---

SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

|  |                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|x | Annual
  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  for the fiscal year ended December 31, 2007, or
|  |                                                                                                                                         
|o | Transition
  report pursuant to Section 13 or 15 (d) of Securities Exchange Act of 1934                                                 

Commission File No.000-49693

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

|                                                                 |  |                         
|---------------------------------------------------------------- |  | ------------------------
|California                                                       |  | 92-2115369              
|                                                                 |  |                         
|(State or other jurisdiction of
  incorporation or organization) |  | (IRS Employer ID Number)

|                                                      |  |           
|----------------------------------------------------- |  | ----------
|975 El Camino Real, South San Francisco,
  California |  | 94080     
|                                                      |  |           
|(Address of principal executive offices)              |  | (Zip code)

|                                                     |  | 
|---------------------------------------------------- |  | 
|(650) 588-6800                                      
|                                                     |  | 
|(Registrants telephone number, including area code)

|                                                            |  |                             
|----------------------------------------------------------- |  | ----------------------------
|Securities registered pursuant to Section 12(b) of the Act: |  | None                        
|                                                            |  |                             
|Securities registered pursuant to Section 12(g) of the Act: |  | ________________________    
|                                                            |  |                             
|Title of Class:                                             |  | Common
  Stock, no par value
|                                                            |  | ________________________    

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes o   No x

Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o   No x

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 o

Indicate by check
mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this 10-K o

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition
of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

| |                             |                       |                          
| | --------------------------- | --------------------- | -------------------------
| | Large accelerated filer o   | Accelerated
  filer x | Non-accelerated
  filer o
|
| | Smaller reporting company o |                       |                          

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o   No x

Aggregate
market value of the voting and non-voting common equity held by non-affiliates
of the registrant, computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrants most recently completed second
fiscal quarter: $80,097,545

Number of shares outstanding of each of the registrants classes of common
stock, as of March 3, 2008

No par value Common Stock  2,964,926 shares
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE The
following documents are incorporated by reference into this Form 10-K: Part
III, Items 10 through 14 from Registrants definitive proxy statement for the
2008 annual meeting of shareholders.

Page 1 of 96 pages

---



TABLE OF CONTENTS

|         |                                                                                                                       |  |        
|-------- | --------------------------------------------------------------------------------------------------------------------- |  | -------
|         |                                                                                                                       |  | PAGE   
|         |                                                                                                                       |  |        
|PART I   |                                                                                                                       |  |        
|Item 1   | Business                                                                                                              |  | 3      
|         |                                                                                                                       |  |        
|Item 1A  | Risk Factors                                                                                                          |  | 21     
|         |                                                                                                                       |  |        
|Item 1B  | Unresolved Staff Comments                                                                                             |  | 23     
|         |                                                                                                                       |  |        
|Item 2   | Properties                                                                                                            |  | 23     
|         |                                                                                                                       |  |        
|Item 3   | Legal Proceedings                                                                                                     |  | 25     
|         |                                                                                                                       |  |        
|Item 4   | Submission of Matters to a Vote of Security
Holders                                                                   |  | 25     
|         |                                                                                                                       |  |        
|PART II  |                                                                                                                       |  |        
|Item 5   | Market for the Registrants Common Equity and
Related
  Stockholder Matters and Issuer Purchases of Equity Securities |  | 25     
|         |                                                                                                                       |  |        
|Item 6   | Selected Financial Data                                                                                               |  | 29     
|         |                                                                                                                       |  |        
|Item 7   | Managements Discussion and Analysis of
Financial
  Condition and Results of Operations                               |  | 30     
|         |                                                                                                                       |  |        
|Item 7A  | Quantitative and Qualitative Disclosures About Market
  Risk                                                          |  | 48     
|         |                                                                                                                       |  |        
|Item 8   | Financial Statements and Supplementary
Data                                                                           |  | 50     
|         |                                                                                                                       |  |        
|Item 9   | Changes In and Disagreements with Accountants on
  Accounting and Financial Disclosure                                |  | 87     
|         |                                                                                                                       |  |        
|Item 9A  | Controls and Procedures                                                                                               |  | 87     
|         |                                                                                                                       |  |        
|Item 9B  | Other Information                                                                                                     |  | 89     
|         |                                                                                                                       |  |        
|PART III |                                                                                                                       |  |        
|Item 10  | Directors, Executive Officers and Corporate
  Governance                                                              |  | 89     
|         |                                                                                                                       |  |        
|Item 11  | Executive Compensation                                                                                                |  | 89     
|         |                                                                                                                       |  |        
|Item 12  | Security Ownership of Certain Beneficial Owners and
  Management and Related Stockholder Matters                      |  | 89     
|         |                                                                                                                       |  |        
|Item 13  | Certain Relationships and Related Transactions, and
  Director Independence                                           |  | 89     
|         |                                                                                                                       |  |        
|Item 14  | Principal Accounting Fees and Services                                                                                |  | 89     
|         |                                                                                                                       |  |        
|PART IV  |                                                                                                                       |  |        
|Item 15  | Exhibits, Financial Statements,
Schedules                                                                             |  | 90     
|         |                                                                                                                       |  |        
|(a)(1)   | Financial Statements. Listed and included in Part II,
  Item 8                                                        |  | 90     
|(2)      | Financial Statements Schedules. Not
applicable                                                                        |  | 90     
|(3)      | Index to Exhibits                                                                                                     |  | 90 - 93
|         | Signatures                                                                                                            |  | 95 - 96
|         | Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications                                                                  |  |        
|         | Exhibit 32  Section 1350 Certifications                                                                              |  |        

2

---



PART I

ITEM 1. BUSINESS

Forward-Looking
Statements: Certain matters discussed or incorporated by reference in this
Annual Report on Form 10-K including, but not limited to, matters described in
Item 7  Managements Discussion and Analysis of Financial Condition and
Results of Operations, are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. Such forward-looking statements may
contain words related to future projections including, but not limited to,
words such as believe, expect, anticipate, intend, may, will,
should, could, would, and variations of those words and similar words
that are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from those projected. Factors that could
cause or contribute to such differences include, but are not limited to, the
following: (1) variances in the actual versus projected growth in assets; (2)
return on assets; (3) loan and lease losses; (4) expenses; (5) changes in the
interest rate environment including interest rates charged on loans, earned on
securities investments and paid on deposits; (6) competition effects; (7) fee
and other noninterest income earned; (8) general economic conditions
nationally, regionally, and in the operating market areas of the Company and
its subsidiary; (9) changes in the regulatory environment; (10) changes in
business conditions and inflation; (11) changes in securities markets; (12)
data processing problems; (13) a decline in real estate values in the Companys
operating market areas; (14) the effects of terrorism, the threat of terrorism
or the impact of the current military conflict in Iraq and the conduct of the
war on terrorism by the United States and its allies, as well as other factors.
The factors set forth  under Item 1A 
Risk Factors in this report and other cautionary statements and information
set forth in this report should be read carefully considered and understood as
being applicable to all related forward-looking statements contained in this
report when evaluating the business prospects of the Company and its
subsidiary.

Forward-looking
statements are not guarantees of performance. By their nature, they involve
risks, uncertainties and assumptions. Actual results and shareholder values in
the future may differ significantly from those expressed in forward-looking
statements. You are cautioned not to put undue reliance on any forward-looking
statement. Any such statement speaks only as of the date of the report, and in
the case of any documents that may be incorporated by reference, as of the date
of those documents. We do not undertake any obligation to update or release any
revisions to any forward-looking statements, or to report any new information,
future event or other circumstances after the date of this report or to reflect
the occurrence of unanticipated events, except as required by law. However, your
attention is directed to any further disclosures made on related subjects in
our subsequent reports filed with the Securities and Exchange Commission on
Forms 10-K, 10-Q and   8-K.

3

---



General

FNB
Bancorp (sometimes referred to herein as the Company) is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended. The
Company was incorporated under the laws of the State of California on February
28, 2001. As a bank holding company, the Company is authorized to engage in the
activities permitted under the Bank Holding Company Act of 1956, as amended,
and regulations thereunder. Its principal office is located at 975 El Camino
Real, South San Francisco, California 94080, and its telephone number is (650)
588-6800.

The
Company owns all of the issued and outstanding shares of common stock of First
National Bank of Northern California, a national banking association (First
National Bank or the Bank). The Company has no other subsidiary.

The
Bank was organized in 1963 as First National Bank of Daly City. In 1995, the
shareholders approved a change in the name to First National Bank of Northern
California. The administrative headquarters of the Bank is located at 975 El
Camino Real, South San Francisco, California. The Bank is locally owned and
presently operates eleven full service banking offices within its primary
service area of San Mateo County, in the cities of Colma, Daly City, South San
Francisco, Millbrae, Pacifica, Half Moon Bay, San Mateo, Redwood City and
Pescadero. The Bank also provides services since May 2005 for the City and
County of San Francisco through its Financial District and Portola offices in
San Francisco. The Banks primary business is servicing the business or
commercial banking needs of individuals and small to mid-sized businesses
within San Mateo and San Francisco Counties.

The
Bank is chartered under the laws of the United States and is governed by the
National Bank Act, and is a member of the Federal Reserve System. The Federal
Deposit Insurance Corporation insures the deposits of the Bank up to the
applicable legal limits. The Bank is subject to regulation, supervision and
regular examination by the Office of the Comptroller of the Currency. The
regulations of the Federal Deposit Insurance Corporation, the Board of
Governors of the Federal Reserve System, and the Office of the Comptroller of
the Currency govern many aspects of the Banks business and activities,
including investments, loans, borrowings, branching, mergers and acquisitions,
reporting and numerous other areas. The Bank is also subject to applicable
provisions of California law to the extent those provisions are not in conflict
with or preempted by federal banking law. See Supervision and Regulation
below.

First
National Bank offers a broad range of services to individuals and businesses in
its primary service area with an emphasis upon efficiency and personalized
attention. First National Bank provides a full line of business financial products
with specialized services such as courier, appointment banking, and business
Internet banking. The Bank offers personal and business checking and savings
accounts, including individual interest-bearing negotiable orders of withdrawal
(NOW), money market accounts and/or accounts combining checking and savings
accounts with automatic transfer capabilities, IRA accounts, time certificates
of deposit and direct deposit of social security, pension and payroll checks
and computer cash management with access through the  Internet. First National
Bank also makes available commercial loans and standby letters of credit and
construction, accounts receivable, inventory, automobile, home improvement,
residential real estate, commercial real estate, single family mortgage, Small
Business Administration, office equipment, leasehold improvement and consumer
loans as well as overdraft protection lines of credit. In addition, the Bank
sells travelers checks and cashiers checks, offers automated teller machine  (ATM) services tied in with major statewide
and national networks and offers other customary  commercial banking services.

4

---



Most
of First National Banks deposits are obtained from commercial businesses,
professionals and individuals. As of December 31, 2007, First National Bank had
a total of 23,665 accounts. On occasion, the Bank has obtained deposits through
deposit brokers for which it pays a broker fee. As of December 31, 2007, First
National Bank had no such deposits. There is no concentration of deposits or
any customer with 5% or more of First National Banks deposits.

At
December 31, 2007, the Company had total assets of $644,465,000, net loans
of  $489,574,000, deposits of
$499,255,000 and shareholders equity of $66,545,000. The Company competes with
approximately 33 other banking or savings institutions in its service areas.
The Companys market share of Federal Deposit Insurance Corporation insured
deposits in the service area of San Mateo County is approximately 2.45% (based
upon the most recent information available by the Federal Deposit Insurance
Corporation through June 30, 2007). See Competitive Data below.

Employees

At
December 31, 2007, The Company employed 187 persons on a full-time basis. The
Company believes its employee relations are good. The Company is not a party to
any collective bargaining agreement.

Available Information

FNB
Bancorp and First National Bank of Northern California maintain an Internet
website at http://www.FNBNORCAL.com. The Companys annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, are made available free of charge on or
through such website as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and Exchange
Commission. Also made available on or through such website are the Section 16
reports of ownership and changes in ownership of the Companys common stock
which are filed with the Securities and Exchange Commission by the directors
and executive officers of the Company and by any persons who own more than 10
percent of the outstanding shares of such stock. Information on such website is
not incorporated by reference into this report.

5

---



SUPERVISION AND REGULATION

General

FNB
Bancorp. The common stock of FNB Bancorp is subject to
the registration requirements of the Securities Act of 1933, as amended, and
the qualification requirements of the California Corporate Securities Law of
1968, as amended. FNB Bancorp has registered its common stock under Section 12
(g) of the Securities Exchange Act of 1934, as amended. The Company is also
subject to the periodic reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, which include, but are not limited to,
annual, quarterly and other current reports required to be filed with the
Securities and Exchange Commission.

FNB
Bancorp is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the Bank Holding Company Act), and is
registered as such with, and subject to the supervision of, the Board of
Governors of the Federal Reserve System (the Board of Governors). FNB Bancorp
is required to obtain the approval of the Board of Governors before it may
acquire all or substantially all of the assets of any bank, or ownership or
control of the voting shares of any bank if, after giving effect to such
acquisition of shares, FNB Bancorp would own or control more than 5% of the
voting shares of such bank. The Bank Holding Company Act prohibits FNB Bancorp
from acquiring any voting shares of, or interest in, all or substantially all
of the assets of, a bank located outside the State of California unless such an
acquisition is specifically authorized by the laws of the state in which such
bank is located. Any such interstate acquisition is also subject to the
provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994.

FNB
Bancorp, and any subsidiary which it may acquire or organize, are deemed to be
affiliates of the Bank within the meaning of that term as defined in the
Federal Reserve Act. This means, for example, that there are limitations (a) on
loans by First National Bank to its affiliates, and (b) on investments by First
National Bank in affiliates stock as collateral for loans to any borrower. FNB
Bancorp and First National Bank are also subject to certain restrictions with
respect to engaging in the underwriting, public sale and distribution of
securities.

In
addition, regulations of the Board of Governors under the Federal Reserve Act
require that reserves be maintained by First National Bank in conjunction with
any liability of FNB Bancorp under any obligation (promissory note,
acknowledgment of advance, bankers acceptance or similar obligation) with a
weighted average maturity of less than seven (7) years to the extent that the
proceeds of such obligations are used for the purpose of supplying funds to
First National Bank for use in its banking business, or to maintain the
availability of such funds.

6

---



First
National Bank of Northern California. As a national
banking association licensed under the national banking laws of the United
States, First National Bank is regularly examined by the Office of the
Comptroller of the Currency and is subject to supervision and regulation by the
Federal Deposit Insurance Corporation, the Board of Governors, and the Office
of the Comptroller of the Currency. This
supervision and regulation includes comprehensive reviews of all major aspects
of First National Banks business and condition, including its capital ratios,
allowance for possible loan losses and other factors. However, no inference
should be drawn that such authorities have approved any such factors. First
National Bank is required to file reports with the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation. First National
Banks deposits are insured by the Federal Deposit Insurance Corporation up to
the applicable legal limits.

Capital Standards.

The
Board of Governors, the Federal Deposit Insurance Corporation, and the Office
of the Comptroller of the Currency have adopted risk-based guidelines for
evaluating the capital adequacy of bank holding companies and banks. The
guidelines are designed to make capital requirements sensitive to differences
in risk profiles among banking organizations, to take into account off-balance
sheet exposures and to aid in making the definition of bank capital uniform
internationally. Under the guidelines, First National Bank is required to
maintain (and FNB Bancorp and First National Bank will be required to maintain)
capital equal to at least 8.0% of its assets and commitments to extend credit,
weighted by risk, of which at least 4.0% must consist primarily of common
equity (including retained earnings) and the remainder may consist of
subordinated debt, cumulative preferred stock, or a limited amount of loan loss
reserves.

Assets,
commitments to extend credit, and off-balance sheet items are categorized
according to risk and certain assets considered to present less risk than
others permit maintenance of capital at less than the 8% ratio. For example,
most home mortgage loans are placed in a 50% risk category and therefore
require maintenance of capital equal to 4% of those loans, while commercial
loans are placed in a 100% risk category and therefore require maintenance of
capital equal to 8% of those loans.

