
|                                                                                                   |  |                                       |       |                         
|Net income per share:                                                                              |  |                                       |       |                         
|Basic:                                                                                             |  |                                       |       |                         
|As reported                                                                                        |  | $                                     | .48   |                         
|Pro forma                                                                                          |  |                                       | .46   |                         
|Diluted:                                                                                           |  |                                       |       |                         
|As reported                                                                                        |  |                                       | .45   |                         
|Pro forma                                                                                          |  |                                       | .44   |                         



|6. |  | Loans
|-- |  | -----



Loans as presented are reduced by net deferred loan fees of $836,000, $488,000 and $781,000 at June 30, 2003, June 30, 2002 and December 31, 2002,
respectively.



10



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|7. |  | Allowance for Loan Losses
|-- |  | -------------------------



Changes in the allowance for loan losses were as follows:



|                               |  | Three MonthsEnded June 30, |       | Six MonthsEnded June 30,
|------------------------------ |  | -------------------------- | ----- | ------------------------
|                               |  | 2003                       |       | 2002                    
|                               |  |                            |       | (in thousands)          
|Balance at beginning of period |  | $                          | 6,169 |                         
|Charge-offs                    |  |                            | 996   |                         
|Recoveries                     |  |                            | 35    |                         
|                               |  |                            |       |                         
|Net loan charge-offs           |  |                            | 961   |                         
|Provision for loan losses      |  |                            | 830   |                         
|                               |  |                            |       |                         
|Balance at end of period       |  | $                          | 6,038 |                         
|                               |  |                            |       |                         



|8. |  | Supplementary Income Statement Information
|-- |  | ------------------------------------------



Significant components of other expense were as follows:



|                                  |  | Three MonthsEnded June 30, |     | Six MonthsEnded June 30,
|--------------------------------- |  | -------------------------- | --- | ------------------------
|                                  |  | 2003                       |     | 2002                    
|                                  |  | (in thousands)            
|Stationery, printing and supplies |  | $                          | 213 |                         
|Advertising and marketing         |  |                            | 139 |                         



11



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|9. |  | Intangible Assets
|-- |  | -----------------



Business Combinations



For intangible assets related to business combinations, the following is a summary of the gross carrying amount and accumulated amortization of amortized
intangible assets and the carrying amount of unamortized intangible assets:



|                                                        |  | June 30,       |        | December 31,2002
|------------------------------------------------------- |  | -------------- | ------ | ----------------
|                                                        |  | 2003           |        | 2002            
|                                                        |  | (in thousands)
|Amortized intangible assets:                            |  |                |        |                 
|Core deposit premium related to whole bank acquisition: |  |                |        |                 
|Carrying amount                                         |  | $              | 256    |                 
|Accumulated amortization                                |  |                | 67     |                 
|                                                        |  |                |        |                 
|Net core deposit premium                                |  | $              | 189    |                 
|                                                        |  |                |        |                 
|Unamortized intangible assets:                          |  |                |        |                 
|GoodwillCarrying amount                                |  | $              | 16,343 |                 
|                                                        |  |                |        |                 



Amortization of
intangibles totaled $30,000 for core deposit premiums in 2002 and $37,000 for the six months ended June 30, 2003. The estimated amortization expense for core deposit premiums for the years ending after December 31, 2002 is as follows: $68,000 in
2003, $56,000 in 2004, $44,000 in 2005, $32,000 in 2006, $19,000 in 2007 and $7,000 in 2008.



The changes in the carrying amount of goodwill for the period ended June 30, 2003 are as follows:



|Balance as of January 1, 2003       |  | $ | 12,601
|----------------------------------- |  | - | ------
|Goodwill acquired during the period |  |   | 3,742 
|                                    |  |   |       
|Balance as of June 30, 2003         |  | $ | 16,343
|                                    |  |   |       



12



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Mortgage Servicing Rights



The following is an analysis of mortgage servicing rights included in other assets on the consolidated balance sheet:



|                               |  | Three MonthsEnded June 30, |       | Six MonthsEnded June 30,
|------------------------------ |  | -------------------------- | ----- | ------------------------
|                               |  | 2003                       |       | 2002                    
|                               |  |                            |       | (in thousands)          
|Balance at beginning of period |  | $                          | 1,208 |                         
|Servicing rights capitalized   |  |                            | 244   |                         
|Amortization expense           |  |                            | 115   |                         
|Change in valuation allowance  |  |                            |      |                         
|                               |  |                            |       |                         
|Balance at end of period       |  | $                          | 1,337 |                         
|                               |  |                            |       |                         



The estimated
amortization expense for mortgage servicing rights for the years ending after December 31, 2002 is as follows: $347,000 in 2003, $347,000 in 2004, $347,000 in 2005 and $11,000 in 2006. The estimated amortization expense is based on current
information at December 31, 2002 regarding loan payments and prepayments. Amortization expense could change in future periods based on changes in the volume of prepayments and economic factors.



|10. |  | Derivatives and Financial Instruments
|--- |  | -------------------------------------



Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as
amended by SFAS Nos. 137, 138 and 149, establishes accounting and reporting standards for derivative and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those
instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge
accounting.



The Corporation has identified the following
derivative instruments which were recorded on the consolidated balance sheet at June 30, 2003: commitments to originate fixed rate residential mortgage loans and forward sales commitments.



Dover Mortgage Company originates certain fixed rate residential mortgage
loans with the intention of selling these loans. Between the time that Dover enters into an interest rate lock or a commitment to originate a fixed rate residential mortgage loan with a potential borrower and the time the closed loan is sold, the
Corporation is subject to variability in market prices related to these commitments. The Corporation believes that it is prudent to limit the variability of expected proceeds from the future sales of these loans by entering into forward sales
commitments. The commitments to originate fixed rate residential mortgage loans and the forward sales commitments are freestanding derivative instruments. They do not qualify for hedge accounting treatment so their fair value adjustments are
recorded through the income statement in income from mortgage loan sales. The commitments to originate fixed rate residential mortgage loans totaled $50,662,000 at June 30, 2003. The related forward sales commitments totaled $28,565,000 at June 30,
2003. The fair value of these



13



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commitments was recorded as a net asset of $429,000 at June 30, 2003. Loans held for sale totaled $44,143,000 at June 30, 2003. The related forward sales
commitments totaled $30,721,000 at June 30, 2003. The fair value of these commitments was recorded as an asset of $134,000 at June 30, 2003. The Corporation is exposed to interest rate risk and market risk on the $22,097,000 in commitments to
originate fixed rate residential mortgage loans and the $10,215,000 in loans held for sale for which it does not have forward sales commitments at June 30, 2003.



|11. |  | Adoption of New Accounting PronouncementGuarantors Accounting and Disclosure Requirements for Guarantees
|--- |  | ----------------------------------------------------------------------------------------------------------



In November 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FASB Interpretation No. 45), which addresses the disclosure to be made by
a guarantor in its interim and annual financial statements about its obligations under guarantees. FASB Interpretation No. 45 requires the guarantor to recognize a liability for the non-contingent component of the guarantee, such as the obligation
to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not
probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The disclosure requirements are effective for interim and annual financial
statements ending after December 15, 2002. The initial recognition and measurement provisions are effective for all guarantees within the scope of FASB Interpretation No. 45 issued or modified after December 31, 2002.



The subsidiary banks issue standby letters of credit whereby the Corporation
guarantees the performance of a customer to a third party if a specified triggering event or condition occurs. The guarantees generally expire within one year and may be automatically renewed depending on the terms of the guarantee. All standby
letters of credit provide for recourse against the customer on whose behalf the letter of credit was issued, and this recourse may be further secured by a pledge of assets.



At June 30, 2003, the maximum potential amount of undiscounted future payments related to standby letters of credit was
$6,222,000. Due to insignificance, the Corporation has recorded no liability at June 30, 2003 for the current carrying amount of the obligation to perform as a guarantor.



