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UNITED STATES

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, 2005



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)



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 x No ̈



The
registrant had 5,619,050 shares of $2.50 par value common stock outstanding at August 1, 2005.



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PART I. FINANCIAL
INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



FNB Corp. and Subsidiaries



CONSOLIDATED BALANCE SHEETS (unaudited)



|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ----------------- | - | ------- | - |  | - | ------- | -
|                                                                                                                 |  | June 30,                                        |         |   | December 31, 2004 |  
|                                                                                                                 |  | 2005                                            |         |   | 2004              |   |        
|                                                                                                                 |  | (in thousands, except share and per share data) |        
|ASSETS                                                                                                           |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Cash and due from banks                                                                                          |  | $                                               | 19,433  |   |                   | $ | 18,891  |   |  | $ | 19,109  |  
|Interest-bearing bank balances                                                                                   |  |                                                 | 862     |   |                   |   | 18,478  |   |  |   | 1,309   |  
|Federal funds sold                                                                                               |  |                                                 | 880     |   |                   |   | 535     |   |  |   | 91      |  
|Investment securities:                                                                                           |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Available for sale, at estimated fair value (amortized cost of $74,840, $73,477 and $71,959)                     |  |                                                 | 76,559  |   |                   |   | 74,625  |   |  |   | 73,763  |  
|Held to maturity (estimated fair value of $47,796, $53,233 and $50,676)                                          |  |                                                 | 48,385  |   |                   |   | 54,934  |   |  |   | 51,380  |  
|Loans:                                                                                                           |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Loans held for sale                                                                                              |  |                                                 | 27,814  |   |                   |   | 16,629  |   |  |   | 11,648  |  
|Loans held for investment                                                                                        |  |                                                 | 675,073 |   |                   |   | 597,044 |   |  |   | 653,106 |  
|Less allowance for loan losses                                                                                   |  |                                                 | (7,732  | ) |                   |   | (6,579  | ) |  |   | (7,293  | )
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Net loans                                                                                                        |  |                                                 | 695,155 |   |                   |   | 607,094 |   |  |   | 657,461 |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Premises and equipment, net                                                                                      |  |                                                 | 18,795  |   |                   |   | 16,132  |   |  |   | 17,114  |  
|Goodwill                                                                                                         |  |                                                 | 16,359  |   |                   |   | 16,335  |   |  |   | 16,335  |  
|Other assets                                                                                                     |  |                                                 | 28,174  |   |                   |   | 26,213  |   |  |   | 26,329  |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Total Assets                                                                                                     |  | $                                               | 904,602 |   |                   | $ | 833,237 |   |  | $ | 862,891 |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                             |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Deposits:                                                                                                        |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Noninterest-bearing demand deposits                                                                              |  | $                                               | 84,055  |   |                   | $ | 74,219  |   |  | $ | 75,410  |  
|Interest-bearing deposits:                                                                                       |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Demand, savings and money market deposits                                                                        |  |                                                 | 218,795 |   |                   |   | 219,934 |   |  |   | 219,968 |  
|Time deposits of $100,000 or more                                                                                |  |                                                 | 169,959 |   |                   |   | 134,182 |   |  |   | 155,278 |  
|Other time deposits                                                                                              |  |                                                 | 216,850 |   |                   |   | 191,165 |   |  |   | 208,888 |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Total deposits                                                                                                   |  |                                                 | 689,659 |   |                   |   | 619,500 |   |  |   | 659,544 |  
|Retail repurchase agreements                                                                                     |  |                                                 | 17,101  |   |                   |   | 18,228  |   |  |   | 13,818  |  
|Federal Home Loan Bank advances                                                                                  |  |                                                 | 68,010  |   |                   |   | 75,024  |   |  |   | 69,088  |  
|Federal funds purchased                                                                                          |  |                                                 |        |   |                   |   | 9,900   |   |  |   | 8,175   |  
|Other borrowed funds                                                                                             |  |                                                 | 36,502  |   |                   |   | 23,144  |   |  |   | 22,566  |  
|Other liabilities                                                                                                |  |                                                 | 8,361   |   |                   |   | 7,839   |   |  |   | 7,553   |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Total Liabilities                                                                                                |  |                                                 | 819,633 |   |                   |   | 753,635 |   |  |   | 780,744 |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|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 - 5,617,653, 5,636,512 and 5,605,102 |  |                                                 | 14,044  |   |                   |   | 14,091  |   |  |   | 14,013  |  
|Surplus                                                                                                          |  |                                                 | 10,590  |   |                   |   | 11,267  |   |  |   | 10,643  |  
|Retained earnings                                                                                                |  |                                                 | 59,279  |   |                   |   | 53,538  |   |  |   | 56,383  |  
|Accumulated other comprehensive income                                                                           |  |                                                 | 1,056   |   |                   |   | 706     |   |  |   | 1,108   |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Total Shareholders Equity                                                                                       |  |                                                 | 84,969  |   |                   |   | 79,602  |   |  |   | 82,147  |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  
|Total Liabilities and Shareholders Equity                                                                       |  | $                                               | 904,602 |   |                   | $ | 833,237 |   |  | $ | 862,891 |  
|                                                                                                                 |  |                                                 |         |   |                   |   |         |   |  |   |         |  



See accompanying notes
to consolidated financial statements.



2



---



FNB Corp. and Subsidiaries



CONSOLIDATED STATEMENTS OF INCOME (unaudited)



|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|--------------------------------------------------- |  | ----------------------------------------------- | --------- | ---- | ------------------------ | --------- | ---- |  | - | --------- | - |  | - | ---------
|                                                    |  | Three Months EndedJune 30,                      |           |      | Six Months EndedJune 30,
|                                                    |  | 2005                                            |           | 2004 |                          |           | 2005 |  |   | 2004     
|                                                    |  | (in thousands, except share and per share data)
|Interest Income                                     |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Interest and fees on loans                          |  | $                                               | 11,322    |      | $                        | 8,338     |      |  | $ | 21,876    |   |  | $ | 16,311   
|Interest and dividends on investment securities:    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Taxable income                                      |  |                                                 | 860       |      |                          | 860       |      |  |   | 1,666     |   |  |   | 1,796    
|Non-taxable income                                  |  |                                                 | 415       |      |                          | 435       |      |  |   | 837       |   |  |   | 874      
|Other interest income                               |  |                                                 | 85        |      |                          | 46        |      |  |   | 117       |   |  |   | 75       
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Total interest income                               |  |                                                 | 12,682    |      |                          | 9,679     |      |  |   | 24,496    |   |  |   | 19,056   
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Interest Expense                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Deposits                                            |  |                                                 | 3,383     |      |                          | 2,122     |      |  |   | 6,413     |   |  |   | 4,204    
|Retail repurchase agreements                        |  |                                                 | 108       |      |                          | 33        |      |  |   | 187       |   |  |   | 59       
|Federal Home Loan Bank advances                     |  |                                                 | 651       |      |                          | 638       |      |  |   | 1,295     |   |  |   | 1,225    
|Federal funds purchased                             |  |                                                 |          |      |                          | 9         |      |  |   | 5         |   |  |   | 21       
|Other borrowed funds                                |  |                                                 | 355       |      |                          | 166       |      |  |   | 592       |   |  |   | 309      
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Total interest expense                              |  |                                                 | 4,497     |      |                          | 2,968     |      |  |   | 8,492     |   |  |   | 5,818    
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Net Interest Income                                 |  |                                                 | 8,185     |      |                          | 6,711     |      |  |   | 16,004    |   |  |   | 13,238   
|Provision for loan losses                           |  |                                                 | 864       |      |                          | 2,780     |      |  |   | 1,234     |   |  |   | 3,050    
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Net Interest Income After Provision for Loan Losses |  |                                                 | 7,321     |      |                          | 3,931     |      |  |   | 14,770    |   |  |   | 10,188   
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Noninterest Income                                  |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Mortgage loan sales                                 |  |                                                 | 1,382     |      |                          | 580       |      |  |   | 2,259     |   |  |   | 1,888    
|Service charges on deposit accounts                 |  |                                                 | 1,552     |      |                          | 1,356     |      |  |   | 2,834     |   |  |   | 2,592    
|Trust and investment services                       |  |                                                 | 293       |      |                          | 341       |      |  |   | 673       |   |  |   | 820      
|Cardholder and merchant services income             |  |                                                 | 335       |      |                          | 273       |      |  |   | 621       |   |  |   | 508      
|Other service charges, commissions and fees         |  |                                                 | 215       |      |                          | 196       |      |  |   | 456       |   |  |   | 382      
|Bank owned life insurance                           |  |                                                 | 146       |      |                          | 153       |      |  |   | 290       |   |  |   | 309      
|Other income (charge)                               |  |                                                 | 37        |      |                          | 35        |      |  |   | (11       | ) |  |   | 35       
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Total noninterest income                            |  |                                                 | 3,960     |      |                          | 2,934     |      |  |   | 7,122     |   |  |   | 6,534    
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Noninterest Expense                                 |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Personnel expense                                   |  |                                                 | 4,845     |      |                          | 3,949     |      |  |   | 9,242     |   |  |   | 8,125    
|Net occupancy expense                               |  |                                                 | 460       |      |                          | 394       |      |  |   | 867       |   |  |   | 787      
|Furniture and equipment expense                     |  |                                                 | 531       |      |                          | 471       |      |  |   | 1,046     |   |  |   | 948      
|Data processing services                            |  |                                                 | 358       |      |                          | 312       |      |  |   | 670       |   |  |   | 595      
|Other expense                                       |  |                                                 | 1,743     |      |                          | 1,928     |      |  |   | 3,334     |   |  |   | 3,696    
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Total noninterest expense                           |  |                                                 | 7,937     |      |                          | 7,054     |      |  |   | 15,159    |   |  |   | 14,151   
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Income (Loss) Before Income Taxes                   |  |                                                 | 3,344     |      |                          | (189      | )    |  |   | 6,733     |   |  |   | 2,571    
|Income taxes (benefit)                              |  |                                                 | 1,072     |      |                          | (305      | )    |  |   | 2,155     |   |  |   | 503      
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Net Income                                          |  | $                                               | 2,272     |      | $                        | 116       |      |  | $ | 4,578     |   |  | $ | 2,068    
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Net income per common share:                        |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Basic                                               |  | $                                               | .41       |      | $                        | .02       |      |  | $ | .82       |   |  | $ | .36      
|Diluted                                             |  |                                                 | .40       |      |                          | .02       |      |  |   | .80       |   |  |   | .35      
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Weighted average number of shares outstanding:      |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          
|Basic                                               |  |                                                 | 5,608,223 |      |                          | 5,704,276 |      |  |   | 5,607,481 |   |  |   | 5,704,939
|Diluted                                             |  |                                                 | 5,748,400 |      |                          | 5,867,105 |      |  |   | 5,752,022 |   |  |   | 5,885,502
|                                                    |  |                                                 |           |      |                          |           |      |  |   |           |   |  |   |          



See accompanying notes
to consolidated financial statements.