Under
the risk-based capital guidelines, assets reported on an institutions balance
sheet and certain off-balance sheet items are assigned to risk categories, each
of which has an assigned risk weight. Capital ratios are calculated by dividing
the institutions qualifying capital by its period-end risk-weighted assets.
The guidelines establish two categories of qualifying capital: Tier 1 capital
(defined to include common shareholders equity and noncumulative perpetual
preferred stock) and Tier 2 capital which includes, among other items, limited
life (and in the case of banks, cumulative) preferred stock, mandatory
convertible securities, subordinated debt and a limited amount of reserve for
credit losses. Tier 2 capital may also include up to 45% of the pretax
unrealized gains on certain available-for-sale equity securities having readily
determinable fair values (i.e. the excess, if any, of fair market value over
the book value or historical cost of the investment security). The federal
regulatory agencies reserve the right to exclude all or a portion of the
unrealized gains upon a determination that the equity securities are not
prudently valued. Unrealized gains and losses on other types of assets, such as
bank premises and available-for-sale debt securities, are not included in Tier
2 capital, but may be taken into account in the evaluation of overall capital
adequacy and net  unrealized losses on
available-for-sale equity securities will continue to be deducted from Tier 1
capital as a cushion against risk. Each institution is required to maintain a
minimum risk-based capital ratio (including Tier 1 and Tier 2 capital) of 8%,
of which at least half must be Tier 1 capital.

7

---



A
leverage capital standard was adopted as a supplement to the risk-weighted
capital guidelines. Under the leverage capital standard, an institution is
required to maintain a minimum ratio of Tier 1 capital to the sum of its
quarterly average total assets and quarterly average reserve for loan losses,
less intangibles not included in Tier 1 capital. Period-end assets may be used
in place of quarterly average total assets on a case-by-case basis. The Board
of Governors and the Federal Deposit Insurance Corporation have also adopted a
minimum leverage ratio for bank holding companies as a supplement to the
risk-weighted capital guidelines. The leverage ratio establishes a minimum Tier
1 ratio of 3% (Tier 1 capital to total assets) for the highest rated bank
holding companies or those that have implemented the risk-based capital market
risk measure. All other bank holding companies must maintain a minimum Tier 1
leverage ratio of 4% with higher leverage capital ratios required for bank
holding companies that have significant financial and/or operational weakness,
a high risk profile, or are undergoing or anticipating rapid growth.

At
December 31, 2007, The Company was in compliance with the risk-weighted capital
and leverage ratios. See Capital under Item 7 below.

Prompt Corrective Action

The
Board of Governors, Federal Deposit Insurance Corporation, and Office of the
Comptroller of the Currency have adopted regulations implementing a system of
prompt corrective action pursuant to Section 38 of the Federal Deposit
Insurance Act and Section 131 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). The regulations establish five capital
categories with the following characteristics:

(1) Well
capitalized  consisting of institutions with a total risk-based capital ratio
of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a
leverage ratio of 5% or greater, and the institution is not subject to an
order, written agreement, capital directive or prompt corrective action
directive;

(2)
Adequately capitalized  consisting of institutions with a total risk-based
capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater and a leverage ratio of 4% or greater, and the institution does not
meet the definition of a well capitalized institution;

(3) Undercapitalized   consisting of institutions with a total
risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of les
than 4%, or a leverage ratio of less than 4%;

(4)
Significantly undercapitalized  consisting of institutions with a total
risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%;

8

---



(5)
Critically undercapitalized  consisting of an institution with a ratio of
tangible equity to total assets that is equal to or less than 2%.

The
regulations established procedures for classification of financial institutions
within the capital categories, filing and reviewing capital restoration plans
required under the regulations and procedures for issuance of directives by the
appropriate regulatory agency, among other matters. The regulations impose
restrictions upon all institutions to refrain from certain actions which would
cause an institution to be classified within any one of the three
undercapitalized categories, such as declaration of dividends or other
capital distributions or payment of management fees, if following the
distribution or payment the institution would be classified within one of the
undercapitalized categories. In addition, institutions that are classified in
one of the three undercapitalized categories are subject to certain mandatory
and discretionary supervisory actions. Mandatory supervisory actions include:

(1) increased
monitoring and review by the appropriate federal banking agency;

(2)
implementation of a capital restoration plan;

(3) total
asset growth restrictions; and

(4) limitation
upon acquisitions, branch expansion, and new business activities without prior
approval of the appropriate federal banking agency. Discretionary supervisory
actions may include:

(a)
requirements to augment capital;

(b)
restrictions upon affiliate transactions;

(c)
restrictions upon deposit gathering activities and interest rates paid;

(d)
replacement of senior executive officers and directors;

(e)
restrictions upon activities of the institution and its affiliates;

(f)
requiring divestiture or sale of the institution; and

(g)
any other supervisory action that the appropriate federal banking agency
determines is necessary to further the purposes of the regulations. Further,
the federal banking agencies may not accept a capital restoration plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository institutions
capital. In addition, for a capital restoration plan to be acceptable, the
depository institutions parent holding company must guarantee that the
institution will comply with such capital restoration plan.

9

---



The
aggregate liability of the parent holding company under the guaranty is limited
to the lesser of (i) an amount equal to 5 percent of the depository
institutions total assets at the time it became undercapitalized, and (ii) the
amount that is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect to
such institution as of the time it fails to comply with the plan. If a
depository institution fails to submit an acceptable plan, it is treated as if
it were significantly undercapitalized. FDICIA also restricts the
solicitation and acceptance of and interest rates payable on brokered deposits
by insured depository institutions that are not well capitalized. An
undercapitalized institution is not allowed to solicit deposits by offering
rates of interest that are significantly higher than the prevailing rates of
interest on insured deposits in the particular institutions normal market
areas or in the market areas in which such deposits would otherwise be
accepted.

Any
financial institution which is classified as critically undercapitalized must
be placed in conservatorship or receivership within 90 days of such
determination unless it is also determined that some other course of action
would better serve the purposes of the regulations. Critically undercapitalized
institutions are also prohibited from making (but not accruing) any payment of
principal or interest on subordinated debt without prior regulatory approval
and regulators must prohibit a critically undercapitalized institution from
taking certain other actions without prior approval, including (1) entering
into any material transaction other than in the usual course of business,
including investment expansion, acquisition, sale of assets or other similar
actions; (2) extending credit for any highly leveraged transaction; (3) amending
articles or bylaws unless required to do so to comply with any law, regulation
or order; (4) making any material change in accounting methods; (5) engaging in
certain affiliate transactions; (6) paying excessive compensation or bonuses;
and (7) paying interest on new or renewed liabilities at rates which would
increase the weighted average costs of funds beyond prevailing rates in the
institutions normal market areas.

Additional Regulations

Under
FDICIA, the federal financial institution agencies have adopted regulations
which require institutions to establish and maintain comprehensive written real
estate policies which address certain lending considerations, including
loan-to-value limits, loan administrative policies, portfolio diversification
standards, and documentation, approval and reporting requirements. FDICIA
further generally prohibits an insured bank from engaging as a principal in any
activity that is impermissible for a national bank, absent Federal Deposit
Insurance Corporation determination that the activity would not pose a
significant risk to the Bank Insurance Fund, and that such bank is, and will
continue to be, within applicable capital standards.

10

---



The
Federal Financial Institutions Examination Council (FFIEC) utilizes the
Uniform Institutions Rating System (UFIRS), commonly referred to as CAMELS,
to classify and evaluate the soundness of financial institutions. Bank
examiners use the CAMELS measurements to evaluate capital adequacy, asset
quality, management, earnings, liquidity and sensitivity to market risk. Effective
January 1, 2005, bank holding companies such as the Company, became subject to
evaluation and examination under a revised bank holding company rating system.
This so-called BOPEC rating system, implemented in 1979, has been focused
primarily on financial condition, consolidated capital and consolidated
earnings. The new rating system reflects a change toward analysis of risk
management (as reflected in bank examination under the CAMELS measurements), in
addition to financial factors and the potential impact of nondepository
subsidiaries upon depository institution subsidiaries.

The
federal financial institution agencies have established bases for analysis and
standards for assessing financial institutions capital adequacy in conjunction
with the risk-based capital guidelines including analysis of interest rate
risk, concentrations of credit risk, risk posed by non-traditional activities,
and factors affecting overall safety and soundness. The safety and soundness
standards for insured financial institutions include analysis of (1) internal
controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth;
(6) compensation, fees and benefits; and (7) excessive compensation for
executive officers, directors or principal shareholders which could lead to
material financial loss. If an agency determines that an institution fails to
meet any standard, the agency may require the financial institution to submit
to the agency an acceptable plan to achieve compliance with the standard. If
the agency requires submission of a compliance plan and the institution fails
to timely submit an acceptable plan or to implement an accepted plan, the
agency must require the institution to correct the deficiency. The agencies may
elect to initiate enforcement action in certain cases rather than rely on an
existing plan particularly where failure to meet one or more of the standards
could threaten the safe and sound operation of the institution.

Community
Reinvestment Act (CRA) regulations evaluate banks lending to low and
moderate income individuals and businesses across a four-point scale from
outstanding to substantial noncompliance, and are a factor in regulatory
review of applications to merge, establish new branches or form bank holding
companies. In addition, any bank rated in substantial noncompliance with the
CRA regulations may be subject to enforcement proceedings. First National Bank
has a current rating of satisfactory for CRA compliance.

Limitation on Dividends

FNB
Bancorp. The Companys ability to pay cash dividends
is subject to restrictions set forth in the California General Corporation Law.
Funds for payment of any cash dividends by the Company would be obtained from
its investments as well as dividends and/or management fees from First National
Bank. First National Banks ability to pay cash dividends is subject to
restrictions imposed under the National Bank Act and regulations promulgated by
the Office of the Comptroller of the Currency.

11

---



FNB
Bancorp has paid quarterly dividends for each quarter commencing with the
second quarter of 2002. Future dividends will continue to be determined after
consideration of the Companys earnings, financial condition, future capital
funds, regulatory requirements and other factors such as the Board of Directors
may deem relevant. It is the intention of the Company to continue to pay cash
dividends, subject to legal restrictions on the payment of cash dividends and
depending upon the level of earnings, managements assessment of future capital
needs and other factors to be considered by the Board of Directors.

The
California General Corporation Law provides that a corporation may make a
distribution to its shareholders if the corporations retained earnings equal
at least the amount of the proposed distribution. The California General
Corporation Law further provides that, in the event sufficient retained
earnings are not available for the proposed distribution, a corporation may
nevertheless make a distribution to its shareholders if, after giving effect to
the distribution, it meets two conditions, which generally stated are as follows:
(i) the corporations assets must equal at least 125% of its liabilities; and
(ii) the corporations current assets must equal at least its current
liabilities or, if the average of the corporations earnings before taxes on
income and before interest expense for the two preceding fiscal years was less
than the average of the corporations interest expense for those fiscal years,
then the corporations current assets must equal at least 125% of its current
liabilities.

The
Board of Governors of the Federal Reserve System generally prohibits a bank
holding company from declaring or paying a cash dividend which would impose
undue pressure on the capital of subsidiary banks or would be funded only
through borrowing or other arrangements that might adversely affect a bank
holding companys financial position. The Federal Reserve Board policy is that
a bank holding company should not continue its existing rate of cash dividends
on its common stock unless its net income is sufficient to fully fund each
dividend and its prospective rate of earnings retention appears consistent with
its capital needs, asset quality and overall financial condition.

First
National Bank of Northern California. As First
National Banks sole shareholder, FNB Bancorp is entitled to receive dividends
when and as declared by its Board of Directors, out of funds legally available
therefore, subject to the restrictions set forth in the National Bank Act.

The
payment of cash dividends by First National Bank may be subject to the approval
of the Office of the Comptroller of the Currency, as well as restrictions
established by federal banking law and the Federal Deposit Insurance
Corporation. Approval of the Office of the Comptroller of the Currency is required
if the total of all dividends declared by First National Banks board of
directors in any calendar year will exceed First National Banks net profits
for that year combined with its retained net profits for the preceding two
years, less any required transfers to surplus or to a fund for the retirement
of preferred stock. Additionally, the Federal Deposit Insurance Corporation
and/or the Office of the Comptroller of the Currency, might, under some
circumstances, place restrictions on the ability of a bank to pay dividends
based upon peer group averages and the performance and maturity of that bank.

12

---



COMPETITION

Competitive Data

In
its market area, First National Bank competes for deposit and loan customers
with other banks (including those with much greater resources), thrifts and, to
a lesser extent, credit unions, finance companies and other financial service
providers.

Larger
banks may have a competitive advantage because of higher lending limits and
major advertising and marketing campaigns. They also perform services, such as
trust services, international banking, discount brokerage and insurance
services, which First National Bank is not authorized nor prepared to offer
currently. First National Bank has made arrangements with its correspondent
banks and with others to provide some of these services for its customers. For
borrowers requiring loans in excess of First National Banks legal lending
limits, First National Bank has offered, and intends to offer in the future,
such loans on a participating basis with its correspondent banks and with other
independent banks, retaining the portion of such loans which is within its
lending limits. As of December 31, 2007, First National Banks aggregate legal
lending limits to a single borrower and such borrowers related parties were
$10,369,000 on an unsecured basis and $17,282,000 on a fully secured basis,
based on regulatory capital of $69,129,000.

First
National Banks business is concentrated in its service area, which primarily
encompasses San Mateo County, but also includes portions of the City and County
of San Francisco. The economy of First National Banks service area is
dependent upon government, manufacturing, tourism, retail sales, population
growth and smaller service oriented businesses.

Based
upon the most recent information made available by the Federal Deposit
Insurance Corporation, at June 30, 2007, there were 33 commercial and savings
banking institutions in San Mateo County with a total of $18,984,053,000 in
deposits at June 30, 2007. First National Bank had a total of 11 offices with
total deposits of $465,163,000 at the same date, or 2.45% of the San Mateo
County totals. At June 30, 2006, there were 33 commercial and savings banking
institutions in San Mateo County with total deposits of $18,211,791,000, while
First National Bank had $438,557,000, or 2.41% of the San Mateo County totals.

The
Federal Deposit Insurance Reform Act of 2005 (the Reform Act) had the effect
of merging the Bank Insurance Fund and the Savings Association Insurance Fund
into a new Deposit Insurance Fund (DIF). This change was made effective on
March 31, 2006. The FDIC released final regulations under the Reform Act on
November 2, 2006 that establish a revised risk-based deposit insurance
assessment rate system for members of the DIF to insure, among other matters,
that there will be sufficient assessment income for repayment of DIF
obligations and to further refine the differentiation of risk profiles among
institutions as a basis for assessments. Under the new assessment rate system,
the FDIC set the assessment rates (effective January 1, 2007) for most
institutions from $0.05 to $0.07 per $100 of insured deposits and established a
Designated Reserve Ratio (DRR) for the DIF during 2007 of 1.25% of insured
deposits.

13

---



The
new assessment rate system consolidates the nine categories of the prior
assessment system into four categories (Risk Categories I, II, III and IV) and
three Supervisory Groups (A, B and C) based upon institutions capital levels
and supervisory ratings. Risk Category I includes all well capitalized
institutions with the highest supervisory ratings. Risk Category II includes
adequately capitalized institutions that are assigned to Supervisory Groups A
and B. Risk Category III includes all undercapitalized institutions that are assigned
to Supervisory Groups A and B and institutions assigned to Supervisory Group C
that are not undercapitalized but have a low supervisory rating. Risk Category
IV includes all undercapitalized institutions that are assigned to Supervisory
Group C.

Based
upon the current assessment rate system, the Banks capital ratios and levels
of deposits, the Bank does not anticipate a significant increase in operating
expenses due to the assessment rate expected to be applicable to the Bank
during 2008 compared to the rate applicable to the Bank in 2007.

General Competitive Factors

In
order to compete with the financial institutions in their primary service
areas, community banks such as First National Bank use to the fullest extent
possible, the flexibility which is accorded by their independent status. This
includes an emphasis on specialized services, local promotional activity, and
personal contacts by their respective officers, directors and employees. They
also seek to provide special services and programs for individuals in their
primary service area who are employed in the agricultural, professional and
business fields, such as loans for equipment, furniture and tools of the trade
or expansion of practices or businesses. In the event there are customers whose
loan demands exceed their respective lending limits, they seek to arrange for
such loans on a participation basis with other financial institutions. They
also assist those customers requiring services not offered by either bank to obtain
such services from correspondent banks.

Banking
is a business that depends on interest rate differentials. In general, the
difference .between the interest rate paid by a bank to obtain their deposits
and other borrowings and the interest rate received by a bank on loans extended
to customers and on securities held in a banks portfolio comprise the major
portion of a banks earnings. Commercial banks compete with savings and loan
associations, credit unions, other financial institutions and other entities
for funds. For instance, yields on corporate and government debt securities and
other commercial paper affect the ability of commercial banks to attract and
hold deposits. Commercial banks also compete for loans with savings and loan associations,
credit unions, consumer finance companies, mortgage companies and other lending
institutions.