14



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The purpose of this discussion and analysis is to assist in the
understanding and evaluation of the financial condition, changes in financial condition and results of operations of FNB Corp. (the Parent Company) and its wholly-owned subsidiaries, First National Bank and Trust Company (First
National Bank), Rowan Savings Bank SSB, Inc. (Rowan Bank) and Dover Mortgage Company (Dover), collectively referred to as the Corporation. This discussion should be read in conjunction with the financial
information appearing elsewhere in this report.



Overview



On August 1, 2002, the Corporation completed a merger for the acquisition of
Rowan Bancorp, Inc. (Rowan Bancorp), holding company for Rowan Savings Bank SSB, Inc. (Rowan Bank), headquartered in China Grove, North Carolina. Per the terms of the merger agreement, Rowan Bank will be operated as a
separate subsidiary of FNB Corp. for a period of not less than 24 months; provided, however, that the Board of Directors of Rowan Bank may elect to cause Rowan Bank to merge with First National Bank or another subsidiary of FNB Corp. prior to the
termination of the 24-month period. At the date of merger, Rowan Bank operated three offices and, based on estimated fair values, had $134,208,000 in total assets, $95,738,000 in loans and $101,205,000 in deposits. Pursuant to the terms of the
merger, each share of Rowan Bancorp common stock was converted into either 2.3715 shares of FNB Corp. common stock or $36.00 in cash or a combination of stock and cash, the overall conversion to stock being limited to 45% of Rowan Bancorp shares.
The aggregate purchase price was $21,830,000, consisting of $11,205,000 of cash payments, 603,859 shares of FNB Corp. common stock valued at $9,094,000 and outstanding Rowan Bancorp stock options valued at $1,531,000. The merger transaction has been
accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Rowan Bank were recorded based on a preliminary estimate of fair values as of August 1, 2002, subject to possible
adjustment during the one-year period from that date. The consolidated financial statements include the results of operations of Rowan Bank since August 1, 2002.



On April 1, 2003, the Corporation completed a merger for the acquisition of Dover Mortgage Company (Dover),
headquartered in Charlotte, North Carolina. Operating as a separate subsidiary of FNB Corp., Dover originates, underwrites and closes mortgage loans for sale into the secondary market. Mortgage production is sold on a service-released basis to a
number of national lenders who in turn service the loans. At the date of the merger, Dover operated six offices and, based on estimated fair values, had $47,001,000 in total assets and $5,823,000 in shareholders equity. Pursuant to the terms
of the merger, 50% of the outstanding shares of Dover common stock were converted into FNB Corp. common stock and the remaining 50% were converted into cash. The aggregate purchase price was $5,567,000, consisting of $2,908,000 of cash payments and
126,140 shares of FNB Corp. common stock valued at $2,659,000. Subject to a maximum total payment, Dover shareholders will be entitled to additional cash consideration over the four-year period following closing, based on a percentage of
Dovers pretax net income during that four-year period. Any additional cash consideration paid to Dover shareholders will be recorded as an adjustment to goodwill. The merger transaction has been accounted for using the purchase method of
accounting for business combinations, and accordingly, the assets and liabilities of Dover were recorded based on a preliminary estimate of fair values as of April 1, 2003, subject to possible adjustment during the one-year period from that date.
The consolidated financial statements include the results of operations of Dover since April 1, 2003.



15



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The Corporation earned $4,942,000 in the first six months of 2003, a 34.3% increase over the same period
in 2002. Basic earnings per share increased from $.77 to $.89 and diluted earnings per share increased from $.75 to $.85 for percentage increases of 15.6% and 13.3%, respectively. For the 2003 second quarter, earnings amounted to $2,680,000, which
represents a 43.0% increase from the 2002 second quarter. Basic earnings per share in comparing second quarter periods increased from $.39 to $.48 and diluted earnings per share increased from $.38 to $.45 for percentage increases of 23.1% and
18.4%, respectively. As noted above, Rowan Bank and Dover Mortgage Company were acquired as subsidiaries through mergers effective August 1, 2002 and April 1, 2003, respectively, impacting both net income and the calculation of earnings per share
since the acquisition dates. Total assets were $808,782,000 at June 30, 2003, up 36.7% from June 30, 2002, largely reflecting the acquisition of Rowan Bank and Dover, and up 7.2% from December 31, 2002, due primarily to the Dover acquisition. Loans
amounted to $561,167,000 at June 30, 2003, increasing 44.5% from June 30, 2002 and 11.7% from December 31, 2002. Total deposits were up 23.5% from June 30, 2002 and 0.5% from December 31, 2002, amounting to $595,192,000 at June 30, 2003.



Critical Accounting Policies



The Corporations significant accounting policies are set forth in Note
1 to the Consolidated Financial Statements contained in the Form 10-K Annual Report for the fiscal year ended December 31, 2002. Of these significant accounting policies, the Corporation considers its policy regarding the allowance for loan losses
to be its most critical accounting policy, because it requires managements most subjective and complex judgments. In addition, changes in economic conditions can have a significant impact on the allowance for loan losses and therefore the
provision for loan losses and results of operations. The Corporation has developed appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and
estimates with respect to its loan portfolio. The Corporations assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations, and the discovery of information with respect to borrowers
which is not known to management at the time of the issuance of the consolidated financial statements. For additional discussion concerning the Corporations allowance for loan losses and related matters, see Asset Quality.



Earnings Review



The Corporations net income increased $1,263,000 or 34.3% in the first
six months of 2003 compared to the same period of 2002 and increased $806,000 or 43.0% in comparing second quarter periods, reflecting in part the acquisitions of Rowan Bank and Dover Mortgage Company on August 1, 2002 and April 1, 2003,
respectively, as discussed above. Earnings were positively impacted in the first six months and second quarter of 2003 by increases in net interest income of $1,429,000 or 12.1% and $445,000 or 7.4%, respectively, and by increases of $5,879,000 or
174% and $4,804,000 or 285% in noninterest income. These gains were significantly offset, however, by increases in noninterest expense of $5,210,000 in the first six months of 2003 and $3,622,000 in the 2003 second quarter and by increases in the
provision for loan losses of $40,000 and $300,000. Noninterest income has been significantly augmented by the increase in income from mortgage loan sales following the Dover acquisition. Additionally, noninterest income has been further augmented by
the increase in service charges on deposit accounts resulting from the implementation of an overdraft protection program in July 2002 and by the increased level of income from mortgage loan sales by the subsidiary banks as long-term conforming
mortgage rates have remained at historical lows. Noninterest expense has been impacted significantly by the Dover acquisition and also by the Rowan Bank acquisition.



On an annualized basis, return on average assets increased from 1.24% in the first six months of 2002 to 1.27% in the first
six months of 2003. Return on average shareholders equity decreased from 12.91% to



16



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12.90% in comparing the same periods. In comparing second quarter periods, return on average assets increased from 1.26% to 1.33% and return on average
shareholders equity increased from 13.14% to 13.54%. In the first six months of 2003, return on tangible assets and equity (calculated by deducting average goodwill from average assets and from average equity) amounted to 1.29% and 15.91%,
respectively, and 1.36% and 17.04% in comparing second quarter periods.



Net
Interest Income



Net interest income is the difference
between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of
earning assets and interest-bearing liabilities.



Net interest
income was $13,226,000 in the first six months of 2003 compared to $11,797,000 in the same period of 2002. This increase of $1,429,000 or 12.1% was largely due to the acquisitions of Rowan Bank and Dover Mortgage Company on August 1, 2002 and April
1, 2003, respectively, as discussed above, which was the primary factor resulting in a 28.8% increase in the level of average earning assets, the effect of which was partially offset by a decline in the net yield on earning assets, or net interest
margin, from 4.51% in the first six months of 2002 to 3.90% in the same period of 2003. In comparing second quarter periods, net interest income increased $445,000 or 7.4% reflecting a 32.5% increase in average earning asset and a decrease in the
net interest margin from 4.60% to 3.70%. On a taxable equivalent basis, the increases in net interest income in the first six months and second quarter of 2003 were $1,393,000 and $425,000, respectively, reflecting changes in the relative mix of
taxable and non-taxable earning assets in each period.