3



---



FNB Corp. and Subsidiaries



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME



Six Months Ended June 30, 2005 and
June 30, 2004 (unaudited)



|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|--------------------------------------------------------------- |  | ----------------------------------------------- | - |  | ------- | ------ | - | ---------------- | - | ------ | ------------------------------------------ |  | - | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                                                |  | Common Stock                                    |   |  | Surplus |        |   | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|                                                                |  | Shares                                          |   |  | Amount  |        |   |                  |   |       
|                                                                |  | (in thousands, except share and per share data) |  
|Balance, December 31, 2003                                      |  | 5,686,899                                       |   |  | $       | 14,217 |   |                  | $ | 12,478 |                                            |  | $ | 53,174 |   |  | $ | 1,589 |   |  | $ | 81,458 |  
|Comprehensive income:                                           |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Net income                                                      |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   | 2,068  |   |  |   |      |   |  |   | 2,068  |  
|Other comprehensive income:                                     |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Unrealized securities losses, net of income tax benefit of $556 |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   |       |   |  |   | (883  | ) |  |   | (883   | )
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Total comprehensive income                                      |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   |       |   |  |   |      |   |  |   | 1,185  |  
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Cash dividends declared, $.30 per share                         |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   | (1,704 | ) |  |   |      |   |  |   | (1,704 | )
|Common stock issued through:                                    |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Stock option plan                                               |  | 44,313                                          |   |  |         | 111    |   |                  |   | 371    |                                            |  |   |       |   |  |   |      |   |  |   | 482    |  
|Common stock repurchased                                        |  | (94,700                                         | ) |  |         | (237   | ) |                  |   | (1,582 | )                                          |  |   |       |   |  |   |      |   |  |   | (1,819 | )
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Balance, June 30, 2004                                          |  | 5,636,512                                       |   |  | $       | 14,091 |   |                  | $ | 11,267 |                                            |  | $ | 53,538 |   |  | $ | 706   |   |  | $ | 79,602 |  
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|                                                                |  |                                                 |   |  |         |       
|Balance, December 31, 2004                                      |  | 5,605,102                                       |   |  | $       | 14,013 |   |                  | $ | 10,643 |                                            |  | $ | 56,383 |   |  | $ | 1,108 |   |  | $ | 82,147 |  
|Comprehensive income:                                           |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Net income                                                      |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   | 4,578  |   |  |   |      |   |  |   | 4,578  |  
|Other comprehensive income:                                     |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Unrealized securities losses, net of income tax benefit of $33  |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   |       |   |  |   | (52   | ) |  |   | (52    | )
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Total comprehensive income                                      |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   |       |   |  |   |      |   |  |   | 4,526  |  
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Cash dividends declared, $.30 per share                         |  |                                                |   |  |         |       |   |                  |   |       |                                            |  |   | (1,682 | ) |  |   |      |   |  |   | (1,682 | )
|Common stock issued through:                                    |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Stock option plan                                               |  | 35,351                                          |   |  |         | 88     |   |                  |   | 347    |                                            |  |   |       |   |  |   |      |   |  |   | 435    |  
|Common stock repurchased                                        |  | (22,800                                         | ) |  |         | (57    | ) |                  |   | (400   | )                                          |  |   |       |   |  |   |      |   |  |   | (457   | )
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  
|Balance, June 30, 2005                                          |  | 5,617,653                                       |   |  | $       | 14,044 |   |                  | $ | 10,590 |                                            |  | $ | 59,279 |   |  | $ | 1,056 |   |  | $ | 84,969 |  
|                                                                |  |                                                 |   |  |         |        |   |                  |   |        |                                            |  |   |        |   |  |   |       |   |  |   |        |  



See accompanying notes
to consolidated financial statements.



4



---



FNB Corp. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)



|                                                                                            |  |                          |         |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                            |  | Six Months EndedJune 30, |        
|                                                                                            |  | 2005                     |         |   | 2004 |  
|                                                                                            |  | (in thousands)           |        
|Operating Activities:                                                                       |  |                          |         |   |      |   |         |  
|Net income                                                                                  |  | $                        | 4,578   |   |      | $ | 2,068   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                          |         |   |      |   |         |  
|Depreciation and amortization of premises and equipment                                     |  |                          | 820     |   |      |   | 806     |  
|Provision for loan losses                                                                   |  |                          | 1,234   |   |      |   | 3,050   |  
|Deferred income tax benefit                                                                 |  |                          | (311    | ) |      |   | (257    | )
|Deferred loan fees and costs, net                                                           |  |                          | (44     | ) |      |   | 194     |  
|Premium amortization and discount accretion of investment securities, net                   |  |                          | 193     |   |      |   | 320     |  
|Amortization of intangibles                                                                 |  |                          | 25      |   |      |   | 30      |  
|Net decrease (increase) in loans held for sale                                              |  |                          | (16,166 | ) |      |   | 4,473   |  
|Decrease (increase) in other assets                                                         |  |                          | (551    | ) |      |   | 807     |  
|Increase (decrease) in other liabilities                                                    |  |                          | 728     |   |      |   | (102    | )
|                                                                                            |  |                          |         |   |      |   |         |  
|Net Cash Provided by (Used in) Operating Activities                                         |  |                          | (9,494  | ) |      |   | 11,389  |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Investing Activities:                                                                       |  |                          |         |   |      |   |         |  
|Available-for-sale securities:                                                              |  |                          |         |   |      |   |         |  
|Proceeds from maturities and calls                                                          |  |                          | 3,553   |   |      |   | 19,579  |  
|Purchases                                                                                   |  |                          | (6,481  | ) |      |   | (15,198 | )
|Held-to-maturity securities:                                                                |  |                          |         |   |      |   |         |  
|Proceeds from maturities and calls                                                          |  |                          | 4,146   |   |      |   | 8,716   |  
|Purchases                                                                                   |  |                          | (1,297  | ) |      |   | (169    | )
|Net increase in loans held for investment                                                   |  |                          | (23,658 | ) |      |   | (70,221 | )
|Purchases of premises and equipment                                                         |  |                          | (2,506  | ) |      |   | (1,884  | )
|Other, net                                                                                  |  |                          | (54     | ) |      |   | 301     |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Net Cash Used in Investing Activities                                                       |  |                          | (26,297 | ) |      |   | (58,876 | )
|                                                                                            |  |                          |         |   |      |   |         |  
|Financing Activities:                                                                       |  |                          |         |   |      |   |         |  
|Net increase in deposits                                                                    |  |                          | 30,115  |   |      |   | 21,575  |  
|Increase in retail repurchase agreements                                                    |  |                          | 3,283   |   |      |   | 3,412   |  
|Increase (decrease) in Federal Home Loan Bank advances                                      |  |                          | (1,000  | ) |      |   | 22,000  |  
|Increase (decrease) in federal funds purchased                                              |  |                          | (8,175  | ) |      |   | 9,275   |  
|Increase in other borrowed funds                                                            |  |                          | 13,936  |   |      |   | 5,167   |  
|Common stock issued                                                                         |  |                          | 435     |   |      |   | 482     |  
|Common stock repurchased                                                                    |  |                          | (457    | ) |      |   | (1,819  | )
|Cash dividends paid                                                                         |  |                          | (1,680  | ) |      |   | (1,825  | )
|                                                                                            |  |                          |         |   |      |   |         |  
|Net Cash Provided by Financing Activities                                                   |  |                          | 36,457  |   |      |   | 58,267  |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Net Increase in Cash and Cash Equivalents                                                   |  |                          | 666     |   |      |   | 10,780  |  
|Cash and cash equivalents at beginning of period                                            |  |                          | 20,509  |   |      |   | 27,124  |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Cash and Cash Equivalents at End of Period                                                  |  | $                        | 21,175  |   |      | $ | 37,904  |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                           |  |                          |         |   |      |   |         |  
|Cash paid during the period for:                                                            |  |                          |         |   |      |   |         |  
|Interest                                                                                    |  | $                        | 8,013   |   |      | $ | 5,895   |  
|Income taxes                                                                                |  |                          | 3,037   |   |      |   | 687     |  
|Noncash transactions:                                                                       |  |                          |         |   |      |   |         |  
|Foreclosed loans transferred to other real estate                                           |  |                          | 787     |   |      |   | 734     |  
|Unrealized securities gains (losses), net of income taxes                                   |  |                          | (52     | ) |      |   | (883    | )



See accompanying notes
to consolidated financial statements.



5



---



FNB Corp. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



FNB Corp. is a bank holding company whose wholly owned subsidiaries are the First National Bank and Trust Company (First National Bank) and
Dover Mortgage Company (Dover). 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. First National has offices in Chatham, Guilford, Montgomery, Moore, Randolph, Richmond, Rowan and Scotland counties in North
Carolina. Dover Mortgage Company operates mortgage production offices in North Carolina at Asheville, Carolina Beach, Charlotte, Goldsboro, Greenville, Kernersville, Lake Norman, Leland, 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. Operating results for the three and six month periods ended June 30, 2005 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2005.



The organization and business of FNB Corp., accounting policies followed by the Corporation and other relevant information are contained in the notes to the consolidated financial statements filed as part of the Corporations 2004
annual report on Form 10-K. This quarterly report should be read in conjunction with such annual report.



|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
|-- | ------------------



On May 9, 2005, the Corporation entered into a definitive merger agreement to acquire United Financial, Inc. (United), holding company for
Alamance Bank, headquartered in Graham, North Carolina. Under the terms of the agreement, United will be merged with and into FNB Corp. As soon as practicable following the merger of the holding companies, Alamance Bank will be merged with and into
First National Bank. The merger will be accounted for using the purchase method of accounting for business combinations and is subject to several conditions, including approval by the



6



---

shareholders of United and approval by applicable regulatory authorities. Upon satisfaction of these conditions, the merger of the holding companies is
anticipated to close early in the fourth quarter of 2005. United shareholders will be permitted to elect FNB Corp. common stock or cash, or a combination of each. Subject to the Corporations ability to limit the overall stock consideration to
65%, each share of United common stock, at the election of the shareholder, will be converted into either: (1) $14.25 in cash, (2) 0.6828 shares of FNB Corp. common stock, or (3) $4.99 in cash and 0.4438 shares of FNB Corp. common stock. At June 30,
2005, United operated three offices through Alamance Bank and had approximately $150,133,000 in total assets, $112,370,000 in deposits and $10,946,000 in shareholders equity.



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



Basic net income per share, or basic 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 EndedJune 30,
|                                                                             |  | 2005                       |  | 2004                     |  | 2005      |  | 2004     
|Basic EPS denominator - Weighted average number of common shares outstanding |  | 5,608,223                  |  | 5,704,276                |  | 5,607,481 |  | 5,704,939
|Dilutive share effect arising from assumed exercise of stock options         |  | 140,177                    |  | 162,829                  |  | 144,541   |  | 180,563  
|                                                                             |  |                            |  |                          |  |           |  |          
|Diluted EPS denominator                                                      |  | 5,748,400                  |  | 5,867,105                |  | 5,752,022 |  | 5,885,502
|                                                                             |  |                            |  |                          |  |           |  |          



For the three months
ended June 30, 2005 and 2004, there were 315,807 and 169,692 stock options, respectively, that were antidilutive since the exercise price exceeded the average market price, and for the six months ended June 30, 2005 and 2004, there were 238,961 and
170,758 stock options, respectively, that were antidilutive. These common stock equivalents were omitted from the calculations of diluted EPS for their respective periods.