14

---



The
interest rate differentials of a bank, and therefore its earnings, are affected
not only by general economic conditions, both domestic and foreign, but also by
statutes and as implemented by federal agencies, particularly the Federal
Reserve Board. The Federal Reserve Board can and does implement national
monetary policy, such as seeking to curb inflation and combat recession, by its
open market operations in United States government securities, adjustments in
the amount of interest free reserves that banks and other financial
institutions are required to maintain, and adjustments to the discount rates
applicable to borrowing by banks from the Federal Reserve Board. These
activities influence the growth of bank loans, investments and deposits and
also affect interest rates charged on loans and paid on deposits. The nature
and timing of any future changes in monetary policies and their impact on First
National Bank are not predictable.

Legislative and Regulatory Impact

Since
1996, California law implementing certain provisions of prior federal law has
(1) permitted interstate merger transactions; (2) prohibited interstate branching
through the acquisition of a branch business unit located in California without
acquisition of the whole business unit of the California bank; and (3)
prohibited interstate branching through de novo establishment of California
branch offices. Initial entry into California by an out-of-state institution
must be accomplished by acquisition or merger with an existing whole bank,
which has been in existence for at least five years.

The
federal financial institution agencies, especially the Office of the
Comptroller of the Currency and the Board of Governors, have taken steps to
increase the types of activities in which national banks and bank holding
companies can engage, and to make it easier to engage in such activities. The
Office of the Comptroller of the Currency has issued regulations permitting
national banks to engage in a wider range of activities through subsidiaries.
Eligible institutions (those national banks that are well capitalized, have a
high overall rating and a satisfactory CRA rating, and are not subject to an
enforcement order) may engage in activities related to banking through
operating subsidiaries subject to an expedited application process. In
addition, a national bank may apply to the Office of the Comptroller of the Currency
to engage in an activity through a subsidiary in which First National Bank
itself may not engage.

The
Gramm-Leach-Bliley Act (the Act), eliminated most of the remaining
depression-era firewalls between banks, securities firms and insurance
companies which was established by the Banking Act of 1933, also known as the
Glass-Steagall Act (Glass-Steagall). Glass-Steagall sought to insulate banks
as depository institutions from the perceived risks of securities dealing and
underwriting, and related activities. The Act repealed Section 20 of
Glass-Steagall, which prohibited banks from affiliating with securities firms.
Bank holding companies that can qualify as financial holding companies can
now, among other matters, acquire securities firms or create them as
subsidiaries, and securities firms can now acquire banks or start banking
activities through a financial holding company. The Act includes provisions
which permit national banks to conduct financial activities through a
subsidiary that are permissible for a national bank to engage in directly, as
well as certain activities authorized by statute, or that are financial in
nature or incidental to financial activities to the same extent as permitted to
a financial holding company or its affiliates.

15

---



This
liberalization of United States banking and financial services regulation
applies both to domestic institutions and foreign institutions conducting
business in the United States. Consequently, the common ownership of banks,
securities firms and insurance is now possible, as is the conduct of commercial
banking, merchant banking, investment management, securities underwriting and
insurance within a single financial institution using a structure authorized by
the Act.

Prior
to the Act, significant restrictions existed on the affiliation of banks with
securities firms and related securities activities. Banks were also (with minor
exceptions) prohibited from engaging in insurance activities or affiliating
with insurers. The Act removed these restrictions and substantially eliminated
the prohibitions under the Bank Holding Company Act on affiliations between
banks and insurance companies. Bank holding companies which qualify as
financial holding companies can now, among other matters, insure, guarantee, or
indemnify against loss, harm, damage, illness, disability, or death; issue
annuities; and act as a principal, agent, or broker regarding such insurance
services.

In
order for a commercial bank to affiliate with a securities firm or an insurance
company pursuant to the Act, its bank holding company must qualify as a
financial holding company. A bank holding company will qualify if (i) its
banking subsidiaries are well capitalized and well managed and (ii) it
files with the Board of Governors a certification to such an effect and a
declaration that it elects to become a financial holding company. The amendment
of the Bank Holding Company Act now permits financial holding companies to
engage in activities, and acquire companies engaged in activities, that are
financial in nature or incidental to such financial activities. Financial
holding companies are also permitted to engage in activities that are
complementary to financial activities if the Board of Governors determines that
the activity does not pose a substantial risk to the safety or soundness of
depository institutions or the financial system in general. These standards
expand upon the list of activities closely related to banking which to date
have defined the permissible activities of bank holding companies under the
Bank Holding Company Act.

One
further effect of the Act was to require that federal financial institution and
securities regulatory agencies prescribe regulation to implement the policy that
financial institutions must respect the privacy of their customers and protect
the security and confidentiality of customers non-public personal information.
These regulations require, in general, that financial institutions (1) may not
disclose non-public information of customers to non-affiliated third parties
without notice to their customers, who must have an opportunity to direct that
such information not be disclosed; (2) may not disclose customer account
numbers except to consumer reporting agencies; and (3) must give prior
disclosure of their privacy policies before establishing new customer
relationships.

Neither
the Company nor First National Bank has determined whether or when it may seek
to acquire and exercise new powers or activities under the Act, and the extent
to which competition will change among financial institutions affected by the
Act has not yet become clear.

16

---



RECENT LEGISLATION

The Patriot Act

On
October 26, 2001, President Bush signed the USA Patriot Act (the Patriot
Act), which includes provisions pertaining to domestic security, surveillance
procedures, border protection, and terrorism laws to be administered by the
Secretary of the Treasury.  Title III of
the Patriot Act entitled, International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001includes
amendments to the Bank Secrecy Act which expand the responsibilities of financial
institutions in regard to anti-money laundering activities with particular
emphasis upon international money laundering and terrorism financing activities
through designated correspondent and private banking accounts.

Effective
December 25, 2001, Section 313(a) of the Patriot Act prohibits any insured
financial institution such as First National Bank, from providing correspondent
accounts to foreign banks which do not have a physical presence in any country
(designated as shell banks), subject to certain exceptions for regulated
affiliates of foreign banks.  Section
313(a) also requires financial institutions to take reasonable steps to ensure
that foreign bank correspondent accounts are not being used to indirectly
provide banking services to foreign shell banks, and Section 319(b) requires
financial institutions to maintain records of the owners and agent for service
of process of any such foreign banks with whom correspondent accounts have been
established.

Effective
July 23, 2002, Section 312 of the Patriot Act created a requirement for special
due diligence for correspondent accounts and private banking accounts.  Under Section 312, each financial
institution that establishes, maintains, administers, or manages a private
banking account or a correspondent account in the United States for a
non-United States person, including a foreign individual visiting the United
States, or a representative of a non-United States person shall establish
appropriate, specific, and, where necessary, enhanced, due diligence policies,
procedures, and controls that are reasonably designed to detect and record
instances of money laundering through those accounts.

The
Patriot Act contains various provisions in addition to Sections 313(a) and 312
that affect the operations of financial institutions by encouraging cooperation
among financial institutions, regulatory authorities and law enforcement
authorities with respect to individuals, entities and organizations engaged in,
or reasonably suspected of engaging in, terrorist acts or money laundering
activities.  The Company and First
National Bank are not currently aware of any account relationships between
First National Bank and any foreign bank or other person or entity as described
above under Sections 313(a) or 312 of the Patriot Act.

In
March 2, 2006, after temporary extensions of the Patriot Act, Congress passed
and President Bush signed the USA Patriot Act Improvement and Reauthorization
Act of 2005, and the related Amendments Act of 2006, which reauthorized all
expiring provisions of the Patriot Act by making permanent 14 of the 16
provisions and imposed a four-year expiration date in 2009 on the other two
provisions related to roving surveillance and production of business records.

17

---



The
effects which the Patriot Act and any additional legislation enacted by
Congress may have upon financial institutions is uncertain; however, such
legislation could increase compliance costs and thereby potentially may have an
adverse effect upon the Companys results of operations.

Sarbanes-Oxley Act of 2002

On
July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act
of 2002 (the Act), legislation designed to address certain issues of
corporate governance and accountability.
The key provisions of the Act and the rules promulgated by the SEC
pursuant to the Act include the following:

| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expanded
  oversight of the accounting profession by creating a new independent public
  company oversight board to be monitored by the SEC.                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Revised rules on auditor independence to restrict the nature of
  non-audit services provided to audit clients and to require such services to
  be pre-approved by the audit committee.                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Improved corporate responsibility through mandatory listing
  standards relating to audit committees, certifications of periodic reports by
  the CEO and CFO and making issuer interference with an audit a crime.                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Enhanced financial disclosures, including periodic reviews for
  largest issuers and real time disclosure of material company information.                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Enhanced
  criminal penalties for a broad array of white collar crimes and increases in
  the statute of limitations for securities fraud lawsuits.                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Disclosure
  of whether a company has adopted a code of ethics that applies to the
  companys principal executive officer, principal financial officer, principal
  accounting officer or controller, or persons performing similar functions,
  and disclosure of any amendments or waivers to such code of ethics.
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Disclosure of whether a companys audit committee of its board
  of directors has a member of the audit committee who qualifies as an audit
  committee financial expert.                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | A
  prohibition on insider trading during pension plan black-out periods.                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Disclosure of off-balance sheet transactions.                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | A
  prohibition on personal loans to directors and officers.                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                      
| |  | Conditions on the use of non-GAAP (generally accepted accounting
  principles) financial measures.                                                                                                                                                                                                                   

18

---



| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Standards of professional conduct for attorneys, requiring
  attorneys having an attorney-client relationship with a company, among other
  matters, to report up the ladder to the audit committee, to another board
  committee or to the entire board of directors regarding certain material
  violations.
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | Expedited filing requirements for Form 4 reports of changes in
  beneficial ownership of securities, reducing the filing deadline to within 2
  business days of the date on which an obligation to report is triggered.                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | Accelerated filing requirements for reports on Forms 10-K and
  10-Q by public companies which qualify as accelerated filers, with a
  phased-in reduction of the filing deadline for Form 10-K and Form 10-Q.                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | Disclosure concerning website access to reports on Forms 10-K, 10-Q
  and 8-K, and any amendments to those reports, by accelerated filers as soon
  as reasonably practicable after such reports and material are filed with or
  furnished to the SEC.                                                       
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | Rules requiring national securities exchanges and national
  securities associations to prohibit the listing of any security whose issuer
  does not meet audit committee standards established pursuant to the Act.                                                                                            

The
Companys securities are not currently listed on any exchange.  In the event of such a listing in the future,
in addition to the rules promulgated by the SEC pursuant to the Act, the
Company would be required to comply with the listing standards applicable to
all exchange listed companies.

The Company
has incurred and it is anticipated that it will continue to incur costs to
comply with the Act and the rules and regulations promulgated pursuant to the
Act by the Securities and Exchange Commission of approximately $150,000
annually.

California Corporate Disclosure Act

Effective
January 1, 2003, the California Corporate Disclosure Act (the CCD Act)
required publicly traded corporations incorporated or qualified to do business
in California to disclose information about their past history, auditors,
directors and officers.  Effective
September 28, 2004, the CCD Act, as currently in effect and codified at
California Corporations Code Section 1502.1, requires the Company to file with
the California Secretary of State and disclose within 150 days after the end of
its fiscal year certain information including the following:

| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
  name of the a companys independent auditor and a description of services, if
  any, performed for a company during the previous two fiscal years and the period from the
  end of the most recent fiscal year to the date of filing;

19

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
  annual compensation paid to each director and the five most highly
  compensated non- director executive officers (including the CEO) during the
  most recent fiscal year, including all plan and non-plan compensation for all
  services rendered to a company as specified in Item 402 of Regulation S-K
  such as grants, awards or issuance of stock, stock options and
  similar equity-based compensation;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | A
  description of any loans made to a director or executive officer at a
  preferential loan rate during the companys two most recent fiscal years,
  including the amount and terms of the loans;                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Whether any bankruptcy was filed by a company or any of its
  directors or executive officers within the previous 10 years;                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Whether any director or executive officer of a company has been
  convicted of fraud during the previous 10 years; and                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | A
  description of any material pending legal proceedings other than ordinary
  routine litigation as specified in Item 103 of Regulation S-K and a
  description of such litigation where the company was found legally liable by
  a final judgment or order.                                                                                                                                                         

The
Company does not currently anticipate that compliance with the CCD Act will
have a material adverse effect upon its financial position or results of its
operations or its cash flows.

Future Legislation and Regulations

Certain
legislative and regulatory proposals that could affect FNB Bancorp, First
National Bank, and the banking business in general are periodically introduced
before the United States Congress, the California State Legislature and Federal
and state government agencies. It is not known to what extent, if any, legislative
proposals will be enacted and what effect such legislation would have on the
structure, regulation and competitive relationships of financial institutions.
It is likely, however, that such legislation could subject FNB Bancorp and
First National Bank to increased regulation, disclosure and reporting
requirements, competition, and costs of doing business.

In
addition to legislative changes, the various Federal and state financial
institution regulatory agencies frequently propose rules and regulations to
implement and enforce already existing legislation. It cannot be predicted
whether or in what form any such rules or regulations will be enacted or the
effect that such regulations may have on the Company and First National Bank.

20

---



ITEM 1A. RISK FACTORS

In
addition to the risks associated with the business of banking generally, as
described above under Item 1 (Description of Business), the Companys business,
financial condition, operating results, future prospects and stock price can be
adversely impacted by certain risk factors, as set forth below, any of which
could cause the Companys actual results to vary materially from recent results
or from the Companys anticipated future results.

Dependence on Key Officers and Employees.  We are dependent on the successful
recruitment and retention of highly qualified personnel. Our ability to
implement our business strategies is closely tied to the strengths of our
executive officers who have extensive experience in the banking industry but
who are not easily replaced. In addition, business banking, one of the
Companys principal lines of business, is dependent on relationship banking, in
which First National Bank personnel develop professional relationships with
small business owners and officers of larger business customers who are
responsible for the financial management of the companies they represent. If
these employees were to leave First National Bank and become employed by a
local competing bank, we could potentially lose business customers. In
addition, we rely on our customer service staff to effectively serve the needs
of our consumer customers. We actively recruit for all open positions and
management believes that its relations with employees are good.

Growth strategy.  We have pursued and continue to pursue a
growth strategy which depends primarily on generating an increasing level of
loans and deposits at acceptable risk levels. We may not be able to sustain
this growth strategy without establishing new branches or new products.
Therefore, we may expand in our current market by opening or acquiring branch
offices or other financial institutions or branch offices. This expansion may
require significant investments in equipment, technology, personnel and site
locations. We cannot assure you of our success in implementing our growth
strategy without corresponding increases in our noninterest expenses.

Commercial loans.  As of December 31, 2007, approximately 16.6%
of our loan portfolio consisted of commercial business loans, which have a
higher degree of risk than other types of loans. Commercial business loans
generally involve a greater degree of risk than residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the mobility of collateral, the effect of general economic
conditions and the increased difficulty of evaluating and monitoring these
types of loans. In addition, unlike residential mortgage loans, which generally
are made on the basis of the borrowers ability to make repayment from his or
her employment and other income and which are secured by real property whose
value tends to be more easily ascertainable, commercial business loans
typically are made on the basis of the borrowers ability to make repayment
from the cash flow of the borrowers business. As a result, the availability of
funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself and the general economic
environment. If the cash flow from business operations is reduced, the
borrowers ability to repay the loan may be impaired.

21

---



Real Estate Values.  A large portion of the loan portfolio of the
Company is dependent on real estate. At December 31, 2007, real estate
(including construction loans) served as the principal source of collateral
with respect to approximately 71.1% of the Companys loan portfolio. A
substantial decline in the economy in general, or a decline in real estate
values in the Companys primary operating market areas in particular, could
have an adverse effect on the demand for new loans, the ability of borrowers to
repay outstanding loans, the value of real estate and other collateral securing
loans and the value of the available-for-sale investment portfolio, as well as
the Companys financial condition and results of operations in general and the
market value for Company Common Stock. Acts of nature, including fires,
earthquakes and floods, which may cause uninsured damage and other loss of
value to real estate that secures these loans, may also negatively impact the
Companys financial condition.

Allowance for Loan and Lease Losses.  Like all financial institutions, the Company
maintains an allowance for loan losses to provide for loan defaults and
non-performance, but its allowance for loan losses may not be adequate to cover
actual loan and lease losses. In addition, future provisions for loan and lease
losses could materially and adversely affect the Company and therefore the
Companys operating results. The Companys allowance for loan and lease losses
is based on prior experience, as well as an evaluation of the risks in the
current portfolio. The amount of future losses is susceptible to changes in
economic, operating and other conditions, including changes in interest rates
that may be beyond the Companys control, and these losses may exceed current
estimates. Federal regulatory agencies, as an integral part of their
examination process, review the Companys loans and allowance for loan and
lease losses. Although we believe that the Companys allowance for loan and
lease losses is adequate to cover current losses, we cannot assure you that it
will not further increase the allowance for loan and lease losses or that the
regulators will not require it to increase this allowance. Either of these
occurrences could materially and adversely affect the Companys earnings.