Table 1
on page 28 and Table 2 on page 29 set forth for the periods indicated information with respect to the Corporations average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis)
from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average
yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix
of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are also analyzed in Tables 1 and 2. Volume refers to the average dollar level of earning
assets and interest-bearing liabilities.



Changes in the net
interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and
interest-bearing liabilities.



Until the significant interest
rate declines in 2001, there had been a much greater degree of stability for several years in the interest rates both earned and paid by the Corporation. After rate cuts totaling 4.75% in 2001 and an additional rate cut of .50% in 2002, the prime
rate averaged 6.99% in 2001 and 4.67% in 2002 compared to the average prime rates of 9.21%, 7.99% and 8.37% in 2000, 1999 and 1998, respectively. Due to a general slowdown in the economy that began to be perceived in the 2000 fourth quarter, the
Federal Reserve acted to provide a stimulus through a series of interest rate reductions commencing in the 2001 first quarter, resulting in eight 50 basis point reductions and three 25 basis point reductions in the prime rate that lowered it to the
4.75% level at December 31, 2001. The reductions in the prime rate tended to negatively impact the net interest margin and net interest spread until the 2001 third quarter when these measures began



17



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to improve. An additional rate cut of 50 basis points in November 2002 further lowered the prime rate to the 4.25% level at December 31, 2002. In 2003, a
rate cut of 25 basis points in late June lowered the prime rate to 4.00%.



The Corporations net interest margin and net interest spread have been negatively impacted in 2003 due in part to the prime rate reduction in November 2002 but also because of the cumulative effect of the
reductions in yields on fixed rate earning assets over an extended period.



The prime rate averaged 4.24% in the first six months of 2003 compared to 4.75% in the first six months of 2002. The prime rate averaged 4.23% in the second quarter of 2003 compared to 4.75% in the 2002 second
quarter. The net interest spread, in comparing six-month periods, declined by 47 basis points from 4.12% in 2002 to 3.65% in 2003 reflecting the effect of a decrease in the average total yield on earning assets that more than offset the decrease in
the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets decreased by 111 basis points from 6.97% in 2002 to 5.86% in 2003, while the cost of funds decreased by 64 basis points from 2.85% to 2.21%. In
comparing second quarter periods, the net interest spread decreased by 76 basis points from 4.22% to 3.46%, as the yield on earning assets decreased by 132 basis points while the cost of funds decreased by 56 basis points.



Provision for Loan Losses



This provision is the charge against earnings to provide an allowance or
reserve for probable losses inherent in the loan portfolio. The amount of each periods charge is affected by several considerations including managements evaluation of various risk factors in determining the adequacy of the allowance
(see Asset Quality), actual loan loss experience and loan portfolio growth. Earnings were negatively impacted in the first six months and second quarter of 2003 by increases in the provision of $40,000 and $300,000, respectively. The
2003 second quarter provision of $830,000 reflected increases in classified assets due to economic conditions.



The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.17% at June 30, 2003, 1.21% at June 30, 2002 and 1.22% at
December 31, 2002. The level of the allowance and the resulting percentage relationship to loans held for investment has been influenced in recent periods by asset quality considerations, increases in historical charge-off trends and general
economic conditions.



Noninterest Income



Noninterest income for the first six months and second quarter of 2003
increased $5,879,000 or 174% and $4,804,000 or 285%, respectively, compared to the same periods in 2002, reflecting in large part the acquisition of Dover Mortgage Company on April 1, 2003, as discussed above, and to a lesser extent the acquisition
of Rowan Bank on August 1, 2002, as discussed above, and the general increase in the volume of business. The increase, in comparing six-month periods, was primarily due to a $4,242,000 increase in income from mortgage loan sales and a $1,064,000
increase in service charges on deposit accounts. Similarly, in comparing second quarter periods, there was a $3,976,000 increase in income from mortgage loan sales and a $550,000 increase in service charges on deposit accounts. The increase in
income from mortgage loan sales was largely due to the Dover acquisition but there was also an increase in the level of income from mortgage loan sales by the subsidiary banks as long-term conforming mortgage rates have remained at historical lows.
The increase in service charges on deposit accounts was primarily due to the implementation of an overdraft protection program in July 2002. The increase in annuity and brokerage commissions was largely related to the general increase in the volume
of sales of annuity products in the 2003 second quarter.



18



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Noninterest Expense



Noninterest expense was $5,210,000 or 58.1% higher in the first six months of 2003 compared to the same period in 2002 and for the second quarter was
$3,622,000 or 79.6% higher, due primarily to the acquisitions of Rowan Bank and Dover Mortgage Company on August 1, 2002 and April 1, 2003, respectively, as discussed above, with the Dover acquisition being the most significant factor with regard to
the higher level of noninterest expense in the 2003 second quarter. The largest factor resulting in higher noninterest expense was the generally increased level of personnel expense, which was impacted by increased staffing requirements in addition
to what was attributable to the acquisitions of Rowan Bank and Dover, by normal salary adjustments and by higher costs of fringe benefits. The cost of data processing services was higher in the 2003 first quarter because of the outside data
processing services employed by Rowan Bank until the conversion to an in-house system in March 2003, with the conversion project separately resulting in $140,000 in expenses. Other expense was affected in 2003 by expenses related to the new
overdraft protection program (see Noninterest Income).



Income
Taxes



The effective income tax rate increased from 28.6%
in the first six months of 2002 to 31.5% in the same period of 2003 due principally to an increase in the ratio of taxable to non-taxable income that was largely related to the acquisitions of Rowan Bank and Dover Mortgage Company on August 1, 2002
and April 1, 2003, respectively, as discussed above.



Liquidity



Liquidity for the subsidiary banks refers to their
continuing ability to meet deposit withdrawals, fund loan and capital expenditure commitments, maintain reserve requirements, pay operating expenses and provide funds to the Parent Company for payment of dividends, debt service and other operational
requirements. Liquidity is immediately available from five major sources: (a) cash on hand and on deposit at other banks, (b) the outstanding balance of federal funds sold, (c) lines for the purchase of federal funds from other banks, (d) the lines
of credit established at the Federal Home Loan Bank totaling $102,200,000, less existing advances against those lines, and (e) the investment securities portfolio. All debt securities are of investment grade quality and, if the need arises, can be
promptly liquidated on the open market or pledged as collateral for short-term borrowing.



Consistent with the general approach to liquidity, the subsidiary banks as a matter of policy do not solicit or accept brokered deposits for funding asset growth. Instead, loans and other assets are based primarily on
a core of local deposits and the subsidiary banks capital position. To date, the steady increase in deposits, retail repurchase agreements and capital, supplemented by Federal Home Loan Bank advances, has been adequate to fund loan demand in
each subsidiary banks market area, while maintaining the desired level of immediate liquidity and a substantial investment securities portfolio available for both immediate and secondary liquidity purposes.



Liquidity for Dover Mortgage Company refers to its continuing ability to fund
mortgage loan commitments, pay operating expenses and provide funds to the parent company for payment of dividends, debt service and other operational requirements. Liquidity is principally available from a line of credit with another financial
institution.



19



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Commitments, Contingencies and Off-Balance Sheet Risk



In the normal course of business, various commitments are outstanding that
are not reflected in the consolidated financial statements. Significant commitments at June 30, 2003 are discussed below.



Commitments of the subsidiary banks to extend credit and undisbursed advances on customer lines of credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. At June 30, 2003, total commitments to extend credit and undisbursed advances on customer lines of credit amounted to $155,452,000. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many commitments expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on the credit evaluation of the borrower.