7



---

|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:



|                                                                                                   |  |                                       |       |                          |   |      |  |      |       |  |   |      
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- | ------------------------ | - | ---- |  | ---- | ----- |  | - | -----
|                                                                                                   |  | Three Months EndedJune 30,            |       | Six Months EndedJune 30,
|                                                                                                   |  | 2005                                  |       | 2004                     |   | 2005 |  | 2004
|                                                                                                   |  | (in thousands, except per share data)
|Net income, as reported                                                                            |  | $                                     | 2,272 |                          | $ | 116  |  | $    | 4,578 |  | $ | 2,068
|Less: Stock-based compensation cost determined under fair value method, net of related tax effects |  |                                       | 97    |                          |   | 83   |  |      | 195   |  |   | 171  
|                                                                                                   |  |                                       |       |                          |   |      |  |      |       |  |   |      
|Net income, pro forma                                                                              |  | $                                     | 2,175 |                          | $ | 33   |  | $    | 4,383 |  | $ | 1,897
|                                                                                                   |  |                                       |       |                          |   |      |  |      |       |  |   |      
|Net income per share:                                                                              |  |                                       |       |                          |   |      |  |      |       |  |   |      
|Basic:                                                                                             |  |                                       |       |                          |   |      |  |      |       |  |   |      
|As reported                                                                                        |  | $                                     | .41   |                          | $ | .02  |  | $    | .82   |  | $ | .36  
|Pro forma                                                                                          |  |                                       | .39   |                          |   | .01  |  |      | .78   |  |   | .33  
|Diluted:                                                                                           |  |                                       |       |                          |   |      |  |      |       |  |   |      
|As reported                                                                                        |  |                                       | .40   |                          |   | .02  |  |      | .80   |  |   | .35  
|Pro forma                                                                                          |  |                                       | .38   |                          |   | .01  |  |      | .76   |  |   | .32  



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



Loans as presented are reduced by net deferred loan fees of $946,000, $955,000 and $990,000 at June 30, 2005, June 30, 2004 and December 31, 2004,
respectively.



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



Changes in the allowance for loan losses were as follows:



|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  
|----------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | ----- | -
|                                    |  | Three Months EndedJune 30, |       | Six Months EndedJune 30, |  
|                                    |  | 2005                       |       | 2004                     |   | 2005  |  | 2004 |      
|                                    |  | (in thousands)             |      
|Balance at beginning of period      |  | $                          | 7,556 |                          | $ | 6,330 |  | $    | 7,293 |  | $ | 6,172 |  
|Charge-offs                         |  |                            | 948   |                          |   | 2,574 |  |      | 1,144 |  |   | 2,804 |  
|Recoveries                          |  |                            | 260   |                          |   | 43    |  |      | 349   |  |   | 206   |  
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  
|Net loan charge-offs                |  |                            | 688   |                          |   | 2,531 |  |      | 795   |  |   | 2,598 |  
|Provision for loan losses           |  |                            | 864   |                          |   | 2,780 |  |      | 1,234 |  |   | 3,050 |  
|Allowance adjustment for loans sold |  |                            |      |                          |   |      |  |      |      |  |   | (45   | )
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  
|Balance at end of period            |  | $                          | 7,732 |                          | $ | 6,579 |  | $    | 7,732 |  | $ | 6,579 |  
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  



8



---

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



Significant components of other expense were as follows:



|                                  |  |                            |     |                          |   |      |  |      |     |  |   |    
|--------------------------------- |  | -------------------------- | --- | ------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                  |  | Three Months EndedJune 30, |     | Six Months EndedJune 30,
|                                  |  | 2005                       |     | 2004                     |   | 2005 |  | 2004
|                                  |  | (in thousands)            
|Advertising and marketing         |  | $                          | 273 |                          | $ | 186  |  | $    | 474 |  | $ | 372
|Stationery, printing and supplies |  |                            | 235 |                          |   | 171  |  |      | 415 |  |   | 351
|Communications                    |  |                            | 152 |                          |   | 132  |  |      | 284 |  |   | 289
|Professional fees                 |  |                            | 137 |                          |   | 210  |  |      | 255 |  |   | 339



|9. | Postretirement Employee Benefit Plans
|-- | -------------------------------------



Information concerning the net periodic cost of the Corporations postretirement benefit plans is as follows:



|                                         |  |                                  |      |   |                                     |   |                                        |  |   |   
|---------------------------------------- |  | -------------------------------- | ---- | - | ----------------------------------- | - | -------------------------------------- |  | - | --
|                                         |  | Three Months Ended June 30, 2005
|                                         |  | PensionPlan                      |      |   | SupplementalExecutiveRetirementPlan |   | OtherPostretirementDefinedBenefitPlans
|                                         |  | (in thousands)                  
|Service cost                             |  | $                                | 159  |   |                                     | $ | 17                                     |  | $ | 17
|Interest cost                            |  |                                  | 156  |   |                                     |   | 19                                     |  |   | 21
|Expected return on plan assets           |  |                                  | (207 | ) |                                     |   |                                       |  |   |  
|Amortization of prior service cost       |  |                                  | 7    |   |                                     |   | 12                                     |  |   | 2 
|Amortization of transition obligation    |  |                                  |     |   |                                     |   |                                       |  |   | 5 
|Recognized net actuarial loss            |  |                                  | 38   |   |                                     |   | 5                                      |  |   | 3 
|                                         |  |                                  |      |   |                                     |   |                                        |  |   |   
|Net periodic postretirement benefit cost |  | $                                | 153  |   |                                     | $ | 53                                     |  | $ | 48
|                                         |  |                                  |      |   |                                     |   |                                        |  |   |   



9



---

|                                         |  |                                  |      |   |                                     |   |                                        |  |   |   
|---------------------------------------- |  | -------------------------------- | ---- | - | ----------------------------------- | - | -------------------------------------- |  | - | --
|                                         |  | Three Months Ended June 30, 2004
|                                         |  | PensionPlan                      |      |   | SupplementalExecutiveRetirementPlan |   | OtherPostretirementDefinedBenefitPlans
|                                         |  | (in thousands)                  
|Service cost                             |  | $                                | 144  |   |                                     | $ | 15                                     |  | $ | 15
|Interest cost                            |  |                                  | 145  |   |                                     |   | 16                                     |  |   | 19
|Expected return on plan assets           |  |                                  | (156 | ) |                                     |   |                                       |  |   |  
|Amortization of prior service cost       |  |                                  | 27   |   |                                     |   | 11                                     |  |   | 2 
|Amortization of transition obligation    |  |                                  |     |   |                                     |   |                                       |  |   | 5 
|Recognized net actuarial loss            |  |                                  | 40   |   |                                     |   | 5                                      |  |   | 1 
|                                         |  |                                  |      |   |                                     |   |                                        |  |   |   
|Net periodic postretirement benefit cost |  | $                                | 200  |   |                                     | $ | 47                                     |  | $ | 42
|                                         |  |                                  |      |   |                                     |   |                                        |  |   |   



|                                         |  |                                |      |   |                                     |   |                                        |  |   |   
|---------------------------------------- |  | ------------------------------ | ---- | - | ----------------------------------- | - | -------------------------------------- |  | - | --
|                                         |  | Six Months Ended June 30, 2005
|                                         |  | PensionPlan                    |      |   | SupplementalExecutiveRetirementPlan |   | OtherPostretirementDefinedBenefitPlans
|                                         |  | (in thousands)                
|Service cost                             |  | $                              | 318  |   |                                     | $ | 34                                     |  | $ | 34
|Interest cost                            |  |                                | 312  |   |                                     |   | 38                                     |  |   | 42
|Expected return on plan assets           |  |                                | (414 | ) |                                     |   |                                       |  |   |  
|Amortization of prior service cost       |  |                                | 14   |   |                                     |   | 24                                     |  |   | 4 
|Amortization of transition obligation    |  |                                |     |   |                                     |   |                                       |  |   | 10
|Recognized net actuarial loss            |  |                                | 76   |   |                                     |   | 10                                     |  |   | 6 
|                                         |  |                                |      |   |                                     |   |                                        |  |   |   
|Net periodic postretirement benefit cost |  | $                              | 306  |   |                                     | $ | 106                                    |  | $ | 96
|                                         |  |                                |      |   |                                     |   |                                        |  |   |   



|                                         |  |                                |      |   |                                     |   |                                        |  |   |   
|---------------------------------------- |  | ------------------------------ | ---- | - | ----------------------------------- | - | -------------------------------------- |  | - | --
|                                         |  | Six Months Ended June 30, 2004
|                                         |  | PensionPlan                    |      |   | SupplementalExecutiveRetirementPlan |   | OtherPostretirementDefinedBenefitPlans
|                                         |  | (in thousands)                
|Service cost                             |  | $                              | 288  |   |                                     | $ | 30                                     |  | $ | 30
|Interest cost                            |  |                                | 290  |   |                                     |   | 33                                     |  |   | 38
|Expected return on plan assets           |  |                                | (312 | ) |                                     |   |                                       |  |   |  
|Amortization of prior service cost       |  |                                | 54   |   |                                     |   | 23                                     |  |   | 4 
|Amortization of transition obligation    |  |                                |     |   |                                     |   |                                       |  |   | 10
|Recognized net actuarial loss            |  |                                | 80   |   |                                     |   | 9                                      |  |   | 3 
|                                         |  |                                |      |   |                                     |   |                                        |  |   |   
|Net periodic postretirement benefit cost |  | $                              | 400  |   |                                     | $ | 95                                     |  | $ | 85
|                                         |  |                                |      |   |                                     |   |                                        |  |   |   



10



---

Due to the significant $2,175,000 contribution made in 2004, the Corporation does not expect to
contribute any funds to its pension plan in 2005. The other postretirement benefit plans are unfunded plans; and consequently, there are no plan assets or cash contribution requirements other than for the direct payment of benefits.



|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.



In connection with its asset/liability management
objectives, the Corporation in 2004 entered into an interest rate swap on a $7,000,000 Federal Home Loan Bank (FHLB) advance that converts the fixed rate cash flow exposure on the FHLB advance to a variable rate cash flow. As structured, the
pay-variable, receive-fixed swap is evaluated as being a fair value hedge with no ineffectiveness; and, consequently, the difference in cash flows in each period between the variable rate interest payments that the Corporation makes and the fixed
rate interest payments received is currently reported in earnings.



For the three months ended June 30, 2005 and 2004, the interest rate swap resulted in net reductions of $5,000 and $38,000, respectively, in the interest expense that would otherwise have been reported for the FHLB advance, and for the six
months ended June 30, 2005 and 2004, the interest rate swap resulted in net reductions of $18,000 and $49,000, respectively, in interest expense. The fair value of the swap at June 30, 2005 was recorded on the consolidated balance sheet as a
liability in the amount of $166,000, offset by a valuation adjustment in the same amount to the FHLB advance.



The Corporation has also identified the following derivative instruments which were recorded on the consolidated balance sheet at June 30, 2005:
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 and commitments to deliver loans into a mortgage-backed security. 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 $27,839,000 at June 30, 2005, and the related forward sales commitments totaled $27,839,000. Loans held for sale by Dover Mortgage Company totaled $25,555,000 at June 30, 2005, and the
related forward sales commitments totaled $25,555,000.



11



---

First National Bank had loans held for sale of $2,259,000 at June 30, 2005. Binding commitments of First
National Bank for the origination of mortgage loans intended to be held for sale at June 30, 2005 were not material.



|11. | Recently Adopted Accounting Pronouncements
|--- | ------------------------------------------



In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3, Accounting for Loans or
Certain Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or
debt securities acquired in a transfer if those differences relate to a deterioration of credit quality. SOP 03-3 also prohibits companies from carrying over or creating a valuation allowance in the initial accounting for loans acquired
that meet the scope criteria of SOP 03-3. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. The Corporation adopted the provisions of SOP 03-3 on January 1, 2005 with no effect on its consolidated financial
statements.