Environmental Liabilities.  In the course of our business, we may
foreclose and take title to real estate, and could be subject to environmental
liabilities with respect to these properties. We may be held liable to a
governmental entity or third parties for property damage, personal injury,
investigation and clean-up costs incurred by these parties in connection with
environmental contamination, or may be required to investigate or clean up
hazardous or toxic substances, or chemical releases at a property. The costs
associated with investigations or remediation activities could be substantial.
In addition, as the owner or former owner of a contaminated site, we could
become subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from the property. If we
ever become subject to significant environmental liabilities, our business
prospects, financial condition, liquidity, results of operations and stock
price could be materially and adversely affected.

Dilution of Common Stock.  Shares of the Companys common stock
eligible for future sale could have a dilutive effect on the market for common
stock and could adversely affect the market price.

22

---



The Articles
of Incorporation of the Company authorize the issuance of 10,000,000 shares of
common stock, of which 2,965,000 were outstanding at December 31, 2007.
Pursuant to its 1997 and 2002 Stock Option Plans, at December 31, 2007, the
Company had outstanding options to purchase 289,782 shares of common stock. As
of December 31, 2007, 20,398 shares of common stock remained available for
grants under the 2002 Stock Option Plan. Sales of substantial amounts of the
Companys common stock in the public market could adversely affect the market
price of common stock.

Operating Losses.  The Company is subject to certain operations
risks, including, but not limited to, data processing system failures and
errors and customer or employee fraud. The Company maintains a system of
internal controls to mitigate against such occurrences and maintains insurance
coverage for such risks, but should such an event occur that is not prevented
or detected by the Companys internal controls, uninsured or in excess of
applicable insurance limits, it could have a significant adverse impact on the
Companys business, financial condition or results of operations.

Business Confidence Uncertainty.
The terrorist actions on September 11, 2001, and thereafter, plus military
actions taken by the United States in Afghanistan, Iraq and elsewhere, have had
significant adverse effects upon the United States economy. Whether terrorist
activities in the future and the actions taken by the United States and its
allies in combating terrorism on a worldwide basis will adversely impact the
Company, and the extent of such impact, is uncertain. However, such events have
had and may continue to have an adverse effect on the economy in the Companys
market areas. Such continued economic deterioration could adversely affect the
Companys future results of operations by, among other matters, reducing the
demand for loans and the amounts required to be reserved for loan losses,
reducing the value of collateral held as security for the Companys loans, and
causing a decline in the Companys stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

FNB
Bancorp does not own any real property. Since its incorporation on February 28,
2001, FNB Bancorp has conducted its operations at the administrative offices of
First National Bank, located at 975 El Camino Real, South San Francisco,
California 94080.

First
National Bank owns the land and building at 975 El Camino Real, South San
Francisco, California 94080. The premises consist of a modern, three-story
building of approximately 15,000 square feet and off-street parking for
employees and customers of approximately 45 vehicles. The Buri Buri Branch
Office of First National Bank is located on the ground floor of this
three-story building and administrative offices, including the offices of
senior management, occupy the second and third floors.

23

---



First
National Bank owns the land and two-story building occupied by the Daly City
Branch Office (6600 Mission Street, Daly City, CA 94014); the land and two-story
building occupied by the Colma Branch Office (1300 El Camino Real, Colma, CA
94014); the land and two-story building occupied by the South San Francisco
Branch Office (211 Airport Boulevard, South San Francisco, CA 94080); the land
and two-story building occupied by the Redwood City Branch Office (700 El
Camino Real, Redwood City, CA 94063); the land and two-story building occupied
by the Millbrae Branch Office (1551 El Camino Real, Millbrae, CA 94030); the
land and single-story building occupied by the Half Moon Bay Branch Office (756
Main Street, Half Moon Bay, CA 94019); and the land and two-story building
occupied by the Pescadero Branch Office (239 Stage Road, Pescadero, CA 94060).
All properties include adequate vehicle parking for customers and employees.

First
National Bank leases premises at 1450 Linda Mar Shopping Center, Pacifica,
California 94044, for its Linda Mar Branch Office. This ground floor space of
approximately 4,100 square feet is leased from Fifty Associates and
Demartini/Linda Mar, LLC. The lease term is 10 years and expires on September
1, 2009.

First
National Bank leases premises at 210 Eureka Square, Pacifica, California 94044,
for its Eureka Square Branch Office. This ground floor space of approximately
3,000 square feet is leased from Joseph A. Sorci and Eldiva Sorci. The lease
term is for 5 years, commencing January 1, 1995, with two 5-year options to
extend the lease term, the second of which has been exercised and expires on
December 31, 2009.

First
National Bank leases premises at 65 Post Street, San Francisco, CA 94104, for
its Financial District Office. The current lease term expires April 30, 2008,
with two 5-year options to extend the lease. The location consists of
approximately 2,826 square feet of street level, 1,322 square feet of basement,
and 1,077 square feet of mezzanine space.

First
National Bank leases premises at 6599 Portola Drive, San Francisco, CA 94127,
for its Portola Office. The current lease expires June 30, 2009, and has a
remaining 5-year option to extend the lease. The location consists of
approximately 1,325 square feet of street level space.

First
National Bank leases premises at 150 East Third Avenue, San Mateo, CA 94401,
for its San Mateo Branch Office. The lease term is for 5 years, which will
expire July 31, 2008. The location consists of approximately 4,000 square feet
of ground floor usable commercial space.

First
National Bank leases a warehouse facility at 450 Cabot Road, South San
Francisco, CA 94080. The lease term is for 5 years and one half month, and will
expire February 28, 2011. The facility consists of approximately 7,600 square
feet of office/warehouse space.

The
foregoing summary descriptions of leased premises are qualified in their
entirety by reference to the full text of the lease agreements listed as
exhibits to this report.

24

---



ITEM 3. LEGAL PROCEEDINGS

There
are no material legal proceedings adverse to the Company or First National Bank
to which any director, officer, affiliate of the Company, or 5% shareholder of
the Company, or any associate of any such director, officer, affiliate or 5%
shareholder of the Company are a party, and none of the foregoing persons has a
material interest adverse to the Company or First National Bank.

From
time to time, the Company and/or First National Bank are a party to claims and
legal proceedings arising in the ordinary course of business. The Companys
management is not aware of any material pending legal proceedings to which
either it or First National Bank may be a party or has recently been a party,
which will have a material adverse effect on the financial condition or results
of operations of the Company and First National Bank, taken as a whole.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

Not
applicable.

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Since
March 18, 2002, the common stock of the Company has been quoted on the OTC
Bulletin Board under the trading symbol, FNBG.OB. There has been limited
trading in the shares of common stock of the Company. On February 15, 2007, the
Company had approximately 400 shareholders of common stock of record.

The
following table summarizes sales of the Common Stock of FNB Bancorp during the
periods indicated of which management of the Bank has knowledge, including the
approximate high and low bid prices during such periods and the per share cash
dividends declared for the periods indicated. All information has been adjusted
to reflect 5% stock dividends effected on December 15, 2006 and on December 14,
2007. The prices indicated below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

25

---



|                 |  |                                         |         |                                 |     |         |  |   |  |  |     
|---------------- |  | --------------------------------------- | ------- | ------------------------------- | --- | ------- |  | - |  |  | ----
|                 |  | Bid Price of FNB Bancorp
  Common Stock |         | Cash
  Dividends
  Declared (1) |    
|                 |  |                                         | High    |                                 | Low |         | 
|                 |  |                                         |         |                                 |     |         |  |  
|2006             |  |                                         |         |                                 |     |         |  |  
|First
  Quarter  |  | $                                       | 35.2400 |                                 | $   | 33.2500 |  | $ |  |  | 0.15
|Second
  Quarter |  |                                         | 36.0000 |                                 |     | 34.4000 |  |   |  |  | 0.15
|Third
  Quarter  |  |                                         | 36.0000 |                                 |     | 34.5000 |  |   |  |  | 0.15
|Fourth
  Quarter |  |                                         | 36.3300 |                                 |     | 34.1250 |  |   |  |  | 0.15
|                 |  |                                         |         |                                 |     |         |  |   |  |  |     
|2007             |  |                                         |         |                                 |     |         |  |   |  |  |     
|First
  Quarter  |  | $                                       | 33.6525 |                                 | $   | 31.7625 |  | $ |  |  | 0.15
|Second
  Quarter |  |                                         | 33.0750 |                                 |     | 31.9200 |  |   |  |  | 0.15
|Third
  Quarter  |  |                                         | 32.0250 |                                 |     | 29.1900 |  |   |  |  | 0.15
|Fourth
  Quarter |  |                                         | 29.0500 |                                 |     | 24.5000 |  |   |  |  | 0.15

|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Item 1,
  Limitations on Dividends, above, for a description of the limitations
  applicable to the payment of dividends by FNB Bancorp.

STOCK PERFORMANCE GRAPH

Set
forth below is a line graph comparing the annual percentage change in the
cumulative total return on FNB Bancorp Common Stock with the cumulative total
return of the SNL Securities Index of Pink Banks (asset size of $100 million to
$500 million and over $500 million) and the Russell 2000 Index as of the end of
each of the last five fiscal years.

The
graph assumes that $100.00 was invested on December 31, 2002 in FNB Bancorp
Common Stock and each index, and that all dividends were reinvested. Returns
have been adjusted for any stock dividends and stock splits declared by FNB
Bancorp. Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.

26

---



|           
|-----------
|           
|FNB Bancorp
|           

(LINE GRAPH)

|                                  |  |               |        |          |  |          |  |          |        |          |  |          |  |  |        |  |  |        | 
|--------------------------------- |  | ------------- | ------ | -------- |  | -------- |  | -------- | ------ | -------- |  | -------- |  |  | ------ |  |  | ------ | 
|                                  |  | Period Ending |       
|                                  |  |               |       
|Index                             |  | 12/31/02      |        | 12/31/03 |  | 12/31/04 |  | 12/31/05 |        | 12/31/06 |  | 12/31/07 | 
|                                  |  |               |        |          |  |          |  |          |        |          |  |          | 
|FNB
  Bancorp                     |  |               | 100.00 |          |  | 132.52   |  |          | 162.03 |          |  | 170.29   |  |  | 173.87 |  |  | 130.84 | 
|Russell
  2000                    |  |               | 100.00 |          |  | 147.25   |  |          | 174.24 |          |  | 182.18   |  |  | 215.64 |  |  | 212.26 | 
|SNL
  Bank Pink $100M-$500M Index |  |               | 100.00 |          |  | 135.83   |  |          | 164.17 |          |  | 182.32   |  |  | 199.57 |  |  | 178.22 | 
|SNL
  Bank Pink > $500M Index     |  |               | 100.00 |          |  | 139.37   |  |          | 163.02 |          |  | 173.49   |  |  | 190.35 |  |  | 175.39 | 

27

---



ISSUER PURCHASES OF EQUITY SECURITIES

On
August 24, 2007, the Board of Directors of the Company authorized a stock
repurchase program which calls for the repurchase of up to five percent (5%) of
the Companys then outstanding 2,863,635 shares of Common Stock, or 143,182
shares. The following table summarizes the shares of FNB Bancorp Common Stock
repurchased during the fiscal quarter ended December 31, 2007.

|                                                |  |                                                        |  |                                                    |  |                                                                                                     |       |                                                                                                                                         |  |        |  |  |         |  | 
|----------------------------------------------- |  | ------------------------------------------------------ |  | -------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------------------------------------------------- |  | ------ |  |  | ------- |  | 
|Period                                          |  | (a)
  Total Number  Of Shares (or
  Units)
  Purchased |  | (b)
  Average
  Price Paid
  Per Share
  (or Unit) |  | (c)
  Number of Shares
  (or Units) Purchased
  As Part of Publicly
  Announced Plans or
  Programs |       | (d)
  Maximum Number (or
  Approximate dollar Value)
  of Shares (or Units) that
  May Yet Be Purchased
  Under the Plans or
  Programs | 
|                                                |  |                                                        |  |                                                    |  |                                                                                                     |       |                                                                                                                                         | 
|Month #1 October 1 through
  October 31, 2007   |  | 16,600                                                 |  |                                                    |  | $                                                                                                   | 29.35 |                                                                                                                                         |  | 16,600 |  |  | 107,582 |  | 
|                                                |  |                                                        |  |                                                    |  |                                                                                                     |       |                                                                                                                                         |  |        |  |  |         |  | 
|Month #2 November 1 through
  November 30, 2007 |  | 5,711                                                  |  |                                                    |  | $                                                                                                   | 28.04 |                                                                                                                                         |  | 5,711  |  |  | 101,871 |  | 
|                                                |  |                                                        |  |                                                    |  |                                                                                                     |       |                                                                                                                                         |  |        |  |  |         |  | 
|Month #3 December 1 through
  December 31, 2007 |  | 2,174                                                  |  |                                                    |  | $                                                                                                   | 25.42 |                                                                                                                                         |  | 2,174  |  |  | 99,697  |  | 
|                                                |  |                                                        |  |                                                    |  |                                                                                                     |       |                                                                                                                                         |  |        |  |  |         |  | 
|Total                                           |  | 24,485                                                 |  |                                                    |  |                                                                                                     |       |                                                                                                                                         |  | 24,485 |  |  |         |  | 
|                                                |  |                                                        |  |                                                    |  |                                                                                                     |       |                                                                                                                                         |  |        |  |  |         |  | 

28

---



ITEM 6 - SELECTED FINANCIAL DATA

The
following table presents a summary of selected financial information that
should be read in conjunction with the Companys consolidated financial
statements and notes thereto included under item 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.