Standby letters of credit are commitments issued by the subsidiary banks to guarantee the performance of a customer to a
third party. At June 30, 2003, the maximum potential amount of undiscounted future payments related to standby letters of credit was $6,222,000. Due to insignificance, the Corporation has recorded no liability at June 30, 2003 for the current
carrying amount of the obligation to perform as a guarantor. All standby letters of credit provide for recourse against the customer on whose behalf the letter of credit was issued, and this recourse may be further secured by a pledge of assets.



Dover Mortgage Company originates certain fixed rate
residential mortgage loans with the intention of selling these loans. Between the time that Dover enters into an interest rate lock or a commitment to originate a fixed rate residential mortgage loan with a potential borrower and the time the closed
loan is sold, the Corporation is subject to variability in market prices related to these commitments. The Corporation believes that it is prudent to limit the variability of expected proceeds from the future sales of these loans by entering into
forward sales commitments. The commitments to originate fixed rate residential mortgage loans and the forward sales commitments are freestanding derivative instruments. They do not qualify for hedge accounting treatment so their fair value
adjustments are recorded through the income statement in income from mortgage loan sales. The commitments to originate fixed rate residential mortgage loans totaled $50,662,000 at June 30, 2003.The related forward sales commitments totaled
$28,565,000 at June 30, 2003. The fair value of these commitments was recorded as a net asset of $429,000 at June 30, 2003. Loans held for sale totaled $44,143,000 at June 30, 2003. The related forward sales commitments totaled $30,721,000 at June
30, 2003. The fair value of these commitments was recorded as an asset of $134,000 at June 30, 2003. The Corporation is exposed to interest rate risk and market risk on the $22,097,000 in commitments to originate fixed rate residential mortgage
loans and the $10,215,000 in loans held for sale for which it does not have forward sales commitments at June 30, 2003. Due to the level of risk associated with the commitments to originate fixed rate residential loans and loans held for sale for
which the Corporation does not have forward sales commitments, it is possible that changes in the values of these assets may occur and such changes could affect the amounts reported in the consolidated financial statements in future periods.



Binding commitments of the subsidiary banks for the
origination of mortgage loans intended to be held for sale at June 30, 2003 were not material. There were no such binding commitments at June 30, 2002.



The Corporation does not have any special purpose entities or other similar forms of off-balance sheet financing.



20



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Asset/Liability Management and Interest Rate Sensitivity



One of the primary objectives of asset/liability management is to maximize
the net interest margin while minimizing the earnings risk associated with changes in interest rates. One method used to manage interest rate sensitivity is to measure, over various time periods, the interest rate sensitivity positions, or gaps;
however, this method addresses only the magnitude of timing differences and does not address earnings or market value. Therefore, management uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of
interest rate scenarios in order to more accurately measure interest rate risk.



The Corporations balance sheet was asset-sensitive at June 30, 2003. An asset-sensitive position means that, for cumulative gap measurement periods of one year or less, there are more assets than liabilities
subject to immediate repricing as market rates change. Because immediately rate sensitive assets exceed rate sensitive interest-bearing liabilities, the earnings position could improve in a rising rate environment and could deteriorate in a
declining rate environment, depending on the correlation of rate changes in these two categories. Included in interest-bearing liabilities subject to rate changes within 90 days is a portion of the interest-bearing demand, savings and money market
deposits. These types of deposits historically have not repriced coincidentally with or in the same proportion as general market indicators.



Capital Adequacy



Under guidelines established by the Board of Governors of the Federal Reserve System, capital adequacy is currently measured for regulatory purposes by
certain risk-based capital ratios, supplemented by a leverage capital ratio. The risk-based capital ratios are determined by expressing allowable capital amounts, defined in terms of Tier 1, Tier 2 and Tier 3, as a percentage of risk-weighted
assets, which are computed by measuring the relative credit risk of both the asset categories on the balance sheet and various off-balance sheet exposures. Tier 1 capital consists primarily of common shareholders equity and qualifying
perpetual preferred stock, net of goodwill and other disallowed intangible assets. Tier 2 capital, which is limited to the total of Tier 1 capital, includes allowable amounts of subordinated debt, mandatory convertible debt, preferred stock and the
allowance for loan losses. Tier 3 capital, applicable only to financial institutions subject to certain market risk capital guidelines, is capital allocated to support the market risk related to a financial institutions ongoing trading
activities. At June 30, 2003, FNB Corp. and each of the subsidiary banks were not subject to the market risk capital guidelines and, accordingly, had no Tier 3 capital allocation. Total capital, for risk-based purposes, consists of the sum of Tier
1, Tier 2 and Tier 3 capital. Under current requirements, the minimum total capital ratio is 8.00% and the minimum Tier 1 capital ratio is 4.00%. At June 30, 2003, FNB Corp. had a total capital ratio of 11.41% and a Tier 1 capital ratio of 10.37%.
First National Bank and Rowan Bank had total capital ratios of 13.02% and 13.41%, respectively, and Tier 1 capital ratios of 12.00% and 12.16%, respectively.



The leverage capital ratio, which serves as a minimum capital standard, considers Tier 1 capital only and is expressed as a percentage of average total
assets for the most recent quarter, after reduction of those assets for goodwill and other disallowed intangible assets at the measurement date. As currently required, the minimum leverage capital ratio is 4.00%. At June 30, 2003, FNB Corp. had a
leverage capital ratio of 7.72%. First National Bank and Rowan Bank had leverage capital ratios of 9.28% and 8.26%, respectively.



First National Bank and Rowan Bank are also required to comply with prompt corrective action provisions established by the Federal Deposit Insurance
Corporation Improvement Act. To be categorized as well-capitalized, a bank must have a minimum ratio for total capital of 10.00%, for Tier 1 capital of 6.00%



21



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and for leverage capital of 5.00%. As noted above, both First National Bank and Rowan Bank met all of those ratio requirements at June 30, 2003 and,
accordingly, are well-capitalized under the regulatory framework for prompt corrective action.



Balance Sheet Review



Total assets at June 30, 2003 were $217,133,000 or 36.7% higher than at June 30, 2002, largely reflecting the acquisition of Rowan Bank on August 1, 2002 and Dover Mortgage Company on April 1, 2003 as discussed in the Overview,
and were $54,412,000 or 7.2% higher than at December 31, 2002, due primarily to the Dover acquisition. Similarly, loans were ahead by $172,903,000 or 44.5% and $58,825,000 or 11.7%, and deposits were up by $113,404,000 or 23.5% and $2,838,000 or
0.5%. The level of total assets was also affected by advances from the Federal Home Loan Bank to First National Bank, which at June 30, 2003 had increased by $15,000,000 compared to June 30, 2002 and was unchanged compared to December 31, 2002.
Additionally, the level of Federal Home Loan Bank advances was further increased by advances totaling $8,000,000, exclusive of fair value adjustments, which resulted from the Rowan Bank acquisition. The level of funds provided by retail repurchase
agreements at June 30, 2003 had increased by $5,376,000 from June 30, 2002 and by $2,630,000 from December 31, 2002. Average assets increased 31.0% in the first six months of 2003 compared to the same period in 2002, while average loans increased
38.9% and average deposits rose 21.7%, the second quarter increases being 35.5%, 45.3% and 21.9%, respectively.



Investment Securities



Additions to the investment securities portfolio depend to a large extent on the availability of investable funds that are not otherwise needed to satisfy
loan demand. In general, because of economic and interest rate uncertainties, a higher than normal level of the proceeds from investment maturities and calls were held in a liquid status at June 30, 2003, leading to a $10,354,000 or 6.6% reduction
in the level of investment securities compared to June 30, 2002. Investable funds not otherwise utilized are temporarily invested as federal funds sold or as interest-bearing balances at other banks, the level of which is affected by such
considerations as near-term loan demand and liquidity needs. As noted above, the level of funds temporarily invested as federal funds sold or as interest-bearing balances at other banks was higher than normal at June 30, 2003.