On March 9, 2004, the Securities and Exchange
Commission staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB No. 105). SAB No. 105 provides recognition guidance for entities that issue loan commitments that are
required to be accounted for as derivative instruments. SAB No. 105 indicates that the expected future cash flows related to the associated servicing of the loan and any other internally developed intangible assets should not be considered when
recognizing a loan commitment at inception or through its life. SAB No. 105 also discusses disclosure requirements for loan commitments and is effective for loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004.
The Corporation adopted the provisions of SAB No. 105 effective April 1, 2004, resulting in a change in its accounting for loan commitments issued by Dover Mortgage Company. The application of SAB No. 105 creates a timing difference in the
recognition of certain income recorded as income from mortgage loan sales, deferring the recognition from the current accounting period to a subsequent period. The estimated effect of adoption of SAB No. 105 on the results of operations for the
three months ended June 30, 2004 and for the year ended December 31, 2004 was a $356,000 reduction in Dovers income from mortgage loan sales.



|12. | Business Segment Information
|--- | ----------------------------



The Corporation is considered to have two principal business segments: the full-service subsidiary bank, First National Bank, and the mortgage banking
subsidiary, Dover Mortgage Company. Dover originates, underwrites and closes loans for sale into the secondary market. Financial performance for each segment is detailed in the following tables. Included in the Other column are amounts
for other corporate activities and eliminations of intersegment transactions.



12



---

|                                                    |  |                                  |         |                      |   |        |  |   |       |   |  |   |        
|--------------------------------------------------- |  | -------------------------------- | ------- | -------------------- | - | ------ |  | - | ----- | - |  | - | -------
|                                                    |  | Three Months Ended June 30, 2005
|                                                    |  | FirstNationalBank                |         | DoverMortgageCompany |   | Other  |  |   | Total
|                                                    |  | (in thousands)                  
|Interest income                                     |  | $                                | 12,392  |                      | $ | 290    |  | $ |      |   |  | $ | 12,682 
|Interest expense                                    |  |                                  | 4,143   |                      |   | 225    |  |   | 129   |   |  |   | 4,497  
|                                                    |  |                                  |         |                      |   |        |  |   |       |   |  |   |        
|Net interest income                                 |  |                                  | 8,249   |                      |   | 65     |  |   | (129  | ) |  |   | 8,185  
|Provision for loan losses                           |  |                                  | 864     |                      |   |       |  |   |      |   |  |   | 864    
|                                                    |  |                                  |         |                      |   |        |  |   |       |   |  |   |        
|Net interest income after provision for loan losses |  |                                  | 7,385   |                      |   | 65     |  |   | (129  | ) |  |   | 7,321  
|Noninterest income                                  |  |                                  | 2,885   |                      |   | 1,104  |  |   | (29   | ) |  |   | 3,960  
|Noninterest expense                                 |  |                                  | 6,778   |                      |   | 1,148  |  |   | 11    |   |  |   | 7,937  
|                                                    |  |                                  |         |                      |   |        |  |   |       |   |  |   |        
|Income before income taxes                          |  |                                  | 3,492   |                      |   | 21     |  |   | (169  | ) |  |   | 3,344  
|Income taxes                                        |  |                                  | 1,118   |                      |   | 11     |  |   | (57   | ) |  |   | 1,072  
|                                                    |  |                                  |         |                      |   |        |  |   |       |   |  |   |        
|Net income                                          |  | $                                | 2,374   |                      | $ | 10     |  | $ | (112  | ) |  | $ | 2,272  
|                                                    |  |                                  |         |                      |   |        |  |   |       |   |  |   |        
|Total assets                                        |  | $                                | 871,993 |                      | $ | 32,225 |  | $ | 384   |   |  | $ | 904,602
|Net loans                                           |  |                                  | 677,332 |                      |   | 25,555 |  |   |      |   |  |   | 702,887
|Goodwill                                            |  |                                  | 12,583  |                      |   | 3,776  |  |   |      |   |  |   | 16,359 



|                                                    |  |                                  |         |   |                      |   |        |       |  |   |       |   |  |   |         |  
|--------------------------------------------------- |  | -------------------------------- | ------- | - | -------------------- | - | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                                                    |  | Three Months Ended June 30, 2004 |        
|                                                    |  | FirstNationalBank                |         |   | DoverMortgageCompany |   |        | Other |  |   | Total |  
|                                                    |  | (in thousands)                   |        
|Interest income                                     |  | $                                | 9,515   |   |                      | $ | 164    |       |  | $ |      |   |  | $ | 9,679   |  
|Interest expense                                    |  |                                  | 2,802   |   |                      |   | 78     |       |  |   | 88    |   |  |   | 2,968   |  
|                                                    |  |                                  |         |   |                      |   |        |       |  |   |       |   |  |   |         |  
|Net interest income                                 |  |                                  | 6,713   |   |                      |   | 86     |       |  |   | (88   | ) |  |   | 6,711   |  
|Provision for loan losses                           |  |                                  | 2,780   |   |                      |   |       |       |  |   |      |   |  |   | 2,780   |  
|                                                    |  |                                  |         |   |                      |   |        |       |  |   |       |   |  |   |         |  
|Net interest income after provision for loan losses |  |                                  | 3,933   |   |                      |   | 86     |       |  |   | (88   | ) |  |   | 3,931   |  
|Noninterest income                                  |  |                                  | 2,532   |   |                      |   | 454    |       |  |   | (52   | ) |  |   | 2,934   |  
|Noninterest expense                                 |  |                                  | 6,183   |   |                      |   | 886    |       |  |   | (15   | ) |  |   | 7,054   |  
|                                                    |  |                                  |         |   |                      |   |        |       |  |   |       |   |  |   |         |  
|Income (loss) before income taxes                   |  |                                  | 282     |   |                      |   | (346   | )     |  |   | (125  | ) |  |   | (189    | )
|Income taxes (benefit)                              |  |                                  | (133    | ) |                      |   | (130   | )     |  |   | (42   | ) |  |   | (305    | )
|                                                    |  |                                  |         |   |                      |   |        |       |  |   |       |   |  |   |         |  
|Net income (loss)                                   |  | $                                | 415     |   |                      | $ | (216   | )     |  | $ | (83   | ) |  | $ | 116     |  
|                                                    |  |                                  |         |   |                      |   |        |       |  |   |       |   |  |   |         |  
|Total assets                                        |  | $                                | 813,390 |   |                      | $ | 19,681 |       |  | $ | 166   |   |  | $ | 833,237 |  
|Net loans                                           |  |                                  | 593,831 |   |                      |   | 13,263 |       |  |   |      |   |  |   | 607,094 |  
|Goodwill                                            |  |                                  | 12,583  |   |                      |   | 3,752  |       |  |   |      |   |  |   | 16,335  |  



13



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|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|--------------------------------------------------- |  | ------------------------------ | ------- | -------------------- | - | ------ | ----- |  | - | ----- | - |  | - | -------
|                                                    |  | Six Months Ended June 30, 2005
|                                                    |  | FirstNationalBank              |         | DoverMortgageCompany |   |        | Other |  |   | Total
|                                                    |  | (in thousands)                
|Interest income                                     |  | $                              | 24,044  |                      | $ | 452    |       |  | $ |      |   |  | $ | 24,496 
|Interest expense                                    |  |                                | 7,901   |                      |   | 343    |       |  |   | 248   |   |  |   | 8,492  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Net interest income                                 |  |                                | 16,143  |                      |   | 109    |       |  |   | (248  | ) |  |   | 16,004 
|Provision for loan losses                           |  |                                | 1,234   |                      |   |       |       |  |   |      |   |  |   | 1,234  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Net interest income after provision for loan losses |  |                                | 14,909  |                      |   | 109    |       |  |   | (248  | ) |  |   | 14,770 
|Noninterest income                                  |  |                                | 5,355   |                      |   | 1,833  |       |  |   | (66   | ) |  |   | 7,122  
|Noninterest expense                                 |  |                                | 13,084  |                      |   | 2,076  |       |  |   | (1    | ) |  |   | 15,159 
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Income (loss) before income taxes                   |  |                                | 7,180   |                      |   | (134   | )     |  |   | (313  | ) |  |   | 6,733  
|Income taxes (benefit)                              |  |                                | 2,308   |                      |   | (47    | )     |  |   | (106  | ) |  |   | 2,155  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Net income (loss)                                   |  | $                              | 4,872   |                      | $ | (87    | )     |  | $ | (207  | ) |  | $ | 4,578  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Total assets                                        |  | $                              | 871,993 |                      | $ | 32,225 |       |  | $ | 384   |   |  | $ | 904,602
|Net loans                                           |  |                                | 677,332 |                      |   | 25,555 |       |  |   |      |   |  |   | 702,887
|Goodwill                                            |  |                                | 12,583  |                      |   | 3,776  |       |  |   |      |   |  |   | 16,359 



|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|--------------------------------------------------- |  | ------------------------------ | ------- | -------------------- | - | ------ | ----- |  | - | ----- | - |  | - | -------
|                                                    |  | Six Months Ended June 30, 2004
|                                                    |  | FirstNationalBank              |         | DoverMortgageCompany |   |        | Other |  |   | Total
|                                                    |  | (in thousands)                
|Interest income                                     |  | $                              | 18,765  |                      | $ | 291    |       |  | $ |      |   |  | $ | 19,056 
|Interest expense                                    |  |                                | 5,509   |                      |   | 132    |       |  |   | 177   |   |  |   | 5,818  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Net interest income                                 |  |                                | 13,256  |                      |   | 159    |       |  |   | (177  | ) |  |   | 13,238 
|Provision for loan losses                           |  |                                | 3,050   |                      |   |       |       |  |   |      |   |  |   | 3,050  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Net interest income after provision for loan losses |  |                                | 10,206  |                      |   | 159    |       |  |   | (177  | ) |  |   | 10,188 
|Noninterest income                                  |  |                                | 5,282   |                      |   | 1,359  |       |  |   | (107  | ) |  |   | 6,534  
|Noninterest expense                                 |  |                                | 12,432  |                      |   | 1,747  |       |  |   | (28   | ) |  |   | 14,151 
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Income (loss) before income taxes                   |  |                                | 3,056   |                      |   | (229   | )     |  |   | (256  | ) |  |   | 2,571  
|Income taxes (benefit)                              |  |                                | 672     |                      |   | (83    | )     |  |   | (86   | ) |  |   | 503    
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Net income (loss)                                   |  | $                              | 2,384   |                      | $ | (146   | )     |  | $ | (170  | ) |  | $ | 2,068  
|                                                    |  |                                |         |                      |   |        |       |  |   |       |   |  |   |        
|Total assets                                        |  | $                              | 813,390 |                      | $ | 19,681 |       |  | $ | 166   |   |  | $ | 833,237
|Net loans                                           |  |                                | 593,831 |                      |   | 13,263 |       |  |   |      |   |  |   | 607,094
|Goodwill                                            |  |                                | 12,583  |                      |   | 3,752  |       |  |   |      |   |  |   | 16,335 



14



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|13. | Comprehensive Income
|--- | --------------------



For the three months ended June 30, 2005 and 2004, total comprehensive income (loss), consisting of net income and unrealized securities gains and losses,
net of taxes, was $2,709,000 and $(977,000), respectively.



For the six months ended June 30, 2005 and 2004, total comprehensive income, consisting of net income and unrealized securities gains and losses, net of taxes, was $4,526,000 and $1,185,000, respectively.



15



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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) 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



Description of Operations



FNB Corp. is a bank holding company with a full-service subsidiary bank, First National Bank, that 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. First National Bank has offices in Chatham, Guilford, Montgomery, Moore, Randolph, Richmond, Rowan
and Scotland counties in North Carolina.



Additionally, FNB
Corp. has a mortgage banking subsidiary, Dover Mortgage Company, that originates, underwrites and closes loans for sale into the secondary market. Dover operates mortgage production offices in North Carolina at Asheville, Carolina Beach, Charlotte,
Goldsboro, Greenville, Kernersville, Lake Norman, Leland, Raleigh and Wilmington.



For business segment information related to the financial performance of First National Bank and Dover Mortgage Company, see Note 12 to the Consolidated Financial Statements.