|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|---------------------------------------------------------------------------- | ---- | ----------------------------------------- | --------- | - | ---- | --------- | ---- | - | --------- | - | - | --------- | - | - | --------- | -
|                                                                             |      | At and for the years ended
  December 31, |          
|Dollars in thousands, except per
share amounts and ratios                    |      |                                           |          
|                                                                             | 2007 |                                           | 2006      |   | 2005 |           | 2004 |   | 2003      |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |  
|STATEMENT OF INCOME DATA                                                     |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Total interest income                                                        |      | $                                         | 42,290    |   | $    | 37,196    |      | $ | 30,732    |   | $ | 24,046    |   | $ | 22,867    |  
|Total interest expense                                                       |      |                                           | 13,657    |   |      | 9,821     |      |   | 5,533     |   |   | 2,533     |   |   | 2,658     |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Net interest income                                                          |      |                                           | 28,633    |   |      | 27,375    |      |   | 25,199    |   |   | 21,513    |   |   | 20,209    |  
|Provision for loan losses                                                    |      |                                           | 690       |   |      | 683       |      |   | 628       |   |   | 408       |   |   | 786       |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Net interest income after provision for
  loan losses                        |      |                                           | 27,943    |   |      | 26,692    |      |   | 24,571    |   |   | 21,105    |   |   | 19,423    |  
|Total non interest income                                                    |      |                                           | 4,300     |   |      | 6,259     |      |   | 3,841     |   |   | 3,787     |   |   | 4,021     |  
|Total non interest expenses                                                  |      |                                           | 23,182    |   |      | 21,760    |      |   | 20,255    |   |   | 18,627    |   |   | 17,907    |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Earnings before taxes                                                        |      |                                           | 9,061     |   |      | 11,191    |      |   | 8,157     |   |   | 6,265     |   |   | 5,537     |  
|Income tax expense                                                           |      |                                           | 2,382     |   |      | 3,609     |      |   | 2,429     |   |   | 1,577     |   |   | 1,396     |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Net earnings                                                                 |      | $                                         | 6,679     |   | $    | 7,582     |      | $ | 5,728     |   | $ | 4,688     |   | $ | 4,141     |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|PER SHARE DATA - see note                                                    |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Net earnings per share:                                                      |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Basic                                                                        |      | $                                         | 2.23      |   | $    | 2.54      |      | $ | 1.93      |   | $ | 1.55      |   | $ | 1.35      |  
|Diluted                                                                      |      | $                                         | 2.21      |   | $    | 2.48      |      | $ | 1.89      |   | $ | 1.52      |   | $ | 1.34      |  
|Cash dividends per share                                                     |      | $                                         | 0.60      |   | $    | 0.60      |      | $ | 0.60      |   | $ | 0.60      |   | $ | 0.60      |  
|Weighted average shares outstanding:                                         |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Basic                                                                        |      |                                           | 2,993,000 |   |      | 2,986,000 |      |   | 2,975,000 |   |   | 3,024,000 |   |   | 3,074,000 |  
|Diluted                                                                      |      |                                           | 3,027,000 |   |      | 3,056,000 |      |   | 3,034,000 |   |   | 3,075,000 |   |   | 3,101,000 |  
|Shares outstanding at period end                                             |      |                                           | 2,965,000 |   |      | 2,853,000 |      |   | 2,700,000 |   |   | 2,586,000 |   |   | 2,519,000 |  
|Book value per share                                                         |      | $                                         | 22.44     |   | $    | 21.75     |      | $ | 20.46     |   | $ | 20.35     |   | $ | 20.64     |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|BALANCE SHEET DATA                                                           |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Investment securities                                                        |      |                                           | 94,432    |   |      | 94,945    |      |   | 113,463   |   |   | 102,823   |   |   | 63,692    |  
|Net loans                                                                    |      |                                           | 489,574   |   |      | 419,437   |      |   | 380,224   |   |   | 341,107   |   |   | 313,058   |  
|Allowance for loan losses                                                    |      |                                           | 5,638     |   |      | 5,002     |      |   | 4,374     |   |   | 3,133     |   |   | 3,155     |  
|Total assets                                                                 |      |                                           | 644,465   |   |      | 581,270   |      |   | 569,314   |   |   | 490,255   |   |   | 429,577   |  
|Total deposits                                                               |      |                                           | 499,255   |   |      | 481,567   |      |   | 507,544   |   |   | 413,253   |   |   | 374,214   |  
|Shareholders equity                                                         |      |                                           | 66,545    |   |      | 62,063    |      |   | 55,243    |   |   | 52,629    |   |   | 51,987    |  
|                                                                             |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|SELECTED PERFORMANCE DATA                                                    |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Return on average assets                                                     |      |                                           | 1.07      | % |      | 1.32      | %    |   | 1.08      | % |   | 1.02      | % |   | 1.00      | %
|Return on average equity                                                     |      |                                           | 10.39     | % |      | 12.86     | %    |   | 10.75     | % |   | 8.94      | % |   | 8.00      | %
|Net interest margin                                                          |      |                                           | 5.05      | % |      | 5.26      | %    |   | 5.27      | % |   | 5.14      | % |   | 5.33      | %
|Average loans as a percentage of average
  deposits                          |      |                                           | 91.74     | % |      | 78.92     | %    |   | 77.80     | % |   | 79.98     | % |   | 82.93     | %
|Average total stockholders equity as a
  percentage of average total assets |      |                                           | 10.31     | % |      | 10.25     | %    |   | 10.06     | % |   | 11.37     | % |   | 12.49     | %
|Dividend payout ratio                                                        |      |                                           | 25.69     | % |      | 21.43     | %    |   | 26.92     | % |   | 32.55     | % |   | 35.62     | %
|SELECTED ASSET QUALITY RATIOS                                                |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Net loan charge-offs to average loans                                        |      |                                           | 0.01      | % |      | 0.01      | %    |   | 0.02      | % |   | 0.13      | % |   | 0.30      | %
|Allowance for loan losses/Total Loans                                        |      |                                           | 1.14      | % |      | 1.18      | %    |   | 1.14      | % |   | 0.91      | % |   | 1.00      | %
|CAPITAL RATIOS                                                               |      |                                           |           |   |      |           |      |   |           |   |   |           |   |   |           |  
|Total risk-based                                                             |      |                                           | 11.47     | % |      | 12.00     | %    |   | 11.59     | % |   | 13.50     | % |   | 14.15     | %
|Tier 1 risk-based                                                            |      |                                           | 10.52     | % |      | 11.05     | %    |   | 10.67     | % |   | 12.69     | % |   | 13.30     | %
|Leverage                                                                     |      |                                           | 9.89      | % |      | 10.08     | %    |   | 9.50      | % |   | 10.72     | % |   | 12.06     | %

Note:
per share data has been adjusted for stock dividends.

29

---



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FNB BANCORP AND SUBSIDIARY

Critical Accounting Policies And Estimates

Managements
discussion and analysis of its financial condition and results of operations
are based upon the Companys financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to its loans and allowance for loan losses. The Company
bases its estimates on current market conditions, historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. All adjustments that, in the opinion of
management, are necessary for a fair presentation for the periods presented
have been reflected as require by Regulation S-X, Rule 10-01. The Company
believes the following critical accounting policy requires significant
judgments and estimates used in the preparation of the consolidated financial
statements.

Allowance
for Loan Losses

The
allowance for loan losses is periodically evaluated for adequacy by management.
Factors considered include the Companys loan loss experience, known and
inherent risks in the portfolio, current economic conditions, known adverse
situations that may affect the borrowers ability to repay, regulatory
policies, and the estimated value of underlying collateral. The evaluation of
the adequacy of the allowance is based on the above factors along with
prevailing and anticipated economic conditions that may impact borrowers
ability to repay loans. Determination of the allowance is in part objective and
in part a subjective judgment by management given the information it currently
has in its possession. Adverse changes in any of these factors or the discovery
of new adverse information could result in higher charge-offs and loan loss
provisions.

Goodwill

Goodwill
arises from the Companys purchase price exceeding the fair value of the net
assets of an acquired business. Goodwill represents the value attributable to
intangible elements acquired. The value of this goodwill is supported
ultimately by profit from the acquired business. A decline in earnings could
lead to impairment, which would be recorded as a write-down in the Companys
consolidated statements of income. Events that may indicate goodwill impairment
include significant or adverse changes in results of operations of the acquired
business or asset, economic or political climate; an adverse action or
assessment by a regulator; unanticipated competition; and a
more-likely-than-not expectation that a reporting unit will be sold or disposed
of at a loss.

30

---



Provision
for Income Taxes

The
Company is subject to income tax laws of the United States, its states, and
municipalities in which it operates. The Company considers its income tax
provision methodology to be critical, as the determination of current and
deferred taxes based on complex analyses of many factors including
interpretation of federal and state laws, the difference between tax and
financial reporting bases of assets and liabilities (temporary differences),
estimates of amounts due or owed, the timing of reversals of temporary
differences and current financial standards. Actual results could differ
significantly from the estimates due to tax law interpretations used in
determining the current and deferred income tax liabilities. Additionally,
there can be no assurances that estimates and interpretations used in
determining income tax liabilities may not be challenged by federal and state
taxing authorities.

Recent
Accounting Pronouncements

In
June 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes. This interpretation guides the accounting and
reporting of income taxes where interpretation of the law is uncertain. FIN 48
prescribes a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken in income tax returns. FIN
48 is effective for fiscal years beginning after December 31, 2006. The Company
adopted this Statement on January 1, 2007. As a result of the implementation of
FIN 48, it was not necessary for the Company to recognize any increase in the
liability for unrecognized tax benefits. The total amount of unrecognized tax
benefits as of the adoption of FIN 48, including estimated penalties and
interest, was $35,000 and relates to the level of Enterprise Zone credits that
have been claimed on filed California tax returns. The Company recognizes
interest and penalties accrued related to unrecognized tax benefits in income
tax expense. The statute of limitations for assessment of additional taxes on
income for Federal income and California franchise tax purposes are closed
years prior to 2004 and 2003, respectively.

In
September 2006, FASB issued Statement No. 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement supplements
other accounting pronouncements that require or permit fair value measurements.
This Statement also expands disclosures using fair value to measure assets and
liabilities in interim and annual periods subsequent to the period of initial
recognition. This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The adoption of this standard is not expected to have a
material effect on the Companys financial statements.

31

---



In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
No. 159 The Fair Value Option for Financial Assets and Financial Liabilities 
Including an amendment of FASB Statement No. 115. Statement No. 159 establishes
a fair value option that allows an entity to designate individual financial
assets and liabilities as fair value option instruments. Under the fair
value option, the change in unrealized gains and losses created by the change
in fair value of financial instruments shall be reported in an entitys
earnings for each reporting period. Additional disclosures regarding fair value
for financial assets and liabilities accounting for under the fair value option
are also required. This statement is effective as of the beginning of an
entitys first fiscal year that begins after November 15, 2007. The Company
does not expect this standard to have a material impact on the Companys
financial statements.

In December
2007, the Financial Accounting Standards Board (FASB) announced that it had
revised Statement 141, Business Combinations, with 141(R). The revised
Statement No. 141 was written to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
This Statement establishes principles and requirements for how the acquirer:

| |    |                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Recognizes
  and measures in its financial statements the identifiable assets acquired,
  the liabilities assumed, and any noncontrolling interest in the acquiree
| |    |                                                                                                                                                                   
| | b. | Recognizes
  and measures the goodwill acquired in the business combination or a gain from
  a bargain purchase                                                   
| |    |                                                                                                                                                                   
| | c. | Determines
  what information to disclose to enable users of the financial statements to
  evaluate the nature andfinancial effects of the business combination   

This Statement
applies prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company does not expect this Standard to have a
material effect on the Companys financial statements.

In
December 2007, the Financial Accounting Standards Board (FASB) issued
Statement No. 160, Noncontrolling Interest in Consolidated Financial
Statements  an amendment of ARB No. 51. Statement No. 160 clarifies reporting
and disclosure requirements related to noncontrolling interest included in an
entitys consolidated financial statements. This Statement clarifies that
noncontrolling interests are to be reported in the noncontrolling section of
the balance sheet and requires net income to include amounts from both the
parent and the noncontrolling interest. This Statement also requires the parent
company to recognize a gain or loss in net income when a subsidiary is
deconsolidated. This Statement is effective for fiscal years (and interim
periods within those years), beginning on or after December 15, 2008. The
Company will apply this Statement prospectively and does not expect the
Statement to have a material impact on the Companys financial statements.

32

---



Earnings Analysis

Net
earnings in 2007 were $6,679,000, a $903,000 or a 11.9% decrease from 2006
earnings of $7,582,000. Earnings for the year 2006 increased $1,854,000 or
32.4% from year 2005 earnings of $5,728,000. The primary reason for the
decrease in 2007 and the increase in 2006 was a gain on sale of Pacific Coast
Bankers Bank stock of $1,352,000 recorded in the first quarter of 2006. The
principal source of earnings is interest income on loans. During 2006, the
prime lending rate started at 7.25%, and ended at 8.25%. In 2007, it started at
8.25% and ended at 7.25%.

Basic
earnings per share were $2.23 in 2007, $2.54 in 2006 and $1.93 in 2005. Diluted
earnings per share were $2.21 in 2007; $2.48 in 2006; and $1.89 in 2005.

Net
interest income for 2007 was $28,633,000, an increase of $1,258,000 or 4.6%
from 2006. Net interest income was $27,375,000 in 2006, an increase of
$2,176,000 or 8.6% from 2005. Interest income was $42,290,000 in 2007, an
increase of $5,094,000 or 13.7% over 2006. Interest income was $37,196,000 in
2006, an increase of $6,464,000, or 21.0% over 2005. The increase in net
interest income was caused by an increase in both the rate and volume of
earning assets generated through our existing branch network. Average interest
earning assets in 2007 were $567,245,000, an increase of $46,315,000 or 8.9%
over 2006. In 2006 they were $520,930,000, an increase of $43,097,000 or 9.0%
over 2005. The yield on interest earning assets increased 32 basis points in
2007 compared to 2006. The yield on interest earning assets increased 71 basis
points in 2006 compared to 2005. The principal earning assets were loans, and
average loans outstanding increased $80,269,000 in 2007 versus 2006, while
their yield decreased 10 basis points in 2007 versus 2006. Average loans were
$387,163,000 in 2006, an increase of $23,764,000 over 2005, while their yield
increased 88 basis points.

Interest expense for 2007 was $13,657,000 compared to $9,821,000 in 2006, an
increase of $3,836,000 or 39.1%. Interest expense in 2006 was $9,821,000
compared to $5,533,000 in 2005, an increase of $4,288,000 or 77.5%. The
increase in interest expense during 2007 and 2006 was caused by both a volume
and rate increase on deposits obtained through our existing branch network. No
new branches or significant product lines were added during 2007. Average
interest bearing liabilities were $426,354,000 in 2007 and $386,254,000 in
2006, an increase of $40,100,000 or 10.4%. They were $386,254,000 in 2006, and
$353,857,000 in 2005, an increase of $32,397,000 or 9.2%. The cost of these
liabilities increased 66 basis points in 2007 compared to 2006, and increased
98 basis points in 2006 compared to 2005. The principal cost was in time deposits,
which increased 78 basis points in 2007 compared to 2006, and increased 105
basis points in 2006 compared to 2005.

Net
Interest Income

Net
interest income is the difference between interest yield generated by earning
assets and the interest expense associated with the funding of those assets.
Net interest income is affected by the interest rate earned or paid and by
volume changes in loans, investment securities, deposits and borrowed funds.

33

---



TABLE 1

|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|-------------------------------------------------------- |  | ---------------------------------------- | ------- | ----------------------------- | -- | ------------------------ | - | ----------------- | ----- | ----------------------------- | - | ------------------------ |  | ----------------- | ------ | ----------------------------- |  | ------------------------ | -- | - | ------- |  | -- | ------ | - |  | ----- | -
|                                                         |  | Net Interest Income and Average Balances |        
|                                                         |  | Year ended December 31                   |        
|                                                         |  |                                          |         | 2007                          |    |                          |   |                   |       | 2006                          |   |                          |  |                   |        | 2005                          |  |                          |   
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |   
|(Dollar amounts in thousands)                            |  | Average
  Balance                        |         | Interest
  Income
  (Expense) |    | Average
  Yield
  (Cost) |   | Average
  Balance |       | Interest
  Income
  (Expense) |   | Average
  Yield
  (Cost) |  | Average
  Balance |        | Interest
  Income
  (Expense) |  | Average
  Yield
  (Cost) |   
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |   
|INTEREST EARNING ASSETS                                  |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Loans, gross                                             |  | $                                        | 467,432 |                               | $  | 38,035                   |   |                   | 8.14  | %                             | $ | 387,163                  |  | $                 | 31,898 |                               |  | 8.24                     | %  | $ | 363,399 |  | $  | 26,754 |   |  | 7.36  |  
|Taxable securities                                       |  |                                          | 34,323  |                               |    | 1,733                    |   |                   | 5.05  |                               |   | 62,354                   |  |                   | 2,576  |                               |  | 4.13                     |    |   | 60,408  |  |    | 2,173  |   |  | 3.60  |  
|Nontaxable securities                                    |  |                                          | 56,080  |                               |    | 2,035                    |   |                   | 3.63  |                               |   | 57,580                   |  |                   | 2,039  |                               |  | 3.54                     |    |   | 44,628  |  |    | 1,512  |   |  | 3.39  |  
|Federal funds sold                                       |  |                                          | 9,410   |                               |    | 487                      |   |                   | 5.18  |                               |   | 13,833                   |  |                   | 683    |                               |  | 4.94                     |    |   | 9,398   |  |    | 293    |   |  | 3.12  |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Total interest earning assets                            |  | $                                        | 567,245 |                               | $  | 42,290                   |   |                   | 7.46  |                               | $ | 520,930                  |  | $                 | 37,196 |                               |  | 7.14                     |    | $ | 477,833 |  | $  | 30,732 |   |  | 6.43  |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|NONINTEREST EARNING ASSETS:                              |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Cash and due from banks                                  |  | $                                        | 17,487  |                               |    |                          |   |                   |       |                               | $ | 19,384                   |  |                   |        |                               |  |                          |    | $ | 19,758  |  |    |        |   |  |       |  
|Premises and equipment                                   |  |                                          | 13,735  |                               |    |                          |   |                   |       |                               |   | 12,875                   |  |                   |        |                               |  |                          |    |   | 11,896  |  |    |        |   |  |       |  
|Other assets                                             |  |                                          | 24,924  |                               |    |                          |   |                   |       |                               |   | 21,927                   |  |                   |        |                               |  |                          |    |   | 20,254  |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Total noninterest earning assets                         |  | $                                        | 56,146  |                               |    |                          |   |                   |       |                               | $ | 54,186                   |  |                   |        |                               |  |                          |    | $ | 51,908  |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|TOTAL ASSETS                                             |  | $                                        | 623,391 |                               |    |                          |   |                   |       |                               | $ | 575,116                  |  |                   |        |                               |  |                          |    | $ | 529,741 |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|INTEREST BEARING LIABILITIES:                            |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Deposits:                                                |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Demand, interest bearing                                 |  | $                                        | 59,491  |                               | ($ | 416                      | ) |                   | (0.70 | )                             | $ | 62,382                   |  | ($                | 338    | )                             |  | (0.54                    | )% | $ | 57,478  |  | ($ | 168    | ) |  | (0.29 | )
|Money market                                             |  |                                          | 136,672 |                               |    | (4,656                   | ) |                   | (3.41 | )                             |   | 119,779                  |  |                   | (3,423 | )                             |  | (2.86                    | )  |   | 110,488 |  |    | (1,888 | ) |  | (1.71 | )
|Savings                                                  |  |                                          | 48,633  |                               |    | (247                     | ) |                   | (0.51 | )                             |   | 53,965                   |  |                   | (264   | )                             |  | (0.49                    | )  |   | 58,820  |  |    | (181   | ) |  | (0.31 | )
|Time deposits                                            |  |                                          | 140,934 |                               |    | (6,210                   | ) |                   | (4.41 | )                             |   | 132,497                  |  |                   | (4,814 | )                             |  | (3.63                    | )  |   | 124,004 |  |    | (3,203 | ) |  | (2.58 | )
|Fed Home Loan Bank advances                              |  |                                          | 39,482  |                               |    | (2,070                   | ) |                   | (5.24 | )                             |   | 15,863                   |  |                   | (880   | )                             |  | (5.55                    | )  |   | 1,644   |  |    | (41    | ) |  | (2.49 | )
|Fed funds purchased                                      |  |                                          | 1,142   |                               |    | (58                      | ) |                   | (5.08 | )                             |   | 1,768                    |  |                   | (102   | )                             |  | (5.77                    | )  |   | 1,423   |  |    | (52    | ) |  | (3.65 | )
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Total interest bearing liabilities                       |  | $                                        | 426,354 |                               | ($ | 13,657                   | ) |                   | (3.20 | )                             | $ | 386,254                  |  | ($                | 9,821  | )                             |  | (2.54                    | )  | $ | 353,857 |  | ($ | 5,533  | ) |  | (1.56 | )
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|NONINTEREST BEARING LIABILITIES:                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Demand deposits                                          |  |                                          | 123,766 |                               |    |                          |   |                   |       |                               |   | 121,957                  |  |                   |        |                               |  |                          |    |   | 116,331 |  |    |        |   |  |       |  
|Other liabilities                                        |  |                                          | 8,977   |                               |    |                          |   |                   |       |                               |   | 7,944                    |  |                   |        |                               |  |                          |    |   | 6,284   |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Total noninterest bearing  liabilities                   |  | $                                        | 132,743 |                               |    |                          |   |                   |       |                               | $ | 129,901                  |  |                   |        |                               |  |                          |    | $ | 122,615 |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|Total liabilities                                        |  | $                                        | 559,097 |                               |    |                          |   |                   |       |                               | $ | 516,155                  |  |                   |        |                               |  |                          |    | $ | 476,472 |  |    |        |   |  |       |  
|Stockholders equity                                     |  | $                                        | 64,294  |                               |    |                          |   |                   |       |                               | $ | 58,961                   |  |                   |        |                               |  |                          |    | $ | 53,269  |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY               |  | $                                        | 623,391 |                               |    |                          |   |                   |       |                               | $ | 575,116                  |  |                   |        |                               |  |                          |    | $ | 529,741 |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  
|NET INTEREST INCOME AND MARGIN ON TOTAL
  EARNING ASSETS |  |                                          |         |                               | $  | 28,633                   |   |                   | 5.05  | %                             |   |                          |  | $                 | 27,375 |                               |  | 5.26                     | %  |   |         |  | $  | 25,199 |   |  | 5.27  | %
|                                                         |  |                                          |         |                               |    |                          |   |                   |       |                               |   |                          |  |                   |        |                               |  |                          |    |   |         |  |    |        |   |  |       |  