Loans



The Corporations primary source of revenue and largest component of earning assets is the loan portfolio. Due
primarily to the acquisition of Rowan Bank on August 1, 2002 and Dover Mortgage Company on April 1, 2003 as discussed in the Overview, loans increased $172,903,000 or 44.5% during the twelve-month period ended June 30, 2003. The loan
increase during the first six months of 2003 was $58,825,000 or 11.7%. Average loans were $149,652,000 or 38.9% higher in the first six months of 2003 than in the same period of 2002 and were $174,361,000 or 45.3% higher in the second quarter
comparison. The ratio of average loans to average deposits, in comparing six-month periods, increased from 78.8% in 2002 to 90.0% in 2003. The ratio of loans to deposits at June 30, 2003 was 94.3%.



While the level of the entire loan portfolio has been adversely affected for
an extended period by the general slowdown in the economy, the portfolios related to commercial and agricultural loans, construction loans and commercial and other real estate loans experienced gains during the twelve-month period ended June 30,
2003, exclusive of the initial impact of the Rowan Bank and Dover Mortgage Company acquisitions.



22



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These same portfolios also experienced gains during the first six months of 2003. The balance of the 1-4 family residential mortgage loan portfolio,
exclusive of the initial impact of the Rowan Bank and Dover Mortgage Company acquisitions, has been affected by the high level of refinancing activity, especially since certain loans previously included in the held for investment
category were refinanced and subsequently sold.



Asset Quality



Management considers the asset quality of the subsidiary
banks to be of primary importance. A formal loan review function, independent of loan origination, is used to identify and monitor problem loans. As part of the loan review function, a third party assessment group is employed to review the
underwriting documentation and risk grading analysis.



In
determining the allowance for loan losses and any resulting provision to be charged against earnings, particular emphasis is placed on the results of the loan review process. Consideration is also given to a review of individual loans, historical
loan loss experience, the value and adequacy of collateral, and economic conditions in the market areas of the subsidiary banks. For loans determined to be impaired, the allowance is based on discounted cash flows using the loans initial
effective interest rate or the fair value of the collateral for certain collateral dependent loans. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses of each of the subsidiary banks.
Such agencies may require the subsidiary banks to recognize changes to the allowance based on their judgments about information available to them at the time of their examinations. Loans are charged off when, in the opinion of management, they are
deemed to be uncollectible. Recognized losses are charged against the allowance, and subsequent recoveries are added to the allowance.



At June 30, 2003, the Corporation had impaired loans which totaled $1,233,000 and were also on nonaccrual status. The related allowance for loan losses on
these loans amounted to $553,000. At June 30, 2002, the Corporation had impaired loans which totaled $375,000 and were also on nonaccrual status. The related allowance for loan losses on these loans amounted to $91,000. At December 31, 2002, the
Corporation had impaired loans which totaled $3,211,000 and were also on nonaccrual status. The related allowance for loan losses on these loans amounted to $1,401,000.



At June 30, 2003, nonperforming loans were $6,661,000 in total, nonaccrual loans and accruing loans past due 90 days or more
amounting to $4,564,000 and $2,097,000, respectively. At June 30, 2002, nonperforming loans were $4,427,000 in total, nonaccrual loans and accruing loans past due 90 days or more amounting to $3,789,000 and $638,000, respectively. At December 31,
2002, nonperforming loans were $6,212,000 in total, nonaccrual loans and accruing loans past due 90 days or more amounting to $4,944,000 and $1,268,000, respectively.



A model that considers both allocated and unallocated components of the allowance for loan losses is used on a quarterly
basis to analyze the adequacy of the allowance to absorb probable losses inherent in the loan portfolio. Homogeneous pools of loans are segregated, and classifications of individual loans within certain of these pools are identified using risk
grades derived from regulatory guidelines. Allocations of estimated reserves are assigned to the most adversely classified loans based upon an individual analysis of present-value repayment and/or liquidation projections of each loan. The reserve is
allocated to each pool, and remaining classifications within pools, based upon a two-year historical loss ratio of First National Bank,



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concentrations within industries, economic and industry-specific trends, portfolio trends, and other subjective factors. An additional portion of the reserve
is unallocated to any specific portion of the loan portfolio, and is based upon the mix and weight of the several homogeneous pools. The determination within the allowance model of allocated and unallocated components is not necessarily indicative
of future losses or allocations. The entire balance of the allowance for loan losses is available to absorb losses in the loan portfolio.



The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.17% at June 30, 2003, 1.21% at June 30, 2002 and 1.22% at
December 31, 2002. The level of the allowance and the resulting percentage relationship to loans held for investment has been influenced in recent periods by asset quality considerations, increases in historical charge-off trends and general
economic conditions.



Management believes the allowance for
loan losses of $6,038,000 at June 30, 2003 is adequate to cover probable losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Managements judgments are based on
numerous assumptions about current events which it believes to be reasonable, but which may or may not be valid. Thus there can be no assurance that loan losses in future periods will not exceed the current allowance or that future increases in the
allowance will not be required. No assurance can be given that managements ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the
allowance, thus adversely affecting the operating results of the Corporation.



The following table presents an analysis of the changes in the allowance for loan losses.



|                               |  | Three MonthsEnded June 30, |       | Six MonthsEnded June 30,
|------------------------------ |  | -------------------------- | ----- | ------------------------
|                               |  | 2003                       |       | 2002                    
|                               |  |                            |       | (in thousands)          
|Balance at beginning of period |  | $                          | 6,169 |                         
|Charge-offs                    |  |                            | 996   |                         
|Recoveries                     |  |                            | 35    |                         
|                               |  |                            |       |                         
|Net loan charge-offs           |  |                            | 961   |                         
|Provision for loan losses      |  |                            | 830   |                         
|                               |  |                            |       |                         
|Balance at end of period       |  | $                          | 6,038 |                         
|                               |  |                            |       |                         



Deposits



The level and mix of deposits is affected by various factors, including
general economic conditions, the particular circumstances of local markets and the specific deposit strategies employed. In general, broad interest rate declines tend to encourage customers to consider alternative investments such as mutual funds
and tax-deferred annuity products, while interest rate increases tend to have the opposite effect.



In addition to the acquisition of Rowan Bank on August 1, 2002 as discussed in the Overview, the level and mix of deposits has been
specifically affected by the following factors. Money market deposits, excluding the amount of Rowan Bank deposits initially added on August 1, 2002, had the most significant growth of any component of deposits, increasing $14,533,000 during the
twelve-month period ended June 30, 2003 and $1,681,000 during the first six months of 2003. By similar comparison, interest-bearing demand deposits have also grown significantly, increasing $13,693,000 during the twelve-month period ended June 30,



24



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2003 and $783,000 during the first six months of 2003. By further comparison that excludes the amount of Rowan deposits initially added, time deposits
decreased $28,849,000 during the twelve-month period ended June 30, 2003 and $10,886,000 during the first six months of 2003, reflecting the effect of interest rate declines. Additionally, the level of time deposits obtained from governmental units
fluctuates, amounting to $39,981,000, $54,036,000 and $42,323,000 at June 30, 2003, June 30, 2002 and December 31, 2002, respectively.



Business Development Matters



As discussed in the Overview and in Note 3 to Consolidated Financial Statements, the Corporation completed a merger on August 1, 2002 for the
acquisition of Rowan Bancorp, Inc., holding company for Rowan Savings Bank SSB, Inc., headquartered in China Grove, North Carolina, in a transaction accounted for using the purchase method of accounting for business combinations.



As also discussed in the Overview and in Note 3 to Consolidated
Financial Statements, the Corporation completed a merger on April 1, 2003 for the acquisition of Dover Mortgage Company, headquartered in Charlotte, North Carolina, in a transaction accounted for using the purchase method of accounting for business
combinations.