Pending Merger for Acquisition of United Financial, Inc.



On May 9, 2005, the Corporation entered into a definitive merger agreement
to acquire United Financial, Inc. (United), holding company for Alamance Bank, headquartered in Graham, North Carolina. Under the terms of the agreement, United will be merged with and into FNB Corp. As soon as practicable following the
merger of the holding companies, Alamance Bank will be merged with and into First National Bank. The merger will be accounted for using the purchase method of accounting for business combinations and is subject to several conditions, including
approval by the shareholders of United and approval by applicable regulatory authorities. Upon satisfaction of these conditions, the merger of the holding companies is anticipated to close early in the fourth quarter of 2005. United shareholders
will be permitted to elect FNB Corp. common stock or cash, or a combination of each. Subject to the Corporations ability to limit the overall stock consideration to 65%, each share of United common stock, at the election of the shareholder,
will be converted into either: (1) $14.25 in cash, (2) 0.6828 shares of FNB Corp. common stock, or (3) $4.99 in cash and 0.4438 shares of FNB Corp. common stock. At June 30, 2005, United operated three offices through Alamance Bank and had
approximately $150,133,000 in total assets, $112,370,000 in deposits and $10,946,000 in shareholders equity.



Primary Financial Data for 2005



The Corporations earnings were sharply higher in the three and six months ended June 30, 2005 compared to the same periods of 2004, due largely to
the effect on 2004 results of certain significant factors



16



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discussed below. Earnings were $2,272,000 in the second quarter of 2005, a 1,859% increase from earnings of $116,000 in the 2004 second quarter. Basic
earnings per share increased from $.02 to $.41 and diluted earnings per share increased from $.02 to $.40. For the first six months of 2005, earnings amounted to $4,578,000, which represents a 121.0% increase from earnings of $2,068,000 in the same
period of 2004. Basic earnings per share in comparing six-month periods increased from $.36 to $.82 and diluted earnings per share increased from $.35 to $.80. Total assets were $904,602,000 at June 30, 2005, up 8.6% from June 30, 2004 and 4.8% from
December 31, 2004. Loans amounted to $702,887,000 at June 30, 2005, increasing 14.5% from June 30, 2004 and 5.7% from December 31, 2004. Total deposits were up 11.3% from June 30, 2004 and 4.6% from December 31, 2004, amounting to $689,659,000 at
June 30, 2005. The comparison of loans outstanding was affected by fluctuations in the balance of loans held for sale which was higher at June 30, 2005 compared to June 30, 2004 and December 31, 2004 by $11,185,000 and $16,166,000, respectively.



Significant Factors Affecting Earnings in 2005 and 2004



Earnings were negatively impacted in the second quarter and first six months
of 2004 by increases in the provision for loan losses of $1,950,000 and $1,970,000, respectively, compared to the same periods of 2003. Actual charge-offs in the 2004 second quarter amounted to $2,574,000. The determination of the 2004 second
quarter provision for loan losses took into account the actual charge-offs, the significant growth in loans held for investment during the second quarter, amounting to $31,521,000, and the level of nonperforming loans, which increased to $7,026,000
at June 30, 2004 compared to $5,725,000 at March 31, 2004.



In
2005, the provision for loan losses was below the level of 2004 by $1,916,000 in comparing second quarter periods and by $1,816,000 in comparing six-month periods. The provision for loan losses was affected in the second quarter of 2005 by the
adoption of new regulatory guidance on the accounting for courtesy overdraft programs which resulted in a $324,000 provision increase. As a result of this same regulatory guidance, however, the effect of the provision increase was partially offset
by a $156,000 increase in income from service charges on deposit accounts.



Results for the 2004 second quarter were affected by adoption of Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB No. 105), which was issued by
the Securities and Exchange Commission staff on March 9, 2004. SAB No. 105 provides recognition guidance for entities that issue loan commitments that are required to be accounted for as derivative instruments. SAB No. 105 indicates that the
expected future cash flows related to the associated servicing of the loan and any other internally developed intangible assets should not be considered when recognizing a loan commitment at inception or through its life. SAB No. 105 also discusses
disclosure requirements for loan commitments and is effective for loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004. The Corporation adopted the provisions of SAB No. 105 effective April 1, 2004, resulting
in a change in its accounting for loan commitments issued by Dover Mortgage Company. The application of SAB No. 105 creates a timing difference in the recognition of certain income recorded as income from mortgage loan sales, deferring the
recognition from the current accounting period to a subsequent period. The estimated effect of adoption of SAB No. 105 on the results of operations for the three months ended June 30, 2004 and for the year ended December 31, 2004 was a $356,000
reduction in Dovers income from mortgage loan sales.



Prior to mid-2004, earnings had been affected for an extended period by historically low interest rates produced by the Federal Reserves stimulative monetary policy. Commencing June 29, 2004, however, the Federal Reserve implemented a
tightening policy that has resulted in nine one-quarter percent increases in the prime rate, bringing it to a level of 6.25% at June 30, 2005. These increases are working to improve the yield



17



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on earning assets, although the cost of funds is being impacted by the general increase in interest rates. Net interest income increased $2,766,000 or 20.9%
in the first six months of 2005 compared to the same period in 2004, reflecting the effect of a 10.5% increase in the level of average earning assets coupled with an increase in the net interest margin, stated on a taxable equivalent basis, from
3.78% in 2004 to 4.10% in 2005. In comparing second quarter periods, net interest income increased $1,474,000 or 22.0%, reflecting a 9.3% increase in average earning assets and an increase in the net interest margin from 3.74% to 4.12%.



The comparison of noninterest income between 2005 and 2004, which
increased $1,026,000 or 35.0% in comparing second quarter periods and $588,000 or 9.0% in comparing six-month periods, was specifically affected by the following factors:



| |  |  | The adoption of SAB No. 105 in the second quarter of 2004 reduced Dovers income from mortgage loan sales as discussed above.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Income from mortgage loan sales benefited in the first quarter of 2004 as a result of the $233,000 in income from the sale by First National Bank of 1-4 family residential mortgage
loans totaling $12,535,000 that were previously classified as loans held for investment at December 31, 2003 but transferred to loans held for sale in the 2004 first quarter.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | There was a general increase in income from mortgage loan sales in the second quarter of 2005 compared to the same period of 2004, exclusive of the effect of adoption of SAB No. 105
in 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The adoption in the second quarter of 2005 of new regulatory guidance on the accounting for courtesy overdraft programs resulted in an increase in income from service charges on
deposit accounts as discussed above.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Noninterest
expense increased $883,000 or 12.5% in the second quarter of 2005 compared to the same period of 2004 and increased $1,008,000 or 7.1% in comparing six-month periods. This increase primarily resulted from a higher level of compensation expense, due
in part to the higher level of mortgage loan sales activity in the 2005 second quarter and to increased incentive compensation in 2005.



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, 2004. 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 results of regulatory examinations, and the discovery of information with respect to borrowers that 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.



18



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Earnings Review



The Corporations net income increased $2,156,000 or 1,859% in the second quarter of 2005 compared to the same period of 2004 and increased
$2,510,000 or 121% in comparing six-month periods. In general, earnings were impacted most significantly in the second quarter of 2005 by a $1,916,000 decrease in the provision for loan losses and by increases of $1,474,000 or 22.0% in net interest
income and $1,026,000 in noninterest income, which gains were offset to an extent by an $883,000 increase in noninterest expense. Similarly, earnings for first six months of 2005 were impacted by a $1,816,000 decrease in the provision for loan
losses and by increases of $2,766,000 or 20.9% in net interest income and $588,000 in noninterest income, which gains were offset to an extent by a $1,008,000 increase in noninterest expense. Certain factors specifically affecting the elements of
income and expense and the comparability of operating results for the first six months and second quarter periods of 2005 and 2004 were discussed in the Overview  Significant Factors Affecting Earnings in 2005 and 2004.



On an annualized basis, return on average assets increased
from 0.51% in the first six months of 2004 to 1.03% in the first six months of 2005. Return on average shareholders equity increased from 4.98% to 10.85% in comparing the same periods. In comparing second quarter periods, return on average
assets improved from 0.06% to 1.01% and return on average shareholders equity improved from 0.56% to 10.68%. Return on tangible assets and equity (calculated by deducting average goodwill from average assets and from average equity) for the
first six months of 2005 amounted to 1.05% and 13.46%, respectively, and for the 2005 second quarter amounted to 1.03% and 13.22%.



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 $16,004,000 in the first six months of 2005 compared to $13,238,000 in the same period of 2004. This
increase of $2,766,000 or 20.9% resulted primarily from a 10.5% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 3.78% in the first six months of 2004 to
4.10% in the same period of 2005. In comparing second quarter periods, net interest income increased $1,474,000 or 22.0% reflecting a 9.3% increase in average earning assets and an increase in the net interest margin from 3.74% to 4.12%. On a
taxable equivalent basis, the increase in net interest income in the first six months and second quarter of 2005 were $2,697,000 and $1,438,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each
period.



Table 1 on page 30 and Table 2 on page 31 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



19



---

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.



Following the significant declines in 2001, interest rates tended to
stabilize, until mid-2004, in a generally low-rate environment for rates both earned and paid by the Corporation. After reductions in the prime rate totaling 4.75% in 2001, there were additional rate cuts of .50% in November 2002 and .25% in June
2003, resulting in the prime rate of 4.00% that was effective through June 30, 2004. Due to concern about increasing inflationary pressures, the Federal Reserve took action to raise the level of interest rates at the end of June 2004, causing the
prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004 and four more such rate increases in 2005 have raised the prime rate to the 6.25% level at June 30, 2005. The
prime rate averaged 6.99% in 2001, falling to 4.67% in 2002 and 4.12% in 2003 and rising to 4.33% in 2004.



The Corporations net interest margin and net interest spread were negatively impacted in 2003 due in part to the prime rate reductions in November
2002 and June 2003 but also because of the cumulative effect of the reductions in yields on fixed rate earning assets over an extended period. While there was some continuing erosion of the margin and spread in the first six months of 2004, the
subsequent prime rate increases have had a positive effect on the margin and spread.



The prime rate averaged 5.60% in the first six months of 2005 compared to 4.00% in the first six months of 2004. The prime rate averaged 5.88% in the second quarter of 2005 compared to 4.00% in the second quarter of
2004. The net interest spread, in comparing six-month periods, increased by 26 basis points from 3.55% in 2004 to 3.81% in 2005, reflecting the effect of an increase in the average total yield on earning assets that more than offset the increase in
the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets increased by 84 basis points from 5.36% in 2004 to 6.20% in 2005, while the cost of funds increased by 58 basis points from 1.81% to 2.39%. In
comparing second quarter periods, the net interest spread increased by 30 basis points from 3.51% to 3.81%, as the yield on earning assets increased by 99 basis points while the cost of funds increased by 69 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 positively impacted in the second quarter and first six months of 2005 by reductions in the provision for loan losses of $1,916,000 and $1,816,000,
respectively. As a prior year comparison, earnings had been negatively impacted in the second quarter and first six months of 2004 by increases in the provision for loan losses of $1,950,000 and $1,970,000, respectively, compared to the same periods
of 2003. Actual charge-offs in the 2004 second quarter amounted to $2,574,000. The determination of the 2004 second quarter provision for loan losses took into account the actual charge-offs, the significant growth in loans held for investment
during the second quarter, amounting to $31,521,000, and the level of nonperforming loans, which increased to $7,026,000 at June 30, 2004 compared to $5,725,000 at March 31, 2004. The provision for loan losses was affected in the second quarter of
2005 by the adoption of new regulatory guidance on the accounting for courtesy overdraft programs which resulted in a $324,000 provision increase.