Interest
income is reflected on an actual basis, not on a fully taxable equivalent
basis. Yields on gross loans were not adjusted for nonaccrual loans, as these
were considered not material for this calculation. Fee income included in
interest income was $1,593,000 in 2007, $1,445,000 in 2006 and $1,318,000 in
2005.

34

---



The following
table analyzes the dollar amount of change in interest income and expense and
the changes in dollar amounts attributable to (a) changes in volume (changes in
volume at the current year rate), (b) changes in rate (changes in rate times the
prior years volume) and (c) changes in rate/volume (changes in rate times
changes in volume). In this table, the dollar change in rate/volume is prorated
to volume and rate proportionately.

TABLE 2

|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|------------------------------- |  | ------------------------------------------- | ----- | ------------------------------------------- | ------ | --------------------------------------- | - | -------------------------- | ------ | ------ | - | ----- |  | - | ----- |  | - | ----- | -
|                                |  | Rate/Volume Variance Analysis               |      
|                                |  |                                             |      
|(Dollar
  amounts in thousands) |  | Year Ended December 31                      |      
|                                |  |                                             |      
|                                |  | 2007 compared to 2006
  Increase (decrease) |       | 2006 compared to 2005
  Increase (decrease) |       
|                                |  | Interest
  Income/
  Expense
  Variance     |       | Variance
  Attributable To                  |        | Interest
  Income/
  Expense
  Variance |   | Variance
  Attributable To |       
|                                |  |                                             | Rate  |                                             | Volume |                                         |   | Rate                       |        | Volume |  
|INTEREST EARNING ASSETS:        |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Loans                           |  | $                                           | 6,137 |                                             | -$     | 394                                     |   | $                          | 6,531  |        | $ | 5,144 |  | $ | 3,186 |  | $ | 1,958 |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Taxable securities              |  |                                             | (843  | )                                           |        | 315                                     |   |                            | (1,158 | )      |   | 403   |  |   | 333   |  |   | 70    |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Nontaxable securities           |  |                                             | (4    | )                                           |        | 49                                      |   |                            | (53    | )      |   | 527   |  |   | 88    |  |   | 439   |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Federal funds sold              |  |                                             | (196  | )                                           |        | 33                                      |   |                            | (229   | )      |   | 390   |  |   | 171   |  |   | 219   |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Total                           |  | $                                           | 5,094 |                                             | $      | 3                                       |   | $                          | 5,091  |        | $ | 6,464 |  | $ | 3,778 |  | $ | 2,686 |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|INTEREST BEARING LIABILITIES:   |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Demand deposits                 |  | $                                           | 78    |                                             | $      | 94                                      |   | -$                         | 16     |        | $ | 170   |  | $ | 156   |  | $ | 14    |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Money market                    |  |                                             | 1,233 |                                             |        | 658                                     |   |                            | 575    |        |   | 1,535 |  |   | 1269  |  |   | 266   |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Savings deposits                |  |                                             | (17   | )                                           |        | 10                                      |   |                            | (27    | )      |   | 83    |  |   | 107   |  |   | (24   | )
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Time deposits                   |  |                                             | 1,396 |                                             |        | 1,089                                   |   |                            | 307    |        |   | 1,611 |  |   | 1392  |  |   | 219   |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Federal Home Loan Bank advances |  |                                             | 1,190 |                                             |        | (48                                     | ) |                            | 1,238  |        |   | 839   |  |   | 50    |  |   | 789   |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Federal funds purchased         |  |                                             | (44   | )                                           |        | (12                                     | ) |                            | (32    | )      |   | 50    |  |   | 30    |  |   | 20    |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|Total                           |  | $                                           | 3,836 |                                             | $      | 1,791                                   |   | $                          | 2,045  |        | $ | 4,288 |  | $ | 3,004 |  | $ | 1,284 |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  
|NET INTEREST INCOME             |  | $                                           | 1,258 |                                             | -$     | 1,788                                   |   | $                          | 3,046  |        | $ | 2,176 |  | $ | 774   |  | $ | 1,402 |  
|                                |  |                                             |       |                                             |        |                                         |   |                            |        |        |   |       |  |   |       |  |   |       |  

35

---



In
2007, net interest income represented 86.94% of net revenue (net interest
income plus noninterest income) compared to 81.39% in 2006 and 86.77% in 2005.
The net interest margin on average earning assets was 5.05% in 2007 compared to
5.26% in 2006 and 5.27% in 2005. The average rate earned on interest earning
assets was 7.46% in 2007, up from 7.14% in 2006, and 6.43% in 2005. The average
cost for interest-bearing liabilities was 3.20% in 2007 compared to 2.54% in
2006 and 1.56% in 2005.

As
mentioned above under the heading Earnings Analysis, there were increases in
the prime lending rate during 2006, followed by decreases from 8.25% at the end
of 2006 to 7.25% at the end of 2007, as a result of action by the Federal Open
Market Committee of the Federal Reserve, which affected interest-bearing assets
and interest-bearing liabilities.

Yield
on average loans was 8.14% in 2007, decreasing from 8.24% in 2006 and 7.36% in
2005. Interest on average taxable securities was 5.05% in 2007, increasing from
4.13% in 2006 and 3.60% in 2005. Interest on average nontaxable securities was
3.63% in 2007, 3.54% in 2006, and 3.39% in 2005. Interest on average federal
funds sold was 5.18% in 2007, 4.94% in 2006, and 3.12% in 2005. Interest on
average total interest earning assets was 7.46% in 2007, 7.14% in 2006, and
6.43% in 2005. On the expense side, interest on average interest bearing demand
deposits was 0.70% in 2007, 0.54% in 2006, and 0.29% in 2005. Interest on
average money market accounts was 3.41% in 2007, 2.86% in 2006, and 1.71% in
2005. Interest on average savings accounts was 0.51% in 2007, 0.49% in 2006,
and 0.31% in 2005. Interest on average time deposits was 4.41% in 2007, 3.63%
in 2006, and 2.58% in 2005. Interest on average Federal Home Loan Bank advances
was 5.24% in 2007, 5.55% in 2006, and 2.49% in 2005. Interest on federal funds
purchased was 5.08% in 2007, 5.77% in 2006, and 3.03% in 2005. Interest on
average total interest bearing liabilities was 3.20% in 2007, 2.54% in 2006,
and 1.56% in 2005. Yields on total average interest earning assets and total
average interest bearing liabilities increased in 2007, 2006 and 2005 as a
result of increased short term market interest rates. There were no new
branches added in 2007.

Allowance
For Loan Losses

The
Bank has the responsibility of assessing the overall risks in its loan
portfolio, assessing the specific loss expectancy, and determining the adequacy
of the loan loss reserve. The level of reserves is determined by internally
generating credit quality ratings, reviewing economic conditions in the Banks
market area, and considering the Banks historical loan loss experience. The
Bank is committed to maintaining adequate reserves, identifying credit
weaknesses by consistent review of loans, and maintaining the risk ratings and
changing those risk ratings in a timely manner as circumstances change.

During
2006, the Bank provided a reserve for unfunded loan commitments in a separate
account in Other Liabilities. The Allowance for Loan Losses in Table 3 has been
reclassified for prior years to agree with the current year presentation.

36

---



Real
estate loans outstanding increased by $33,395,000 in 2007 compared to 2006.
They increased $15,842,000 in 2006 compared to 2005. The proportion of the
Allowance for Loan Losses attributable to real estate loans was $3,669,000 in
2007 compared to $3,864,000 in 2006 and compared to $3,373,000 in 2005.

As
a percentage of total loans, the allowance allocated to these loans was 71.1%
in 2007, 74.9% in 2006, and 78.5% in 2005. The real estate loan growth in 2007
and 2006 was primarily the result of increased market penetration within our
existing market area. The perceived risk in the Real Estate loan portfolio has
decreased slightly in 2006 and 2007. However, a larger proportion has been
allocated to Construction loans, which carry a greater degree of risk.

The
allowance for loan losses totaled $5,638,000, $5,002,000 and $4,374,000 at
December 31, 2007, 2006, and 2005, respectively. This represented 1.14%, 1.18%
and 1.14% of total loans outstanding on those dates. These balances reflect
amounts that, in managements judgment, are adequate to provide for probable
loan losses based on the considerations listed above. During 2007, the
provision for loan losses was $690,000, and the charge-offs were $80,000. In
2006, the provision for loan losses was $683,000, while charge-offs were
$59,000. In 2005, the provision for loan losses was $628,000, while charge-offs
were $110,000.

TABLE 3

|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |       |  |  |       |   |   |       |  |  |       |  
|------------- |  | ------------------------------------------- | ----- | ----------------------------------------------- |  | ------ | - | ----------------------------------------------- | ----- | ------ |  | ----------------------------------------------- | - | ------ | ----- | ----------------------------------------------- |  | ------ | - | ----------------------------------------------- | ----- |  |  | ----- | - | - | ----- |  |  | ----- | -
|              |  | Allocation of the Allowance for Loan Losses |      
|              |  |                                             |      
|              |  | (Dollar amounts in thousands)               |      
|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |      
|              |  |                                             |       | 2007                                            |  |        |   | 2006                                            |       |        |  | 2005                                            |   |        |       | 2004                                            |  |        |   | 2003                                            |      
|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |      
|              |  | Amount                                      |       | Percent
  in each
  category
  to total
  Loans |  | Amount |   | Percent
  in each
  category
  to total
  Loans |       | Amount |  | Percent
  in each
  category
  to total
  Loans |   | Amount |       | Percent
  in each
  category
  to total
  Loans |  | Amount |   | Percent
  in each
  category
  to total
  Loans |      
|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |      
|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |      
|Real
  Estate |  | $                                           | 3,669 |                                                 |  | 71.1   | % | $                                               | 3,864 |        |  | 74.9                                            | % | $      | 3,373 |                                                 |  | 78.5   | % | $                                               | 1,940 |  |  | 73.9  | % | $ | 1,672 |  |  | 67.5  | %
|Construction  |  |                                             | 1,576 |                                                 |  | 11.6   | % |                                                 | 539   |        |  | 8.7                                             | % |        | 365   |                                                 |  | 6.8    | % |                                                 | 755   |  |  | 8.4   | % |   | 1,272 |  |  | 15.3  | %
|Commercial    |  |                                             | 370   |                                                 |  | 16.6   | % |                                                 | 582   |        |  | 15.6                                            | % |        | 611   |                                                 |  | 13.8   | % |                                                 | 415   |  |  | 17.0  | % |   | 185   |  |  | 16.4  | %
|Consumer      |  |                                             | 23    |                                                 |  | 0.7    | % |                                                 | 17    |        |  | 0.8                                             | % |        | 25    |                                                 |  | 0.9    | % |                                                 | 23    |  |  | 0.7   | % |   | 26    |  |  | 0.8   | %
|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |      
|Total         |  | $                                           | 5,638 |                                                 |  | 100.0  | % | $                                               | 5,002 |        |  | 100.0                                           | % | $      | 4,374 |                                                 |  | 100.0  | % | $                                               | 3,133 |  |  | 100.0 | % | $ | 3,155 |  |  | 100.0 | %
|              |  |                                             |       |                                                 |  |        |   |                                                 |       |        |  |                                                 |   |        |       |                                                 |  |        |   |                                                 |       |  |  |       |   |   |       |  |  |       |  

Table
4 summarizes transactions in the allowance for loan losses and details the
charge-offs, recoveries and net loan losses by loan category for each of the
last five fiscal years ended December 31, 2007. The amount added to the
provision and charged to operating expenses for each period is based on the
risk profile of the loan portfolio.