In the 1998 fourth quarter, First National Bank
received regulatory approval for establishment of a new branch office in Trinity, North Carolina. Construction of the permanent Trinity facility was completed in February 2002, resulting in a total capital outlay of approximately $1,400,000. Prior
to completion of the permanent facility, a temporary mobile office, which opened in August 1999, was operated at this site.



In April 2002, First National Bank received regulatory approval for establishment of a new branch office in Pinehurst, North Carolina. The office, located
in a leased facility which had previously been used as a banking office by another financial institution, was renovated and then opened for business in October 2002.



Accounting Pronouncement Matters



In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS No. 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a
business combination or with a disposal activity covered by SFAS No. 144. Those costs include, but are not limited to, the following: (a) termination benefits provided to current employees that are involuntarily terminated under the terms of a
benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract (hereinafter referred to as one-time termination benefits), (b) costs to terminate a contract that is not a capital lease
and (c) costs to consolidate facilities or relocate employees. SFAS No. 146 does not apply to costs associated with the retirement of a long-lived asset covered by SFAS No. 143, Accounting for Asset Retirement Obligations. A liability
for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred. A liability for a cost associated with an exit or disposal activity is incurred
when the definition of a liability is met. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Corporation adopted the provisions of SFAS
No. 146 with no effect on its consolidated financial statements.



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In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting
for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123 (SFAS No. 148). SFAS No. 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. It also requires prominent disclosure about the effects of reported net income of an entitys accounting policy decisions with respect to stock-based employee compensation. These
provisions of SFAS No. 148 are effective for financial statements for fiscal years ending after December 15, 2002. Finally, SFAS No. 148 amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in
interim financial information. The Corporation has adopted the disclosure provisions.



In November 2002, the FASB issued Financial Accounting Standards Board Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others (FASB Interpretation No. 45), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. FASB Interpretation No. 45 requires the
guarantor to recognize a liability for the non-contingent component of the guarantee, such as the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is
the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. The initial recognition and measurement provisions are effective for all guarantees within the
scope of FASB Interpretation No. 45 issued or modified after December 31, 2002. The Corporation issues standby letters of credit whereby the Corporation guarantees performance if a specified triggering event or condition occurs. The guarantees
generally expire within one year and may be automatically renewed depending on the terms of the guarantee. Information concerning standby letters of credit is presented in Commitments, Contingencies and Off-Balance Sheet Risk and in Note
11 to the Consolidated Financial Statements.



In January 2003,
the FASB issued Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (FASB Interpretation No. 46), which addresses consolidation by business enterprises of variable interest
entities. Under FASB Interpretation No. 46, an enterprise that holds significant variable interest in a variable interest entity but is not the primary beneficiary is required to disclose the nature, purpose, size and activities of the variable
interest entity, its exposure to loss as a result of the variable interest holders involvement with the entity, and the nature of its involvement with the entity, and date when the involvement began. The primary beneficiary of a variable
interest entity is required to disclose the nature, purpose, size and activities of the variable interest entity, the carrying amount and classification of consolidated assets that are collateral for the variable interest entitys obligations,
and any lack of recourse by creditors (or beneficial interest holders) of a consolidated variable interest entity to the general creditors (or beneficial interest holders) of a consolidated variable interest entity to the general credit of the
primary beneficiary. FASB Interpretation No. 46 is effective for the first fiscal year or interim period beginning after June 15, 2003. The Corporation adopted the provisions of FASB Interpretation No. 46 with no effect on its consolidated financial
statements.



In April 2003, the FASB issued Statement of
Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149), which amends and clarifies financial accounting and reporting for derivative instruments and
for hedging activities under Statement of Financial Accounting Standards No. 133 (SFAS No. 133). SFAS No. 149 clarifies when a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative



26



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instrument contains a financing component, amends the definition of an underlying to conform it to language used in FASB Interpretation No. 45. SFAS No. 149
requires that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for most contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. For contracts
with forward purchases or sales of TBA-type securities or other securities that do not yet exist, SFAS No. 149 is effective for both existing contracts and new contracts entered into after June 30, 2003. All provisions of SFAS No. 149 should be
applied prospectively. Adoption of SFAS No. 149 is not expected to have a material effect on the Corporations consolidated financial statements.



In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity (SFAS No. 150), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an
issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the Statement and still
existing at the beginning of the interim period of adoption. Adoption of SFAS No. 150 is not expected to have a material effect on the Corporations consolidated financial statements.



Cautionary Statement for Purpose of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995



The statements
contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which can be identified by the use of forward-looking
terminology such as believes, expects, plans, projects, goals, estimates, may, could, should, or anticipates or the negative
thereof or other variations thereon of comparable terminology, or by discussions of strategy that involve risks and uncertainties. In addition, from time to time, the Corporation or its representatives have made or may make forward-looking
statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, various filings made by the Corporation with the Securities and Exchange Commission, or press releases or oral statements made by or with
the approval of an authorized executive officer of the Corporation. Forward-looking statements are based on managements current views and assumptions and involve risks and uncertainties that could significantly affect expected results. The
Corporation wishes to caution the reader that factors, such as those listed below, in some cases have affected and could affect the Corporations actual results, causing actual results to differ materially from those in any forward-looking
statement. These factors include: (i) expected cost savings from the Corporations acquisitions described in the Overview may not materialize within the expected time frame, (ii) revenues following the acquisitions may not meet expectations,
(iii) costs or difficulties related to the integration of the businesses of the companies acquired may be greater than anticipated, (iv) competitive pressure in the banking industry or in the Corporations markets may increase significantly,
(v) changes in the interest rate environment may reduce margins, (vi) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration, (vii) changes
may occur in banking legislation and regulation, (viii) changes may occur in general business conditions and (ix) changes may occur in the securities markets. Readers should also consider information on risks and uncertainties contained in the
discussions of competition, supervision and regulation, and effect of governmental policies contained in the Corporations most recent Annual Report on Form 10-K.



27



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Table 1



Average Balances and Net Interest Income Analysis



SIX MONTHS ENDED JUNE 30



|                                           |  | 2003            |         |                          | 2002 |                                                  |  | 2003 Versus 2002 |                
|------------------------------------------ |  | --------------- | ------- | ------------------------ | ---- | ------------------------------------------------ |  | ---------------- | ---------------
|                                           |  | Average Balance |         | Interest Income/ Expense |      | Average Rates Earned/ Paid                       |  |                  | Average Balance
|                                           |  |                 |         |                          |      |                                                  |  | Volume           |                
|                                           |  |                 |         |                          |      | (Taxable Equivalent Basis, Dollars in Thousands) | 
|Earning Assets                             |  |                 |         |                          |      |                                                  |  |                  |                
|Loans (2) (3)                              |  | $               | 533,966 |                          | $    | 16,415                                           |  | 6.18             | %              
|Investment securities (2):                 |  |                 |         |                          |      |                                                  |  |                  |                
|Taxable income                             |  |                 | 117,287 |                          |      | 3,141                                            |  | 5.36             |                
|Non-taxable income                         |  |                 | 33,236  |                          |      | 1,147                                            |  | 6.90             |                
|Other earning assets                       |  |                 | 32,439  |                          |      | 192                                              |  | 1.19             |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Total earning assets                       |  |                 | 716,928 |                          |      | 20,895                                           |  | 5.86             |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Cash and due from banks                    |  |                 | 16,592  |                          |      |                                                  |  |                  |                
|Goodwill                                   |  |                 | 14,472  |                          |      |                                                  |  |                  |                
|Other assets, net                          |  |                 | 32,873  |                          |      |                                                  |  |                  |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Total Assets                               |  | $               | 780,865 |                          |      |                                                  |  |                  |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Interest-Bearing Liabilities               |  |                 |         |                          |      |                                                  |  |                  |                
|Interest-bearing deposits:                 |  |                 |         |                          |      |                                                  |  |                  |                
|Demand deposits                            |  | $               | 82,136  |                          |      | 243                                              |  | 0.60             |                
|Savings deposits                           |  |                 | 51,172  |                          |      | 161                                              |  | 0.63             |                
|Money market deposits                      |  |                 | 74,631  |                          |      | 495                                              |  | 1.34             |                
|Certificates and other time deposits       |  |                 | 324,705 |                          |      | 4,317                                            |  | 2.68             |                
|Retail repurchase agreements               |  |                 | 19,033  |                          |      | 102                                              |  | 1.08             |                
|Federal Home Loan Bank advances            |  |                 | 53,369  |                          |      | 1,158                                            |  | 4.38             |                
|Federal funds purchased                    |  |                 | 151     |                          |      | 1                                                |  | 1.55             |                
|Other borrowed funds                       |  |                 | 31,054  |                          |      | 486                                              |  | 3.16             |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Total interest-bearing liabilities         |  |                 | 636,251 |                          |      | 6,963                                            |  | 2.21             |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Noninterest-bearing demand deposits        |  |                 | 60,625  |                          |      |                                                  |  |                  |                
|Other liabilities                          |  |                 | 7,387   |                          |      |                                                  |  |                  |                
|Shareholders equity                       |  |                 | 76,602  |                          |      |                                                  |  |                  |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Total Liabilities and Shareholders Equity |  | $               | 780,865 |                          |      |                                                  |  |                  |                
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Net Interest Income and Spread             |  |                 |         |                          | $    | 13,932                                           |  | 3.65             | %              
|                                           |  |                 |         |                          |      |                                                  |  |                  |                
|Net Yield on Earning Assets                |  |                 |         |                          |      |                                                  |  | 3.90             | %              
|                                           |  |                 |         |                          |      |                                                  |  |                  |                