20



---

The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.15% at June
30, 2005, 1.10% at June 30, 2004 and 1.12% at December 31, 2004. The allowance percentage has increased based on the results from application of the allowance model that assigns reserves to various components of the loan portfolio in order to
provide for probable inherent losses.



Noninterest Income



Noninterest income for the first six months and second quarter of 2005
increased $588,000 or 9.0% and $1,026,000 or 35.0%, respectively, compared to the same periods in 2004, due primarily to increases of $371,000 and $802,000, respectively, in income from mortgage loan sales as discussed in the Overview 
Significant Factors Affecting Earnings in 2005 and 2004. The increase in service charges on deposit accounts was due mainly to the adoption in the second quarter of 2005 of new regulatory guidance on the accounting for courtesy overdraft
programs as discussed in the Overview  Significant Factors Affecting Earnings in 2005 and 2004. The decrease in income from trust and investment services was largely related to the general decrease in the volume of sales of annuity
products.



Noninterest Expense



Noninterest expense was $1,008,000 or 7.1% higher in the first six months of
2005 compared to the same period in 2004 and for the second quarter was $883,000 or 12.5% higher, due largely to increased compensation expense related in part to the higher level of mortgage loan sales activity in the 2005 second quarter and to
increased incentive compensation in 2005. Additionally, personnel expense was generally impacted in 2005 by increased staffing requirements, normal salary adjustments and higher costs of fringe benefits. The level of other expense was favorably
impacted by various expense reductions including professional fees and expenses related to credit administration and foreclosed properties.



Income Taxes



The effective income tax rate increased from 19.6% in the first six months of 2004 to 32.1% in the same period of 2005 due principally to the significant
increase in the ratio of taxable to non-taxable income.



Liquidity



Liquidity for First National Bank refers to its
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 line
of credit established at the Federal Home Loan Bank, less charges against that line for existing advances and letters of credit used to secure public funds on deposit, 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, loans and other assets of First National Bank are based primarily on a core of local deposits and First
National Banks capital position. To date, the steady increase in deposits, retail repurchase agreements and capital, supplemented by Federal Home Loan Bank advances and a modest amount of brokered deposits, has been adequate to fund loan
demand in First National Banks market area, while maintaining the desired level of immediate liquidity and a substantial investment



21



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securities portfolio available for both immediate and secondary liquidity purposes. It is anticipated that funding sources in the future will include an
increased use of brokered deposits and, additionally, institutional deposits obtained from secure websites on the internet.



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.



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, 2005 are discussed below.



Commitments by First National Bank 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, 2005, total commitments to extend credit and undisbursed advances on customer lines of credit amounted to $196,993,000. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a
fee. Since many commitments expire without being fully 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.



In connection with its asset/liability management objectives, the Corporation in 2004 entered into an interest rate swap on a $7,000,000 Federal Home Loan
Bank (FHLB) advance that converts the fixed rate cash flow exposure on the FHLB advance to a variable rate cash flow. As structured, the pay-variable, receive-fixed swap is evaluated as being a fair value hedge with no ineffectiveness; and,
consequently, the difference in cash flows in each period between the variable rate interest payments that the Corporation makes and the fixed rate interest payments received is currently reported in earnings.



For the three months ended June 30, 2005 and 2004, the interest rate swap
resulted in net reductions of $5,000 and $38,000, respectively, in the interest expense that would otherwise have been reported for the FHLB advance, and for the six months ended June 30, 2005 and 2004, the interest rate swap resulted in net
reductions of $18,000 and $49,000, respectively, in interest expense. The fair value of the swap at June 30, 2005 was recorded on the consolidated balance sheet as a liability in the amount of $166,000, offset by a valuation adjustment in the same
amount to the FHLB advance.



First National Bank issues standby
letters of credit whereby it 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. The maximum potential amount of undiscounted
future payments related to standby letters of credit was $6,424,000 at June 30, 2005 and $6,214,000 at June 30, 2004. Due to insignificance, the Corporation has recorded no liability at June 30, 2005 for the current carrying amount of the obligation
to perform as a guarantor.



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



22



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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 and commitments to deliver loans
into a mortgage-backed security. 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 $27,839,000 at June 30, 2005, and the related forward sales commitments totaled
$27,839,000. Loans held for sale by Dover Mortgage Company totaled $25,555,000 at June 30, 2005, and the related forward sales commitments totaled $25,555,000.



First National Bank had loans held for sale of $2,259,000 at June 30, 2005. Binding commitments of First National Bank for the origination of mortgage
loans intended to be held for sale at June 30, 2005 were not material.



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



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, 2005. 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



23



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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, 2005, FNB Corp. and First National Bank 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, 2005, FNB Corp. and First National Bank had total capital ratios of 10.11% and 11.40%, respectively, and Tier 1
capital ratios of 9.06% and 10.34%.



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, 2005, FNB Corp. and First National Bank had leverage capital ratios of 7.63% and 8.78%, respectively.



First National Bank is 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% and for leverage capital of 5.00%.
As noted above, First National Bank met all of those ratio requirements at June 30, 2005 and, accordingly, is well-capitalized under the regulatory framework for prompt corrective action.



Balance Sheet Review



Total assets at June 30, 2005 were $71,365,000 or 8.6% higher than at June 30, 2004 and were $41,711,000 or 4.8% higher than at December 31, 2004. By
similar comparison, deposits were ahead by $70,159,000 or 11.3% and $30,115,000 or 4.6%. The level of total assets is directly affected by the level of loans held for sale which are largely supported by borrowings obtained strictly for this purpose.
At June 30, 2005, loans held for sale amounted to $27,814,000 compared to $16,629,000 at June 30, 2004 and $11,648,000 at December 31, 2004. Consequently, the growth in assets exclusive of the change in loans held for sale was below the amounts
indicated above by $11,185,000 and $16,166,000, respectively. Average assets increased 10.0% in the first six months of 2005 compared to the same period of 2004, while average deposits increased 11.7%, the second quarter increases being 9.0% and
11.3%, 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 loan funding needs in 2004, proceeds from investment maturities and calls were diverted to this purpose, leading to a reduction in the
level of investment securities of $4,615,000 or 3.6% during the twelve-month period ended June 30, 2005. The level of investment securities was reduced $199,000 or 0.2% during the first six months of 2005. 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.



Loans



The Corporations primary source of revenue and largest component of earning assets is the loan portfolio. Loans
increased $89,214,000 or 14.5% during the twelve-month period ended June 30, 2005. The net loan increase during the first six months of 2005 was $38,133,000 or 5.7%. Due to the relatively higher



24



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level of loans held for sale at June 30, 2005 compared to June 30, 2004 and December 31, 2004, as noted above in the Balance Sheet Review, the
growth in loans identified as held for investment was somewhat lower than the increases reported for total loans, amounting to $78,029,000 for the twelve months ended June 30, 2005 and $21,504,000 for the first six months of 2005. Average loans were
$95,880,000 or 16.3% higher in the first six months of 2005 than in the same period of 2004 and were $86,399,000 or 14.3% higher in the second quarter comparison. The ratio of average loans to average deposits, in comparing six-month periods,
increased from 96.1% in 2004 to 100.1% in 2005. The ratio of loans to deposits at June 30, 2005 was 101.9%.



Loan growth during the first six months of 2005 was primarily due to increases in the portfolios related to construction loans and commercial and other
real estate loans. Loan activity for the twelve-month period ended June 30, 2005 largely reflected the circumstances noted in the following discussion. In both 2004 and 2003, loans grew significantly, following an extended period in which the level
of the entire loan portfolio had been adversely impacted by the general slowdown of the economy. In particular, the portfolios related to construction loans and commercial and other real estate loans experienced significant gains in each year.
Following a gain in 2003, the commercial and agricultural loan portfolio declined in 2004. The balance of the 1-4 family residential mortgage loan portfolio has been affected by the high level of refinancing activity that commenced in 2001 and
extended through approximately the end of 2003, especially since many refinanced loans that were previously included in the held for investment category were sold as part of the refinancing process, and was also affected, as discussed in
the Overview  Significant Items Affecting Earnings in 2004, by the direct sale in the 2004 first quarter of certain loans previously classified as held for investment. The level of the 1-4 family residential mortgage portfolio has
been bolstered by steady growth, especially in 2004 and 2003, in loan balances resulting from home equity lines of credit.



Asset Quality



Management considers the asset quality of First National Bank 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 First National Banks market area. 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 First National Banks allowance for loan losses. Such agencies may require First National Bank 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.



The
Corporation had no loans considered impaired as of June 30, 2005, June 30, 2004 and December 31, 2004.



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At June 30, 2005, nonperforming loans were $5,602,000 in total, nonaccrual loans and accruing loans past
due 90 days or more amounting to $4,927,000 and $675,000, respectively. At June 30, 2004, nonperforming loans were $7,026,000 in total, nonaccrual loans and accruing loans past due 90 days or more amounting to $5,867,000 and $1,159,000,
respectively. At December 31, 2004, nonperforming loans were $5,227,000 in total, nonaccrual loans and accruing loans past due 90 days or more amounting to $3,952,000 and $1,275,000, respectively.



The adequacy of the allowance for loan losses is measured on a quarterly
basis against an allocation model that assigns reserves to various components of the loan portfolio in order to provide for probable inherent losses. Homogeneous pools of loans are segregated, and classifications of individual loans within certain
of these pools are identified using risk grades derived from regulatory risk guidelines and additional internal parameters. Utilizing the trailing two-year historical loss experience of First National Bank and the assessment of portfolio quality and
diversification trends and economic factors, a range of appropriate reserves is calculated for each classification and pool of loans. Allocated to each pool is a reserve amount within the calculated range, as supported by the historical loss ratios.
Additional reserves are estimated and assigned to the most adversely classified loans based upon an individual analysis of present-value repayment and/or liquidation projections of each loan. A portion of the total reserve may be unallocated to any
specific segment of the loan portfolio, but will not exceed the upper limit of the total calculated reserve range when aggregated with allocated portions. 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 any segment of the loan portfolio.



Earnings were negatively impacted in the second quarter and first six months of 2004 by increases in the provision for loan
losses of $1,950,000 and $1,970,000, respectively, compared to the same periods of 2003. Actual charge-offs in the 2004 second quarter amounted to $2,574,000. The determination of the 2004 second quarter provision for loan losses took into account
the actual charge-offs, the significant growth in loans held for investment during the second quarter, amounting to $31,521,000, and the level of nonperforming loans, which increased to $7,026,000 at June 30, 2004 compared to $5,725,000 at March 31,
2004.



In 2005, the provision for loan losses was below the
level of 2004 by $1,916,000 in comparing second quarter periods and by $1,816,000 in comparing six-month periods. The provision for loan losses was affected in the second quarter of 2005 by the adoption of new regulatory guidance on the accounting
for courtesy overdraft programs which resulted in a $324,000 provision increase.



The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.15% at June 30, 2005, 1.10% at June 30, 2004 and 1.12% at December 31, 2004. The allowance percentage has increased based on
the results from application of the allowance model that assigns reserves to various components of the loan portfolio in order to provide for probable inherent losses.