37

---



TABLE 4

|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|---------------------------------------------- |  | ------------------------------- | ----- | ---- | - | ------ | - | ---- | -------- | ---- | - | ------ | - | - | ----- | -
|                                               |  | Allowance for Loan Losses       |      
|                                               |  | Historical Analysis             |      
|                                               |  |                                 |      
|                                               |  | For the year ended December 31, |      
|(Dollar
  amounts in thousands)                |  | 2007                            |       | 2006 |   | 2005   |   | 2004 |          | 2003 |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |  
|Balance at Beginning of Period                 |  | $                               | 5,002 |      | $ | 4,374  |   | $    | 3,133    |      | $ | 3,155  |   | $ | 3,261 |  
|Provision for Loan Losses                      |  |                                 | 690   |      |   | 683    |   |      | 628      |      |   | 408    |   |   | 786   |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Charge-offs:                                   |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Real Estate                                    |  |                                 | (48   | )    |   | 0      |   |      | (70      | )    |   | (383   | ) |   | (739  | )
|Commercial                                     |  |                                 | (19   | )    |   | (49    | ) |      | (34      | )    |   | (31    | ) |   | (110  | )
|Consumer                                       |  |                                 | (13   | )    |   | (10    | ) |      | (6       | )    |   | (17    | ) |   | (47   | )
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Total                                          |  |                                 | (80   | )    |   | (59    | ) |      | (110     | )    |   | (431   | ) |   | (896  | )
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Recoveries:                                    |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Real Estate                                    |  |                                 | 15    |      |   | 0      |   |      | 0        |      |   | 0      |   |   | 0     |  
|Commercial                                     |  |                                 | 10    |      |   | 3      |   |      | 22       |      |   | 0      |   |   | 2     |  
|Consumer                                       |  |                                 | 1     |      |   | 1      |   |      | 1        |      |   | 1      |   |   | 2     |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Total                                          |  |                                 | 26    |      |   | 4      |   |      | 23       |      |   | 1      |   |   | 4     |  
|Net Charge-offs                                |  |                                 | (54   | )    |   | (55    | ) |      | (87      | )    |   | (430   | ) |   | (892  | )
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Allowance acquired in business combination     |  |                                 | ─     |      |   | ─      |   |      | 700      |      |   | ─      |   |   | ─     |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Balance at End of Period                       |  | $                               | 5,638 |      | $ | 5,002  |   | $    | 4,374    |      | $ | 3,133  |   | $ | 3,155 |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|                                               |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Percentages                                    |  |                                 |       |      |   |        |   |      |          |      |   |        |   |   |       |  
|Allowance for Loan Losses/Total Loans          |  |                                 | 1.14  | %    |   | 1.18   | % |      | 1.14     | %    |   | 0.92   | % |   | 1.00  | %
|Net charge-offs/Real Estate Loans              |  |                                 | 0.01  | %    |   | 0.00   | % |      | 0.02     | %    |   | 0.15   | % |   | 0.34  | %
|Net charge-offs/Commercial Loans               |  |                                 | 0.01  | %    |   | 0.07   | % |      | 0.02     | %    |   | 0.05   | % |   | 0.21  | %
|Net charge-offs/consumer Loans                 |  |                                 | 0.33  | %    |   | 0.27   | % |      | 0.15     | %    |   | 0.62   | % |   | 1.76  | %
|Net charge-offs/Total Loans                    |  |                                 | 0.01  | %    |   | 0.01   | % |      | 0.02     | %    |   | 0.13   | % |   | 0.28  | %
|Allowance for Loan Losses/Non-Performing loans |  |                                 | 49.18 | %    |   | 190.33 | % |      | 25729.41 | %    |   | 111.97 | % |   | 34.73 | %

Non-performing Assets.

Non-performing
assets consist of nonaccrual loans, foreclosed assets, and loans that are 90
days or more past due but are still accruing interest. The accrual of interest
on non-accrual loans is discontinued when, in managements opinion, the
borrower may be unable to meet payments as they become due. For the years ended
December 31, 2007, 2006 and 2005, had non-accrual loans performed as agreed,
approximately $547,000, $70,000 and $2,000, respectively, would have accrued in
additional interest.

38

---



At
December 31, 2007, nonaccrual loans totaled $11,465,000. At December 31, 2006,
nonaccrual loans totaled $2,628,000. At December 31, 2005, nonaccrual loans
totalled $17,000.

Table
5 provides a summary of contractually past due loans for the most recent five
years. Nonperforming loans were 2.4% of total loans at December 31, 2007
compared to 0.6% of total loans at December 31, 2006 and less than 0.01% at
December 31, 2005. Management believes the current list of past due loans are
collectible and does not anticipate significant losses. Nonperforming loans at
December 31, 2007 include four Real Estate loans, compared to one real Estate
loan at December 31, 2006. The Real Estate loan at year end 2006 has since paid
off.

TABLE 5

|                                 |  |                                  |        |      |   |       |  |      |    |      |   |       |  |   |       | 
|-------------------------------- |  | -------------------------------- | ------ | ---- | - | ----- |  | ---- | -- | ---- | - | ----- |  | - | ----- | 
|                                 |  | Analysis of Nonperforming Assets |       
|                                 |  |                                  |       
|                                 |  | Year ended December 31           |       
|                                 |  |                                  |       
|(Dollar
  amounts in thousands)  |  | 2007                             |        | 2006 |   | 2005  |  | 2004 |    | 2003 |  
|                                 |  |                                  |        |      |   |       |  |      |    |      |  
|                                 |  |                                  |       
|Accruing
  loans 90 days or more |  | $                                | 0      |      | $ | 0     |  | $    | 0  |      | $ | 0     |  | $ | 0     | 
|Nonaccrual
  loans               |  |                                  | 11,465 |      |   | 2,628 |  |      | 17 |      |   | 2,798 |  |   | 9,085 | 
|Other
  real estate owned        |  |                                  | 440    |      |   | 0     |  |      | 0  |      |   | 0     |  |   | 0     | 
|                                 |  |                                  |        |      |   |       |  |      |    |      |   |       |  |   |       | 
|Total                            |  | $                                | 11,905 |      | $ | 2,628 |  | $    | 17 |      | $ | 2,798 |  | $ | 9,085 | 
|                                 |  |                                  |        |      |   |       |  |      |    |      |   |       |  |   |       | 

There was no
commitment to lend additional funds to any customer whose loan was classified
as nonperforming at December 31, 2007, 2006 or 2005.

Noninterest Income

The
following table sets forth the principal components of noninterest income:

TABLE 6

|                                                               |  |                          |       |               |   |               |   |        |       |         |    |        |   |         |        |   |   |       |   |  |      |  
|-------------------------------------------------------------- |  | ------------------------ | ----- | ------------- | - | ------------- | - | ------ | ----- | ------- | -- | ------ | - | ------- | ------ | - | - | ----- | - |  | ---- | -
|                                                               |  | Noninterest Income       |       |               |   |               |  
|                                                               |  |                          |       | Variance      |   | Variance      |  
|                                                               |  | Years ended December 31, |       |               |   |               |  
|                                                               |  |                          |       | 2007 vs. 2006 |   | 2006 vs. 2005 |  
|(Dollar
  amounts in thousands)                                |  | 2007                     |       | 2006          |   | 2005          |   | Amount |       | Percent |    | Amount |   | Percent |       
|                                                               |  |                          |       |               |   |               |   |        |       |         |    |        |   |         |       
|                                                               |  |                          |      
|Service charges                                                |  | $                        | 2,580 |               | $ | 2,463         |   | $      | 2,305 |         | $  | 117    |   |         | 4.8    | % | $ | 158   |   |  | 6.9  | %
|Credit card fees                                               |  |                          | 778   |               |   | 839           |   |        | 856   |         |    | (61    | ) |         | -7.3   | % |   | (17   | ) |  | -2.0 | %
|Gain on sale of other equity securities                        |  |                          |      |               |   | 1,352         |   |        |      |         |    | -1,352 |   |         | -100.0 | % |   | 1,352 |   |  | *    |  
|Gain on sale of other real estate owned                        |  |                          |      |               |   | 756           |   |        |      |         |    | -756   |   |         | -100.0 | % |   | 756   |   |  | *    |  
|Gain (loss) on write-down and sales of
  investment securities |  |                          | 4     |               |   | (11           | ) |        | (101  | )       |    | 15     |   |         | 136.4  | % |   | 90    |   |  | 89.1 | %
|Other income                                                   |  |                          | 938   |               |   | 860           |   |        | 781   |         |    | 78     |   |         | 9.1    | % |   | 79    |   |  | 10.1 | %
|                                                               |  |                          |       |               |   |               |   |        |       |         |    |        |   |         |        |   |   |       |   |  |      |  
|Total noninterest income                                       |  | $                        | 4,300 |               | $ | 6,259         |   | $      | 3,841 |         | ($ | 1,959  | ) |         | -31.3  | % | $ | 2,418 |   |  | 63.0 | %
|                                                               |  |                          |       |               |   |               |   |        |       |         |    |        |   |         |        |   |   |       |   |  |      |  

Total
noninterest income for the year ended December 31, 2007 was $4,300,000 compared
to $6,259,000 at December 31, 2006 and $3,841,000 at December 31, 2005. After a
gain on sale of other equity securities of $1,352,000 related to the sale of
Pacific Coast Bankers Bank stock and a gain of $756,000 on sale of other real
estate owned in 2006, service charges and credit card fees represented the
major portion of noninterest income. In 2005, the
Bank recognized impairment charges of $116,000, representing the other than
temporary impaired value of one security investment. The principal source of
Other Income was Tax Free Income on Officers Life Insurance, which was
$364,000, $304,000 and $310,000 in the years 2007, 2006 and 2005, respectively,
which reflected an increased investment in this insurance.

39

---



Noninterest
Expenses

The
following table sets forth the various components of noninterest expense:

TABLE 7

|                                |  |                          |        |               |   |               |  |          |        |          |   |        |  |         |   |  |   |       |   |       |   | 
|------------------------------- |  | ------------------------ | ------ | ------------- | - | ------------- |  | -------- | ------ | -------- | - | ------ |  | ------- | - |  | - | ----- | - | ----- | - | 
|                                |  | Noninterest Expenses     |        |               |   |               | 
|                                |  |                          |        |               |   |               | 
|                                |  |                          |        |               |   |               |  | Variance |        | Variance |  
|                                |  | Years ended December 31, |        |               |   |               | 
|                                |  |                          |        | 2007 vs. 2006 |   | 2006 vs. 2005 | 
|(Dollar
  amounts in thousands) |  | 2007                     |        | 2006          |   | 2005          |  | Amount   |        | Percent  |   | Amount |  | Percent |  
|                                |  |                          |        |               |   |               |  |          |        |          |   |        |  |         |  
|                                |  |                          |       
|Salaries and employee benefits  |  | $                        | 12,778 |               | $ | 12,300        |  | $        | 11,344 |          | $ | 478    |  | 3.9     | % |  | $ | 956   |   | 8.4   | % | 
|Occupancy expense               |  |                          | 1,975  |               |   | 1,728         |  |          | 1,444  |          |   | 247    |  | 14.3    | % |  |   | 284   |   | 19.7  | % | 
|Equipment expense               |  |                          | 1,620  |               |   | 1,665         |  |          | 1,624  |          |   | -45    |  | -2.7    | % |  |   | 41    |   | 2.5   | % | 
|Professional fees               |  |                          | 1,303  |               |   | 1,278         |  |          | 952    |          |   | 25     |  | 2.0     | % |  |   | 326   |   | 34.2  | % | 
|Telephone, postage, supplies    |  |                          | 1,017  |               |   | 1,056         |  |          | 939    |          |   | -39    |  | -3.7    | % |  |   | 117   |   | 12.5  | % | 
|Advertising expense             |  |                          | 942    |               |   | 770           |  |          | 710    |          |   | 172    |  | 22.3    | % |  |   | 60    |   | 8.5   | % | 
|Bankcard expenses               |  |                          | 708    |               |   | 797           |  |          | 802    |          |   | -89    |  | -11.2   | % |  |   | (5    | ) | -0.6  | % | 
|Data processing expense         |  |                          | 503    |               |   | 452           |  |          | 416    |          |   | 51     |  | 11.3    | % |  |   | 36    |   | 8.7   | % | 
|Surety insurance                |  |                          | 502    |               |   | 479           |  |          | 555    |          |   | 23     |  | 4.8     | % |  |   | (76   | ) | -13.7 | % | 
|Director expense                |  |                          | 195    |               |   | 207           |  |          | 180    |          |   | -12    |  | -5.8    | % |  |   | 27    |   | 15.0  | % | 
|Other                           |  |                          | 1,639  |               |   | 1,028         |  |          | 1,289  |          |   | 611    |  | 59.4    | % |  |   | (261  | ) | -20.2 | % | 
|                                |  |                          |        |               |   |               |  |          |        |          |   |        |  |         |   |  |   |       |   |       |   | 
|Total noninterest expense       |  | $                        | 23,182 |               | $ | 21,760        |  | $        | 20,255 |          | $ | 1,422  |  | 6.5     | % |  | $ | 1,505 |   | 7.4   | % | 
|                                |  |                          |        |               |   |               |  |          |        |          |   |        |  |         |   |  |   |       |   |       |   | 

Total
noninterest expenses for the year ended December 31, 2007 were $23,182,000
compared to $21,760,000 for the year ended December 31, 2006, an increase of
$1,347,000 or 6.2%. For the year ended December 31, 2006, they were
$21,760,000, an increase of $1,505,000 or 7.4%, compared to $20,255,000 for the
year ended December 31, 2005. Increases in noninterest expenses in 2007 and
2006 were partly attributable to the acquisition of Sequoia National Bank in
the second quarter of 2005. Salaries and employee benefits were $12,778,000 in
2007, $12,300,000 in 2006 and $11,344,000 in 2005. Salaries and employee
benefits represent over 50% of noninterest expense. They increased by 3.9% in
2007 over 2006. In 2006 they were 8.4% over 2005. Occupancy expense increases
resulted from the acquisition of the two Sequoia National Bank branches, which affected
eight months in 2005, and a full year in 2006 and 2007. Continued expenses
related to compliance with various Acts, such as the Sarbanes-Oxley Act, the
Patriot Act, and the Gramm-Leach-Bliley Act, are reflected in the level of
expenses in professional fees. Advertising expense continued to increase from
$710,000 in 2005 to $770,000 in 2006 and $942,000 in 2007. This reflects
greater advertising in the media, particularly the addition of TV advertising
in 2007. All other expense declined $261,000 between 2005 and 2006. The
principal item was acquisition related expense, which was $339,000 in 2005, but
none in 2006. This decline was offset in 2006 by net of increases in all other
categories of $78,000. Between 2006 and 2007, all other expense increased by
$611,000. The principal
increase was $219,000 in Low Income Housing investments current year losses,
while remaining categories increased by a total of $392,000.

40

---



Balance Sheet Analysis

Total
assets of the Company were $644,465,000 at December 31, 2007, an increase of
10.9% over 2006. Total assets were $581,270,000 at December 31, 2006, an
increase of 2.1% over 2005. Assets averaged $623.4 million in 2007, compared to
$575.1 million in 2006 and $529.7 million in 2005. Average earning assets
increased from $477.8 million in 2005 to $520.9 million in 2006 and $567.2 in
2007. Average earning assets represented 90.2% of total average assets in 2005,
90.6% in 2006 and 91.0% in 2007. Average interest-bearing liabilities were
$353.9 million in 2005, $386.3 million in 2006 and $426.4 million in 2007.

Loans

The
loan portfolio is the principal earning asset of the Bank. Loans outstanding at
December 31, 2007 increased by $70.8 million or 16.7% over December 31, 2006.
In December 31, 2006 they increased by $39.8 million or 10.4% over December 31,
2005.           Real estate
loans increased by $33.4 million or 10.5% in 2007 compared to 2006 and $15.8
million or 5.2% in 2006 compared to 2005. Construction loans increased by $20.3
million or 54.6% in 2007 compared to 2006 and increased by $10.9 million or
41.3% in 2006 compared to 2005. Commercial loans increased by $16.1 million in
2007 or 24.3%, and increased by $13.1 million or 24.6% in 2006 compared to
2005. Consumer loans represent a nominal portion of total loans. They increased
by $0.4 million in 2007 or 10.9%, but decreased $0.1 million in 2006 or 4.1%
compared to 2005. During 2006, the Bank purchased single family loans totaling
$15,147,000, of which $12,831,000 was outstanding as of December 31, 2006 and
$12,136,000 as of December 31, 2007.

Table
8 presents a detailed analysis of loans outstanding at December 31, 2003
through December 31, 2007.

TABLE 8

|                                |  |                |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|------------------------------- |  | -------------- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                |  | Loan Portfolio |        
|                                |  |                |        
|                                |  | December 31    |        
|                                |  |                |        
|(Dollar
  amounts in thousands) |  | 2007           |         | 2006 |   | 2005    |   | 2004 |         | 2003 |  
|                                |  |                |         |      |   |         |   |      |         |      |  
|Real
  Estate loans             |  | $              | 352,050 |      | $ | 318,655 |   | $    | 302,813 |      | $ | 255,433 |   | $ | 214,588 |  
|Construction
  loans            |  |                | 57,362  |      |   | 37,094  |   |      | 26,243  |      |   | 28,997  |   |   | 48,610  |  
|Commercial
  loans              |  |                | 82,228  |      |   | 66,139  |   |      | 53,070  |      |   | 58,849  |   |   | 52,248  |  
|Consumer
  loans                |  |                | 3,636   |      |   | 3,279   |   |      | 3,420   |      |   | 2,589   |   |   | 2,551   |  
|                                |  |                |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Sub total                       |  |                | 495,276 |      |   | 425,167 |   |      | 385,546 |      |   | 345,868 |   |   | 317,997 |  
|Net
  deferred loan fees        |  |                | (64     | )    |   | (728    | ) |      | (948    | )    |   | (1,628  | ) |   | (1,784  | )
|                                |  |                |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Total                           |  | $              | 495,212 |      | $ | 424,439 |   | $    | 384,598 |      | $ | 344,240 |   | $ | 316,213 |  
|                                |  |                |         |      |   |         |   |      |         |      |   |         |   |   |         |  

41

---



The
following table shows the Banks loan maturities and sensitivities to changes
in interest rates as of December 31, 2007.