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|(1) |  | The mix variance, not separately stated, has been proportionally allocated to the rate and volume variances based on their absolute dollar amount.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Interest income and yields related to certain investment securities and loans exempt from both federal and state income tax or from state income tax alone are stated on a fully
taxable equivalent basis, assuming a 34% federal tax rate and applicable state tax rate, reduced by the nondeductible portion of interest expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Nonaccrual loans are included in the average loan balance. Loan fees and the incremental direct costs associated with making loans are deferred and subsequently recognized over the
life of the loan as an adjustment of interest income.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

Table 2



Average Balances and Net Interest Income Analysis



THREE MONTHS ENDED JUNE 30



|                                           |  | 2003                                             |         |                          | 2002 |                            |  | 2003 Versus 2002 |                
|------------------------------------------ |  | ------------------------------------------------ | ------- | ------------------------ | ---- | -------------------------- |  | ---------------- | ---------------
|                                           |  | Average Balance                                  |         | Interest Income/ Expense |      | Average Rates Earned/ Paid |  |                  | Average Balance
|                                           |  |                                                  |         |                          |      |                            |  | Volume           |                
|                                           |  | (Taxable Equivalent Basis, Dollars in Thousands) |        
|Earning Assets                             |  |                                                  |         |                          |      |                            |  |                  |                
|Loans (2) (3)                              |  | $                                                | 559,380 |                          | $    | 8,213                      |  | 5.88             | %              
|Investment securities (2):                 |  |                                                  |         |                          |      |                            |  |                  |                
|Taxable income                             |  |                                                  | 112,204 |                          |      | 1,449                      |  | 5.17             |                
|Non-taxable income                         |  |                                                  | 37,760  |                          |      | 625                        |  | 6.62             |                
|Other earning assets                       |  |                                                  | 29,750  |                          |      | 87                         |  | 1.17             |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Total earning assets                       |  |                                                  | 739,094 |                          |      | 10,374                     |  | 5.62             |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Cash and due from banks                    |  |                                                  | 17,687  |                          |      |                            |  |                  |                
|Goodwill                                   |  |                                                  | 16,322  |                          |      |                            |  |                  |                
|Other assets, net                          |  |                                                  | 33,917  |                          |      |                            |  |                  |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Total Assets                               |  | $                                                | 807,020 |                          |      |                            |  |                  |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Interest-Bearing Liabilities               |  |                                                  |         |                          |      |                            |  |                  |                
|Interest-bearing deposits:                 |  |                                                  |         |                          |      |                            |  |                  |                
|Demand deposits                            |  | $                                                | 82,974  |                          |      | 121                        |  | 0.59             |                
|Savings deposits                           |  |                                                  | 51,970  |                          |      | 76                         |  | 0.58             |                
|Money market deposits                      |  |                                                  | 75,711  |                          |      | 231                        |  | 1.22             |                
|Certificates and other time deposits       |  |                                                  | 321,420 |                          |      | 2,095                      |  | 2.61             |                
|Retail repurchase agreements               |  |                                                  | 20,095  |                          |      | 48                         |  | 0.95             |                
|Federal Home Loan Bank advances            |  |                                                  | 53,358  |                          |      | 582                        |  | 4.38             |                
|Federal funds purchased                    |  |                                                  | 248     |                          |      | 1                          |  | 1.53             |                
|Other borrowed funds                       |  |                                                  | 50,888  |                          |      | 388                        |  | 3.06             |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Total interest-bearing liabilities         |  |                                                  | 656,664 |                          |      | 3,542                      |  | 2.16             |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Noninterest-bearing demand deposits        |  |                                                  | 62,607  |                          |      |                            |  |                  |                
|Other liabilities                          |  |                                                  | 8,547   |                          |      |                            |  |                  |                
|Shareholders equity                       |  |                                                  | 79,202  |                          |      |                            |  |                  |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Total Liabilities and Shareholders Equity |  | $                                                | 807,020 |                          |      |                            |  |                  |                
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Net Interest Income and Spread             |  |                                                  |         |                          | $    | 6,832                      |  | 3.46             | %              
|                                           |  |                                                  |         |                          |      |                            |  |                  |                
|Net Yield on Earning Assets                |  |                                                  |         |                          |      |                            |  | 3.70             | %              
|                                           |  |                                                  |         |                          |      |                            |  |                  |                

---

|(1) |  | The mix variance, not separately stated, has been proportionally allocated to the rate and volume variances based on their absolute dollar amount.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Interest income and yields related to certain investment securities and loans exempt from both federal and state income tax or from state income tax alone are stated on a fully
taxable equivalent basis, assuming a 34% federal tax rate and applicable state tax rate, reduced by the nondeductible portion of interest expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Nonaccrual loans are included in the average loan balance. Loan fees and the incremental direct costs associated with making loans are deferred and subsequently recognized over the
life of the loan as an adjustment of interest income.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



---

Item 3. Quantitative and Qualitative Disclosures about Market Risk



Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods.



The Corporations market risk arises primarily from interest rate risk inherent in its lending and deposit-taking
activities. The structure of the Corporations loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. The Corporation does not maintain a trading account
nor is the Corporation subject to currency exchange risk or commodity price risk. Interest rate risk is monitored as part of the Corporations asset/liability management function, which is discussed above in Item 2 Managements
Discussion and Analysis of Financial Condition and Results of Operations under the heading Asset/Liability Management and Interest Rate Sensitivity.



Management does not believe there has been any significant change in the overall analysis of financial instruments
considered market risk sensitive, as measured by the factors of contractual maturities, average interest rates and estimated fair values, since the analysis prepared and presented in conjunction with the Form 10-K Annual Report for the fiscal year
ended December 31, 2002.



Item 4. Controls and Procedures



As of the end of the period covered by this report, management of the
Corporation, under the supervision and with the participation of the Corporations Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the Corporations disclosure controls and procedures.
Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer of the Corporation have concluded that the Corporations disclosure controls and procedures are effective to ensure that information required to be disclosed
by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions
rules and forms. The Corporation, however, is continuing to review and enhance the disclosure controls and procedures in place at Dover Mortgage Company, which it acquired in the second quarter of 2003 and which was not subject to public reporting
company requirements prior to the acquisition, to ensure that they are consistent with the controls and procedures in place at FNB Corp.s other subsidiaries.