Management believes the allowance for loan losses of $7,732,000 at June 30, 2005 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



26



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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 Months EndedJune 30, |       | Six Months EndedJune 30, |  
|                                    |  | 2005                       |       | 2004                     |   | 2005  |  | 2004 |      
|                                    |  | (in thousands)             |      
|Balance at beginning of period      |  | $                          | 7,556 |                          | $ | 6,330 |  | $    | 7,293 |  | $ | 6,172 |  
|Charge-offs                         |  |                            | 948   |                          |   | 2,574 |  |      | 1,144 |  |   | 2,804 |  
|Recoveries                          |  |                            | 260   |                          |   | 43    |  |      | 349   |  |   | 206   |  
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  
|Net loan charge-offs                |  |                            | 688   |                          |   | 2,531 |  |      | 795   |  |   | 2,598 |  
|Provision for loan losses           |  |                            | 864   |                          |   | 2,780 |  |      | 1,234 |  |   | 3,050 |  
|Allowance adjustment for loans sold |  |                            |      |                          |   |      |  |      |      |  |   | (45   | )
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  
|Balance at end of period            |  | $                          | 7,732 |                          | $ | 6,579 |  | $    | 7,732 |  | $ | 6,579 |  
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |       |  



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.



The level and mix of deposits has been specifically affected by the following factors. Following an extended period in which balances had decreased due to
interest rate declines, time deposits increased $61,462,000 during the twelve-month period ended June 30, 2005 and $22,643,000 during the first six months of 2005 due in part to higher rates but also reflecting the acquisition of brokered time
deposits and the increase in time deposits obtained from governmental units, these latter deposits amounting to $73,291,000, $55,758,000 and $67,260,000 at June 30, 2005, June 30, 2004 and December 31, 2004, respectively. Reflecting new deposit
products and extensive promotional efforts, noninterest-bearing demand deposits had significant growth during the twelve-month period ended June 30, 2005, increasing $9,836,000 during that period and $8,645,000 during the first six months of 2005.
Interest-bearing transactional deposits, including demand, savings and money market deposits, registered net declines of $1,139,000 during the twelve-month period ended June 30, 2005 and $1,173,000 during the first six months of 2005.



Business Development Matters



As discussed in the Overview and in Note 3 to the Consolidated
Financial Statements, on May 9, 2005, the Corporation entered into a definitive merger agreement to acquire United Financial, Inc. (United), holding company for Alamance Bank, headquartered in Graham, North Carolina. Under the terms of
the agreement, United will be merged with and into FNB Corp. As soon as practicable following the merger of the holding companies, Alamance Bank will be merged with and into First National Bank. The merger of the holding companies is anticipated to
close early in the fourth quarter of 2005.



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In August 2003, First National Bank received regulatory approval for relocation of its existing branch
offices in Laurinburg and Randleman, North Carolina. The new Laurinburg office opened for business in July 2004, and the new Randleman office is opening in August 2005. The Laurinburg office replaced a leased facility, while the Randleman office
represents a move from an owned facility that is expected to be disposed of.



In January 2004, First National Bank received regulatory approval for establishment of its first branch office in Greensboro, North Carolina, resulting in the opening of a loan production office in February 2004. A
full-service banking office in a leased facility replaced the loan production office in May 2005.



In November 2004, First National Bank received regulatory approval for the establishment of a second branch office in Greensboro, North Carolina.
Construction of this full-service banking office is expected to be completed in 2005.



In 2004, Dover Mortgage Company opened new mortgage production offices in North Carolina at Carolina Beach in April and at Leland in November. In 2005, Dover opened new offices in North Carolina at Asheville in March
and at Kernersville in May.



In June 2005, First National Bank
received regulatory approval for the establishment of a second branch office in Salisbury, North Carolina. Construction of this full-service banking office, which will be a leased facility, is expected to be completed in 2006.



Accounting Pronouncement Matters



In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), Accounting for Stock-Based Compensation (SFAS No. 123(R)). SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an
expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. The provisions of this Statement are effective for the first annual reporting period
that begins after June 15, 2005. Accordingly, the Corporation will adopt SFAS No. 123(R) commencing with the fiscal year ending December 31, 2006. If an adjustment to income had been made for the pro forma cost of employee stock option compensation
as disclosed in Note 1 to the Consolidated Financial Statements contained in the Form 10-K Annual Report for the fiscal year ended December 31, 2004, net income for the fiscal years ended December 31, 2004, 2003 and 2002 would have decreased by
approximately $340,000, $340,000, and $362,000, respectively. Accordingly, the adoption of SFAS No. 123(R) is expected to have a material effect on the Corporations consolidated financial statements.



Non-GAAP Measures



This Quarterly Report on Form 10-Q contains financial information determined by methods other than in accordance with
generally accepted accounting principles (GAAP). The Corporations management uses these non-GAAP measures in their analysis of the Corporations performance. These non-GAAP measures exclude average goodwill from the
calculations of return on average assets and return on average equity. Management believes presentations of financial measures excluding the impact of goodwill provide useful supplemental information that is essential to a proper understanding of
the operating results of the



28



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Corporations core businesses. In addition, certain designated net interest income amounts are presented on a taxable equivalent basis. Management
believes that the presentation of net interest income on a taxable equivalent basis aids in the comparability of net interest income arising from taxable and tax-exempt sources. These disclosures should not be viewed as a substitute for results
determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.



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
merger described in the Overview may not materialize within the expected time frame, (ii) revenues following the merger may not meet expectations, (iii) costs or difficulties related to the integration of the businesses of FNB Corp. and United 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.



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Table 1



Average Balances and Net Interest Income Analysis



|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|------------------------------------------ |  | ------------------------------------------------ | ------- | ---------------------- | ---- | ----------------------- |  | ---------------- | -------------- |  | ---------------------- | ------- | ----------------------- | - | ------ | --------------------------- | ---- | --------- |  | - | ----- | - |  | - | ----- |  | - | ----- | -
|                                           |  | 2005                                             |         |                        | 2004 |                         |  | 2005 Versus 2004 |               
|                                           |  | AverageBalance                                   |         | InterestIncome/Expense |      | AverageRatesEarned/Paid |  |                  | AverageBalance |  | InterestIncome/Expense |         | AverageRatesEarned/Paid |   |        | Interest Variancedue to (1) |      | NetChange | 
|SIX MONTHS ENDEDJUNE 30                    |  |                                                  |         |                        |      |                         |  | Volume           |                |  | Rate                   |        
|                                           |  | (Taxable Equivalent Basis, Dollars in Thousands) |        
|Earning Assets                             |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Loans (2) (3)                              |  | $                                                | 682,313 |                        | $    | 21,935                  |  | 6.47             | %              |  | $                      | 586,433 |                         | $ | 16,375 |                             | 5.60 | %         |  | $ | 2,851 |   |  | $ | 2,709 |  | $ | 5,560 |  
|Investment securities (2):                 |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Taxable income                             |  |                                                  | 78,598  |                        |      | 1,746                   |  | 4.44             |                |  |                        | 86,020  |                         |   | 1,901  |                             | 4.42 |           |  |   | (164  | ) |  |   | 9     |  |   | (155  | )
|Non-taxable income                         |  |                                                  | 45,001  |                        |      | 1,306                   |  | 5.80             |                |  |                        | 48,698  |                         |   | 1,380  |                             | 5.67 |           |  |   | (105  | ) |  |   | 31    |  |   | (74   | )
|Other earning assets                       |  |                                                  | 9,059   |                        |      | 117                     |  | 2.61             |                |  |                        | 16,426  |                         |   | 77     |                             | 0.94 |           |  |   | (47   | ) |  |   | 87    |  |   | 40    |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Total earning assets                       |  |                                                  | 814,971 |                        |      | 25,104                  |  | 6.20             |                |  |                        | 737,577 |                         |   | 19,733 |                             | 5.36 |           |  |   | 2,535 |   |  |   | 2,836 |  |   | 5,371 |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Cash and due from banks                    |  |                                                  | 17,707  |                        |      |                         |  |                  |                |  |                        | 16,955  |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Goodwill                                   |  |                                                  | 16,348  |                        |      |                         |  |                  |                |  |                        | 16,331  |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Other assets, net                          |  |                                                  | 38,976  |                        |      |                         |  |                  |                |  |                        | 36,372  |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Total Assets                               |  | $                                                | 888,002 |                        |      |                         |  |                  |                |  | $                      | 807,235 |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Interest-Bearing Liabilities               |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Interest-bearing deposits:                 |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Demand deposits                            |  | $                                                | 93,660  |                        |      | 276                     |  | 0.59             |                |  | $                      | 89,414  |                         |   | 164    |                             | 0.37 |           |  |   | 8     |   |  |   | 104   |  |   | 112   |  
|Savings deposits                           |  |                                                  | 52,461  |                        |      | 82                      |  | 0.32             |                |  |                        | 54,161  |                         |   | 84     |                             | 0.31 |           |  |   | (4    | ) |  |   | 2     |  |   | (2    | )
|Money market deposits                      |  |                                                  | 73,349  |                        |      | 658                     |  | 1.81             |                |  |                        | 73,636  |                         |   | 335    |                             | 0.91 |           |  |   | (1    | ) |  |   | 324   |  |   | 323   |  
|Certificates and other time deposits       |  |                                                  | 381,847 |                        |      | 5,397                   |  | 2.85             |                |  |                        | 321,108 |                         |   | 3,621  |                             | 2.26 |           |  |   | 746   |   |  |   | 1,030 |  |   | 1,776 |  
|Retail repurchase agreements               |  |                                                  | 16,413  |                        |      | 187                     |  | 2.30             |                |  |                        | 16,097  |                         |   | 59     |                             | 0.73 |           |  |   | 1     |   |  |   | 127   |  |   | 128   |  
|Federal Home Loan Bank advances            |  |                                                  | 68,344  |                        |      | 1,295                   |  | 3.82             |                |  |                        | 65,855  |                         |   | 1,225  |                             | 3.73 |           |  |   | 43    |   |  |   | 27    |  |   | 70    |  
|Federal funds purchased                    |  |                                                  | 487     |                        |      | 5                       |  | 2.09             |                |  |                        | 3,269   |                         |   | 21     |                             | 1.32 |           |  |   | (24   | ) |  |   | 8     |  |   | (16   | )
|Other borrowed funds                       |  |                                                  | 29,082  |                        |      | 592                     |  | 4.10             |                |  |                        | 22,682  |                         |   | 309    |                             | 2.74 |           |  |   | 103   |   |  |   | 180   |  |   | 283   |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Total interest-bearing liabilities         |  |                                                  | 715,643 |                        |      | 8,492                   |  | 2.39             |                |  |                        | 646,222 |                         |   | 5,818  |                             | 1.81 |           |  |   | 872   |   |  |   | 1,802 |  |   | 2,674 |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Noninterest-bearing demand deposits        |  |                                                  | 80,365  |                        |      |                         |  |                  |                |  |                        | 71,706  |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Other liabilities                          |  |                                                  | 7,617   |                        |      |                         |  |                  |                |  |                        | 6,326   |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Shareholders equity                       |  |                                                  | 84,377  |                        |      |                         |  |                  |                |  |                        | 82,981  |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Total Liabilities and Shareholders Equity |  | $                                                | 888,002 |                        |      |                         |  |                  |                |  | $                      | 807,235 |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Net Interest Income and Spread             |  |                                                  |         |                        | $    | 16,612                  |  | 3.81             | %              |  |                        |         |                         | $ | 13,915 |                             | 3.55 | %         |  | $ | 1,663 |   |  | $ | 1,034 |  | $ | 2,697 |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  
|Net Yield on Earning Assets                |  |                                                  |         |                        |      |                         |  | 4.10             | %              |  |                        |         |                         |   |        |                             | 3.78 | %         |  |   |       |   |  |   |       |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |           |  |   |       |   |  |   |       |  |   |       |  



|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30



---

Table 2



Average Balances and Net Interest Income Analysis



|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|------------------------------------------ |  | ------------------------------------------------ | ------- | ---------------------- | ---- | ----------------------- |  | ---------------- | -------------- |  | ---------------------- | ------- | ----------------------- | - | ------ | --------------------------- | ---- | - | --------- | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                           |  | 2005                                             |         |                        | 2004 |                         |  | 2005 Versus 2004 |               
|                                           |  | AverageBalance                                   |         | InterestIncome/Expense |      | AverageRatesEarned/Paid |  |                  | AverageBalance |  | InterestIncome/Expense |         | AverageRatesEarned/Paid |   |        | Interest Variancedue to (1) |      |   | NetChange |  
|THREE MONTHSENDED JUNE 30                  |  |                                                  |         |                        |      |                         |  | Volume           |                |  | Rate                   |         |                        
|                                           |  | (Taxable Equivalent Basis, Dollars in Thousands) |        
|Earning Assets                             |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Loans (2) (3)                              |  | $                                                | 689,142 |                        | $    | 11,351                  |  | 6.60             | %              |  | $                      | 602,743 |                         | $ | 8,370  |                             | 5.57 | % |           | $ | 1,302 |   |  | $ | 1,679 |   |  | $ | 2,981 |  
|Investment securities (2):                 |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Taxable income                             |  |                                                  | 79,912  |                        |      | 902                     |  | 4.51             |                |  |                        | 84,457  |                         |   | 910    |                             | 4.31 |   |           |   | (50   | ) |  |   | 42    |   |  |   | (8    | )
|Non-taxable income                         |  |                                                  | 43,981  |                        |      | 644                     |  | 5.86             |                |  |                        | 48,045  |                         |   | 686    |                             | 5.71 |   |           |   | (60   | ) |  |   | 18    |   |  |   | (42   | )
|Other earning assets                       |  |                                                  | 12,305  |                        |      | 84                      |  | 2.72             |                |  |                        | 20,188  |                         |   | 48     |                             | 0.94 |   |           |   | (24   | ) |  |   | 60    |   |  |   | 36    |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Total earning assets                       |  |                                                  | 825,340 |                        |      | 12,981                  |  | 6.30             |                |  |                        | 755,433 |                         |   | 10,014 |                             | 5.31 |   |           |   | 1,168 |   |  |   | 1,799 |   |  |   | 2,967 |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Cash and due from banks                    |  |                                                  | 17,709  |                        |      |                         |  |                  |                |  |                        | 16,587  |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Goodwill                                   |  |                                                  | 16,355  |                        |      |                         |  |                  |                |  |                        | 16,335  |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Other assets, net                          |  |                                                  | 39,639  |                        |      |                         |  |                  |                |  |                        | 36,290  |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Total Assets                               |  | $                                                | 899,043 |                        |      |                         |  |                  |                |  | $                      | 824,645 |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Interest-Bearing Liabilities               |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Interest-bearing deposits:                 |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Demand deposits                            |  | $                                                | 94,438  |                        |      | 143                     |  | 0.61             |                |  | $                      | 90,868  |                         |   | 85     |                             | 0.37 |   |           |   | 3     |   |  |   | 55    |   |  |   | 58    |  
|Savings deposits                           |  |                                                  | 52,565  |                        |      | 40                      |  | 0.31             |                |  |                        | 54,738  |                         |   | 42     |                             | 0.31 |   |           |   | (2    | ) |  |   |      |   |  |   | (2    | )
|Money market deposits                      |  |                                                  | 74,301  |                        |      | 350                     |  | 1.89             |                |  |                        | 74,595  |                         |   | 175    |                             | 0.94 |   |           |   | (1    | ) |  |   | 176   |   |  |   | 175   |  
|Certificates and other time deposits       |  |                                                  | 384,946 |                        |      | 2,850                   |  | 2.97             |                |  |                        | 324,708 |                         |   | 1,820  |                             | 2.25 |   |           |   | 378   |   |  |   | 652   |   |  |   | 1,030 |  
|Retail repurchase agreements               |  |                                                  | 17,309  |                        |      | 108                     |  | 2.50             |                |  |                        | 16,739  |                         |   | 33     |                             | 0.79 |   |           |   | 1     |   |  |   | 74    |   |  |   | 75    |  
|Federal Home Loan Bank advances            |  |                                                  | 68,025  |                        |      | 651                     |  | 3.84             |                |  |                        | 72,437  |                         |   | 638    |                             | 3.53 |   |           |   | (40   | ) |  |   | 53    |   |  |   | 13    |  
|Federal funds purchased                    |  |                                                  |        |                        |      |                        |  |                 |                |  |                        | 2,841   |                         |   | 9      |                             | 1.34 |   |           |   | (4    | ) |  |   | (5    | ) |  |   | (9    | )
|Other borrowed funds                       |  |                                                  | 31,785  |                        |      | 355                     |  | 4.47             |                |  |                        | 24,210  |                         |   | 166    |                             | 2.76 |   |           |   | 63    |   |  |   | 126   |   |  |   | 189   |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Total interest-bearing liabilities         |  |                                                  | 723,369 |                        |      | 4,497                   |  | 2.49             |                |  |                        | 661,136 |                         |   | 2,968  |                             | 1.80 |   |           |   | 398   |   |  |   | 1,131 |   |  |   | 1,529 |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Noninterest-bearing demand deposits        |  |                                                  | 82,592  |                        |      |                         |  |                  |                |  |                        | 74,020  |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Other liabilities                          |  |                                                  | 7,994   |                        |      |                         |  |                  |                |  |                        | 6,485   |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Shareholders equity                       |  |                                                  | 85,088  |                        |      |                         |  |                  |                |  |                        | 83,004  |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Total Liabilities and Shareholders Equity |  | $                                                | 899,043 |                        |      |                         |  |                  |                |  | $                      | 824,645 |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Net Interest Income and Spread             |  |                                                  |         |                        | $    | 8,484                   |  | 3.81             | %              |  |                        |         |                         | $ | 7,046  |                             | 3.51 | % |           | $ | 770   |   |  | $ | 668   |   |  | $ | 1,438 |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  
|Net Yield on Earning Assets                |  |                                                  |         |                        |      |                         |  | 4.12             | %              |  |                        |         |                         |   |        |                             | 3.74 | % |           |   |       |   |  |   |       |   |  |   |       |  
|                                           |  |                                                  |         |                        |      |                         |  |                  |                |  |                        |         |                         |   |        |                             |      |   |           |   |       |   |  |   |       |   |  |   |       |  



|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



---

|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, 2004.



|Item 4. | Controls and Procedures
|------- | -----------------------



As of June 30, 2005, the end of the period covered by this report, FNB Corp. carried out an evaluation under the supervision and with the participation of
the companys management, including FNB Corp.s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of FNB Corp.s disclosure controls and procedures. In designing and evaluating the
companys disclosure controls and procedures, FNB Corp. and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,
and FNB Corp.s management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
companys disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by FNB Corp. in the reports it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. No significant change in the companys internal control over financial reporting occurred during the period ended June 30, 2005 that
has materially affected, or is reasonably likely to materially affect, FNB Corp.s internal control over financial reporting. FNB Corp. reviews its disclosure controls and procedures, which may include its internal controls over financial
reporting, on an ongoing basis and may from time to time make changes aimed at enhancing their effectiveness.



32



---



PART II. OTHER INFORMATION



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



Issuer Purchases of Equity Securities



|                                 |  |                               |  |                           |       |                                                                          |       |                                                                        |        
|-------------------------------- |  | ----------------------------- |  | ------------------------- | ----- | ------------------------------------------------------------------------ | ----- | ---------------------------------------------------------------------- | -------
|Three Months Ended June 30, 2005 |  | TotalNumberof SharesPurchased |  | AveragePricePaid perShare |       | TotalNumberof SharesPurchasedas Part ofPubliclyAnnouncedPlans orPrograms |       | MaximumNumberof SharesThat MayYet BePurchasedUnder thePlans orPrograms
|April 1 to April 30              |  |                              |  | $                         |      |                                                                          |      |                                                                        | 226,800
|May 1 to May 31                  |  |                              |  |                           |      |                                                                          |      |                                                                        | 226,800
|June 1 to June 30                |  | 3,000                         |  |                           | 19.45 |                                                                          | 3,000 |                                                                        | 223,800
|                                 |  |                               |  |                           |       |                                                                          |       |                                                                        |        
|Total                            |  | 3,000                         |  |                           | 19.45 |                                                                          | 3,000 |                                                                        | 223,800
|                                 |  |                               |  |                           |       |                                                                          |       |                                                                        |        



On July 28, 2004, the
Corporation announced that the Board of Directors had authorized a program for the repurchase of up to 300,000 shares of common stock during the period commencing August 1, 2004 and ending July 31, 2005.



On July 21, 2005, the Corporation announced that the Board of Directors had
authorized a program for the repurchase of up to 300,000 shares of common stock during the period commencing August 1, 2005 and ending July 31, 2006.



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



The Corporation held its Annual Meeting of Shareholders on Tuesday, May 10, 2005, for the purpose of electing three directors, Darrell L. Frye, Dale E.
Keiger and J. M. Ramsay III, each to serve for a three-year term expiring at the 2008 Annual Meeting, or until their successors shall be elected and shall qualify. Shares voted either in person for by proxy totaled 3,859,717 or 68.8% of the shares
entitled to vote. The following table sets forth the results of the voting for directors:



|                 |  |           |  |               |  |           
|---------------- |  | --------- |  | ------------- |  | ----------
|Nominee          |  | Votes For |  | VotesWithheld |  | % VotesFor
|Darrell L. Frye  |  | 3,829,285 |  | 29,016        |  | 99.2      
|Dale E. Keiger   |  | 3,827,758 |  | 30,542        |  | 99.2      
|J. M. Ramsay III |  | 3,831,673 |  | 26,627        |  | 99.3      



|Item 6. | Exhibits
|------- | --------



Exhibits to this report are listed in the index to exhibits on pages 35, 36 and 37 of this report.



33



---



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 4, 2005 |  |                        |  | By: |  | /s/ Jerry A. Little     
|      |  |                |  |                        |  |     |  | Jerry A. Little         
|      |  |                |  |                        |  |     |  | Treasurer and Secretary 
|      |  |                |  |                        |  |     |  | (Principal Financial and
|      |  |                |  |                        |  |     |  | Accounting Officer)     



34



---



INDEX TO EXHIBITS



|            |  |                                                                                                                                                                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                       
|2.10        |  | Agreement and Plan of Merger dated as of May 9, 2005 by and between the Registrant and United Financial, Inc.                                                                                                                                                                                                                
|            | 
|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 March 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, incorporated herein by reference to Exhibit 3.13 to the Registrants Form 10-Q Quarterly
Report for the quarter ended June 30, 2003.                                                                                             
|            | 
|3.20        |  | Amended and Restated Bylaws of the Registrant, adopted July 21, 2005.                                                                                                                                                                                                                                                        
|            | 
|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.                    
|            | 
|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 to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30,
1998.                                                                                                                             



35



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|            |  |                                                                                                                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                         
|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. 
|            | 
|10.23*      |  | FNB Corp. 2003 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrants Registration Statement on Form S-8 (File No. 333-105442).                                                                                                                            
|            | 
|10.24*      |  | Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to the Registrants 2003 Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.24 to the Registrants Form 10-Q Quarterly Report for the quarter ended September 30, 2003.
|            | 
|10.25*      |  | Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant to the Registrants 2003 Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.25 to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2003. 
|            | 
|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 April10, 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.                                                                     



36



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|            |  |                                                                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                         
|10.34*      |  | Form of Change of Control Agreement between FNB Corp. and certain of its key employees and officers, incorporated herein by reference to Exhibit 10.35 to the Registrants Form 10-K
Annual Report for the fiscal year ended December 31, 2003.
|            | 
|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.
|- | ---------------------------------------------------------



37