There were no significant changes in the Corporations internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation. However, the Corporation is continuing to review and enhance the controls and procedures in place at its recently acquired subsidiary, Dover Mortgage Company, which was not subject to
public reporting company requirements prior to the acquisition.



30



---

PART II. OTHER INFORMATION



Item 2. Changes in Securities and Use of Proceeds



(a) The Corporations Articles of Incorporation have been amended to modify the requirement that the shareholders of
the Corporation approve by a supermajority vote (75%) any of the following transactions: any merger or consolidation of the Corporation with another entity, the sale, lease or exchange of substantially all of the Corporations assets or the
dissolution of the Corporation. Pursuant to the amendment, if any such transaction has received the requisite approval of the Corporations Board of Directors, then the North Carolina Business Corporation Act would govern, generally requiring
the affirmative vote of the holders of a majority of the outstanding shares of the Corporations common stock then entitled to vote to approve the transaction. A transaction that has not been approved by the Board of Directors will continue to
require the affirmative vote of the holders of 75% of the outstanding shares of common stock for approval and completion.



(c) In connection with its acquisition of Dover Mortgage Company on April 1, 2003, the Corporation issued 126,140 shares of its common stock to the three
shareholders of the company as part of the closing purchase consideration. The Corporation issued the shares in a private offering under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.



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



(a) The Corporations Annual Meeting of Shareholders was held on May
13, 2003 and continued on May 23, 2003.



(c) The proposals
voted upon and the results of the voting were as follows:



1.
Election of two Class I directors for two-year terms expiring at the Annual Meeting in 2005.



|Nominee        |  | Votes For |  | Withheld
|-------------- |  | --------- |  | --------
|Bruce D. Jones |  | 4,688,593 |  | 104,483 
|Dale E. Keiger |  | 4,741,928 |  | 50,279  



2. Election of four
Class II directors for three-year terms expiring at the Annual Meeting in 2006.



|Nominee                |  | Votes For |  | Withheld
|---------------------- |  | --------- |  | --------
|W. L. Hancock          |  | 4,743,748 |  | 49,138  
|Eugene B. McLaurin, II |  | 4,686,142 |  | 106,902 
|R. Reynolds Neely, Jr. |  | 4,725,187 |  | 67,415  
|Richard K. Pugh        |  | 4,728,070 |  | 64,816  



31



---

3. Approval to amend the Articles of Incorporation to modify the supermajority shareholder vote
requirement for business combinations.



|Votes for     |  | 4,169,195
|------------- |  | ---------
|Votes against |  | 229,696  
|Abstaining    |  | 100,507  



4. Approval of the
2003 Stock Incentive Plan.



|Votes for     |  | 3,710,783
|------------- |  | ---------
|Votes against |  | 391,459  
|Abstaining    |  | 93,178   



Item 6. Exhibits and Reports on
Form 8-K



| | (a) |  | Exhibits.
| | --- |  | ---------



Exhibits to this report are listed in the index to exhibits on pages 33, 34 and 35 of this report.



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------



During the quarter ended the June 30, 2003, the Corporation filed a Current Report on Form 8-K dated April 1, 2003, which reported under Item
5 that the Corporation had completed its acquisition of Dover Mortgage Company. Also, the Corporation filed a Current Report on Form 8-K dated April 17, 2003, which reported under Item 7, Item 9 and Item 12 that the Corporation had issued a
press release on its earnings for the first quarter of 2003.



---



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|                      |  | FNB Corp. (Registrant)
|--------------------- |  | ----------------------
|                      |  |                       
|Date: August 18, 2003 |  | By:                   
|                      |  |                       



32



---

INDEX TO EXHIBITS



|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                  
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|2.10        |  | Agreement and Plan of Merger dated as of February 11, 2002 by and between the Registrant and Rowan Bancorp, Inc., incorporated
herein by reference to Exhibit 2.10 to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2001.                                             
|            | 
|2.11        |  | Merger Agreement dated as of February 20, 2003 by and among the Registrant, Dover Mortgage Company and the shareholders of
Dover Mortgage Company, incorporated herein by reference to Exhibit 2.11 to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2002.            
|            | 
|3.10        |  | Articles of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrants Form S-14
Registration Statement (No. 2-96498) filed June 16, 1985.                                                                                                                    
|            | 
|3.11        |  | Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 10, 1988, incorporated herein by reference to
Exhibit 19.10 to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1988.                                                                       
|            | 
|3.12        |  | Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 12, 1998, incorporated herein by reference to
Exhibit 3.12 to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1998.                                                                        
|            | 
|3.13        |  | Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 23, 2003.                                                                                                                                                                                                             
|            | 
|3.20        |  | Amended and Restated Bylaws of the Registrant, adopted May 21, 1998, incorporated herein by reference to Exhibit 3.20 to the
Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1998.                                                                                               
|            | 
|4           |  | Specimen of Registrants Common Stock Certificate, incorporated herein by reference to Exhibit 4 to Amendment No. 1 to the
Registrants Form S-14 Registration Statement (No. 2-96498) filed April 19, 1985.                                                                                            
|            | 
|10.10*      |  | Form of Split Dollar Insurance Agreement dated as of November 1, 1987 between First National Bank and Trust Company and certain of its key employees and directors, incorporated
herein by reference to Exhibit 19.20 to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1988



33



---

|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                       
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|10.11*      |  | Form of Amendment to Split Dollar Insurance Agreement dated as of November 1, 1994 between First National Bank and Trust Company and certain of its key employees and directors,
incorporated herein by reference to Exhibit 10.11 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
|            | 
|10.20*      |  | Stock Compensation Plan as amended effective May 12, 1998, incorporated herein by reference to Exhibit 10.30 the Registrants Form 10-Q Quarterly Report for the quarter ended
June 30, 1998.                                                                                                                                
|            | 
|10.21*      |  | Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to the Registrants Stock Compensation Plan, incorporated herein by
reference to Exhibit 10.31 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.                              
|            | 
|10.22*      |  | Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant to the Registrants Stock Compensation Plan, incorporated herein by
reference to Exhibit 10.32 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.                               
|            | 
|10.30*      |  | Employment Agreement dated as of December 27, 1995 between First National Bank and Trust Company and Michael C. Miller, incorporated herein by reference to Exhibit 10.50 to the
Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1995.                                                         
|            | 
|10.31*      |  | Carolina Fincorp, Inc. Stock Option Plan (assumed by the Registrant on April 10, 2000), incorporated herein by reference to Exhibit 99.1 to the Registrants Registration
Statement on Form S-8 (File No. 333-54702).                                                                                                        
|            | 
|10.32*      |  | Employment Agreement dated as of April 10, 2000 between First National Bank and Trust Company and R. Larry Campbell, incorporated herein by reference to Exhibit 10.32 to the
Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000.                                                              
|            | 
|10.33*      |  | Nonqualified Supplemental Retirement Plan with R. Larry Campbell, incorporated herein by reference to Exhibit 10(c) to the Annual Report on Form 10-KSB of Carolina Fincorp, Inc.
for the fiscal year ended June 30, 1997.                                                                                                   
|            | 
|10.34*      |  | Employment Agreement dated as of August 1, 2002 between Rowan Savings Bank SSB, Inc. and Bruce D. Jones, incorporated herein by reference to the Registrants Form 10-Q
Quarterly Report for the quarter ended September 30, 2002.                                                                                           



34



---

|Exhibit No. |  | Description of Exhibit                                                                             
|----------- |  | ---------------------------------------------------------------------------------------------------
|            | 
|31.10       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|31.11       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|32          |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                           

---

|* |  | Management contract, or compensatory plan or arrangement.
|- |  | ---------------------------------------------------------



35