TABLE 9

|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  
|--------------------------------- |  | ---------------------------- | ------- | ---------------------------------------------- | - | ----------------------------- | - | ----- | ------ | - | - | ------- | -
|                                  |  |                              |         |                                                |   |                               |   |       |       
|(Dollar
  amounts in thousands)   |  | Maturing
  Within One
  Year |         | Maturing
  After One
  But Within
  Five Years |   | Maturing
  After Five
  Years |   | Total |       
|                                  |  |                              |         |                                                |   |                               |   |       |       
|Real Estate loans                 |  | $                            | 181,377 |                                                |   | 122,614                       |   |       | 48,059 |   | $ | 352,050 |  
|Construction loans                |  |                              | 29,553  |                                                |   | 19,978                        |   |       | 7,831  |   |   | 57,362  |  
|Commercial loans                  |  |                              | 42,365  |                                                |   | 28,639                        |   |       | 11,224 |   |   | 82,228  |  
|Consumer loans                    |  |                              | 1,874   |                                                |   | 1,266                         |   |       | 496    |   |   | 3,636   |  
|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  
|Sub total                         |  |                              | 255,169 |                                                |   | 172,497                       |   |       | 67,610 |   |   | 495,276 |  
|Net deferred loan fees            |  |                              | (33     | )                                              |   | (22                           | ) |       | (9     | ) |   | (64     | )
|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  
|Total                             |  | $                            | 255,136 |                                                | $ | 172,475                       |   | $     | 67,601 |   | $ | 495,212 |  
|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  
|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  
|With predetermined interest rates |  | $                            | 71,207  |                                                | $ | 48,137                        |   | $     | 18,867 |   | $ | 138,211 |  
|With floating interest rates      |  | $                            | 183,929 |                                                | $ | 124,338                       |   | $     | 48,734 |   | $ | 357,001 |  
|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  
|Total                             |  | $                            | 255,136 |                                                | $ | 172,475                       |   | $     | 67,601 |   | $ | 495,212 |  
|                                  |  |                              |         |                                                |   |                               |   |       |        |   |   |         |  

Investment Portfolio

Investments
at December 31, 2007 were $94,432,000, a decrease of $513,000 or 0.5% over
2006. At December 31, 2006 they were $94,945,000, a decrease of $18,518,000 or
16.3% over 2005. The decrease in investments in 2006 as compared to 2005 was
achieved primarily through the sale of approximately $20,984,000 of investment
securities during the fourth quarter of 2006. These proceeds were used to repay
short term borrowings and to fund part of the increase in loans. Federal Home
Loan Bank advances funded the remainder of the loan increase, and helped offset
the decrease in deposits.

Available
funds are first used to fund Loans, then Investments, and the remainder is sold
as Federal Funds. The primary source of funds is the deposit base. If more
funds are needed, maturities from the Investment Portfolio may be used, as well
as sales and calls, which accounts for the volume variances in Investments. The
Banks investment portfolio is concentrated in U. S. Government Agencies and in
obligations of States and their political subdivisions. The Bank believes this
provides for an appropriate liquidity level.

42

---



The following
table sets forth the maturity distribution and interest rate sensitivity of
investment securities at December 31, 2007:

TABLE 10

|                                  |  |                               |        |       |  |                                             |   |       |   |                               |  |       |      |                  |  |       |        |           |  |                  |   |              |   |       |  |  |      |   |  |   |        |  |  |      |  |  |  |      |  
|--------------------------------- |  | ----------------------------- | ------ | ----- |  | ------------------------------------------- | - | ----- | - | ----------------------------- |  | ----- | ---- | ---------------- |  | ----- | ------ | --------- |  | ---------------- | - | ------------ | - | ----- |  |  | ---- | - |  | - | ------ |  |  | ---- |  |  |  | ---- | -
|(Dollar amounts in thousands)     |  | Due
  In One
  Year
  Or Less |        | Yield |  | After
  One
  Year
  Through
  Five
  Years |   | Yield |   | AfterFiveYearsThroughTenYears |  | Yield |      | DueAfterTenYears |  | Yield |        | FairValue |  | Maturity InYears |   | AverageYield
|                                  |  |                               |        |       |  |                                             |   |       |   |                               |  |       |      |                  |  |       |        |           |  |                  |   |              |   |       |  |  |      |   |  |   |        |  |  |      |  |  |  |      |  
|U. S.
  Government Agencies       |  | $                             | 10,012 |       |  | 4.79                                        | % |       | $ | 20,775                        |  |       | 4.98 | %                |  |       |       |           |  |                 |   |              | $ | 7,885 |  |  | 5.38 | % |  | $ | 38,672 |  |  | 5.83 |  |  |  | 5.01 | %
|States &
  Political Subdivisions |  |                               | 3,857  |       |  | 3.75                                        | % |       |   | 25,589                        |  |       | 3.67 | %                |  |       | 22,064 |           |  | 3.74             | % |              |   | 1,250 |  |  | 3.87 | % |  |   | 52,760 |  |  | 4.66 |  |  |  | 3.71 | %
|Corporate
  Debt                  |  |                               | 3,000  |       |  | 5.21                                        | % |       |   |                              |  |       |     |                  |  |       |       |           |  |                 |   |              |   |      |  |  |     |   |  |   | 3,000  |  |  | 0.48 |  |  |  | 5.21 | %
|Total                             |  | $                             | 16,869 |       |  | 4.63                                        | % |       | $ | 46,364                        |  |       | 4.26 | %                |  | $     | 22,064 |           |  | 3.74             | % |              | $ | 9,135 |  |  | 5.17 | % |  | $ | 94,432 |  |  | 5.01 |  |  |  | 4.29 | %

The following
table shows the securities portfolio mix at December 31, 2007, 2006 and 2005.

TABLE 11

|                                |  |                          |        |              |  |                  |  |              |        |                  |  |              |  |  |         |  |  |         | 
|------------------------------- |  | ------------------------ | ------ | ------------ |  | ---------------- |  | ------------ | ------ | ---------------- |  | ------------ |  |  | ------- |  |  | ------- | 
|                                |  | Years Ended December 31, |       
|                                |  |                          |       
|                                |  | 2007                     |        |              |  | 2006             |  |              |        | 2005             |  |              | 
|                                |  |                          |        |              |  |                  |  |              |        |                  |  |              | 
|(Dollar
  amounts in thousands) |  | Amortized
  Cost         |        | Fair
  Value |  | Amortized
  Cost |  | Fair
  Value |        | Amortized
  Cost |  | Fair
  Value | 
|                                |  |                          |        |              |  |                  |  |              |        |                  |  |              | 
|U.S. Government Agencies        |  | $                        | 38,370 |              |  | 38,672           |  |              | 29,197 |                  |  | 29,132       |  |  | 50,571  |  |  | 50,126  | 
|States & Political Subdivisions |  |                          | 52,357 |              |  | 52,760           |  |              | 59,693 |                  |  | 59,761       |  |  | 56,208  |  |  | 56,028  | 
|Corporate Debt                  |  |                          | 2,999  |              |  | 3,000            |  |              | 3,984  |                  |  | 3,974        |  |  | 5,918   |  |  | 5,864   | 
|Other Securities                |  |                          | 0      |              |  | 0                |  |              | 2,078  |                  |  | 2,078        |  |  | 1,445   |  |  | 1,445   | 
|                                |  |                          |        |              |  |                  |  |              |        |                  |  |              |  |  |         |  |  |         | 
|Total                           |  | $                        | 93,726 |              |  | 94,432           |  |              | 94,952 |                  |  | 94,945       |  |  | 114,142 |  |  | 113,463 | 
|                                |  |                          |        |              |  |                  |  |              |        |                  |  |              |  |  |         |  |  |         | 

Deposits

The
increase in average earning assets in 2007 was funded by increases in average
deposits and from the Federal Home Loan Bank advances. During 2007, average
deposits were $509,496,000, an increase of $18,916,000, or 3.9% over 2006.
During 2006, average deposits were $490,580,000, an increase of $23,459,000, or
5.0% over 2005. In 2007, average interest-bearing deposits were $385,730,000,
an increase of $17,107,000, or 4.6% over 2006. In 2006, average
interest-bearing deposits were $368,623,000, an increase of $17,833,000, or
5.1% over 2005.          The prime lending rate rose from 5.25% at the beginning of 2005
to 7.25% at the end of 2005 and 8.25% at the end of 2006. The rate did not
change until September 18, 2007, when it dropped to 7.75%, followed by a
decrease to 7.50% on October 31, 2007 and 7.25% on December 11, 2007. Time
deposits lagged the prime rate changes because their rates changed only as
certificates matured or new certificates were issued. Thus, interest-bearing
demand costs averaged 0.3% in 2005, 0.5% in 2006 and 0.7% in 2007. Money market
deposit costs averaged 1.7% in 2005, 2.9% in 2006 and 3.4% in 2007. Savings
rates averaged 0.3% in 2005, and 0.5% in 2006 and 2007. Finally, average
interest on time certificates of deposit of $100,000 or more was 2.7% in 2005,
4.0% in 2006 and 4.9% in 2007. On certificates under $100,000, average rates
were 2.5% in 2005, 3.1% in 2006 amd 3.7% in 2007.

43

---



The
following table summarizes the distribution of average deposits and the average
rates paid for them in the periods indicated:

TABLE 12

|                                |  |                                                                              |         |             |  |                     |   |                |  |             |   |                     |   |                |  |             |     |                     |  |  |       |   |  |   |         |  |  |     |   |  |  |       |  
|------------------------------- |  | ---------------------------------------------------------------------------- | ------- | ----------- |  | ------------------- | - | -------------- |  | ----------- | - | ------------------- | - | -------------- |  | ----------- | --- | ------------------- |  |  | ----- | - |  | - | ------- |  |  | --- | - |  |  | ----- | -
|                                |  | Average
  Deposits and Average Rates paid for the period ending December 31,
|                                |  | 2007                                                                         |         | 2006        |  | 2005               
|                                |  |                                                                              |         |             |  |                    
|(Dollar amounts in thousands)   |  | AverageBalance                                                               |         | AverageRate |  | %
  ofTotalDeposits |   | AverageBalance |  | AverageRate |   | %
  ofTotalDeposits |   | AverageBalance |  | AverageRate |     | %
  ofTotalDeposits
|                                |  |                                                                              |         |             |  |                    
|                                |  |                                                                              |         |             |  |                     |   |                |  |             |   |                     |   |                |  |             |     |                     |  |  |       |   |  |   |         |  |  |     |   |  |  |       |  
|Deposits:                       |  |                                                                              |         |             |  |                     |   |                |  |             |   |                     |   |                |  |             |     |                     |  |  |       |   |  |   |         |  |  |     |   |  |  |       |  
|Interest-bearing demand         |  | $                                                                            | 59,491  |             |  | 0.7                 | % |                |  | 11.7        | % |                     | $ | 62,382         |  |             | 0.5 | %                   |  |  | 12.7  | % |  | $ | 57,478  |  |  | 0.3 | % |  |  | 12.3  | %
|Money market                    |  |                                                                              | 136,672 |             |  | 3.4                 | % |                |  | 26.8        |   |                     |   | 119,779        |  |             | 2.9 | %                   |  |  | 24.4  |   |  |   | 110,488 |  |  | 1.7 | % |  |  | 23.7  |  
|Savings                         |  |                                                                              | 48,633  |             |  | 0.5                 | % |                |  | 9.5         |   |                     |   | 53,965         |  |             | 0.5 | %                   |  |  | 11.0  |   |  |   | 58,820  |  |  | 0.3 | % |  |  | 12.6  |  
|Time deposits $100,000 or more  |  |                                                                              | 85,115  |             |  | 4.9                 | % |                |  | 16.7        |   |                     |   | 73,061         |  |             | 4.0 | %                   |  |  | 14.9  |   |  |   | 59,447  |  |  | 2.7 | % |  |  | 12.7  |  
|Time deposits under $100,000    |  |                                                                              | 55,819  |             |  | 3.7                 | % |                |  | 11.0        |   |                     |   | 59,436         |  |             | 3.1 | %                   |  |  | 12.1  |   |  |   | 64,557  |  |  | 2.5 | % |  |  | 13.8  |  
|                                |  |                                                                              |         |             |  |                     |   |                |  |             |   |                     |   |                |  |             |     |                     |  |  |       |   |  |   |         |  |  |     |   |  |  | 0.0   |  
|Total interest bearing deposits |  | $                                                                            | 385,730 |             |  | 3.0                 | % |                |  | 75.7        |   |                     | $ | 368,623        |  |             | 2.4 | %                   |  |  | 75.1  |   |  | $ | 350,790 |  |  | 1.6 | % |  |  | 75.1  |  
|Demand deposits                 |  |                                                                              | 123,766 |             |  | 0.0                 | % |                |  | 24.3        |   |                     |   | 121,957        |  |             | 0.0 | %                   |  |  | 24.9  |   |  |   | 116,331 |  |  | 0.0 | % |  |  | 24.9  |  
|                                |  |                                                                              |         |             |  |                     |   |                |  |             |   |                     |   |                |  |             |     |                     |  |  |       |   |  |   |         |  |  |     |   |  |  |       |  
|Total deposits                  |  | $                                                                            | 509,496 |             |  | 2.3                 | % |                |  | 100.0       | % |                     | $ | 490,580        |  |             | 1.8 | %                   |  |  | 100.0 | % |  | $ | 467,121 |  |  | 1.2 | % |  |  | 100.0 | %
|                                |  |                                                                              |         |             |  |                     |   |                |  |             |   |                     |   |                |  |             |     |                     |  |  |       |   |  |   |         |  |  |     |   |  |  |       |  

The following
table indicates the maturity schedule of time deposits of $100,000 or more:

TABLE 13

|                                    |  |                                                                      |        |                              |  |                               |  |                        |        |  |  |       | 
|----------------------------------- |  | -------------------------------------------------------------------- | ------ | ---------------------------- |  | ----------------------------- |  | ---------------------- | ------ |  |  | ----- | 
|                                    |  | Analysis of Time Deposits of $100,000 or more at
  December 31, 2007 |       
|(Dollar
  amounts in thousands)     |  |                                                                      |        |                              |  |                               |  |                       
|Total
  Deposits
  $100,000 or More |  | Three Months
  Or Less                                               |        | Over Three
  To Six
  Months |  | Over Six
  To Twelve
  Months |  | Over
  Twelve
  Months |       
|                                    |  |                                                                      |        |                              |  |                               |  |                        |       
|                                   
|81,169                              |  |                                                                      | 35,005 |                              |  | 21,029                        |  |                        | 21,657 |  |  | 3,478 | 

Capital

At
December 31, 2007, shareholders equity of the Company was $66,545,000, an
increase of $4,482,000 or 7.2% over 2006; at December 31, 2006, shareholders
equity of the Company was $62,063,000, an increase of $6,820,000 or 12.3% over
2005. The increases were primarily attributable to retention of net income
after payment of cash dividends of $1,720,000 in 2007, $1,633,000 in 2006, and
$1,542,000 in 2005.

44

---



In
1989, the Federal Deposit Insurance Corporation (FDIC) established risk-based
capital guidelines requiring banks to maintain certain ratios of qualifying
capital to risk-weighted assets. Under the guidelines, qualifying capital is
classified into two tiers, referred to as Tier 1 (core) and Tier 2
(supplementary) capital. Currently, the Companys Tier 1 capital consists of
common shareholders equity, though other instruments such as certain types of
preferred stock can also be included in Tier 1 capital. Tier 2 capital consists
of eligible reserves for possible loan losses and qualifying subordinated notes
and debentures. Total capital is the sum of Tier 1 plus Tier 2 capital.
Risk-weighted assets are calculated by applying risk percentages specified by
the FDIC to categories of both balance sheet assets and off-balance sheet
obligations.

At
year-end 1990, the FDIC also adopted a leverage ratio requirement. This ratio
supplements the risk-based capital ratios and is defined as Tier 1 capital
divided by quarterly average assets during the reporting period. This
requirement established a minimum leverage ratio of 3.0% for the highest rated
banks and ratios of 100 to 200 basis points higher for most other banks.
Furthermore, in 1993, the FDIC began assessing risk-based deposit insurance
assessments based on financial institutions capital resources and management
strength, as mandated by the FDIC Improvement Act of 1991. To qualify for the
lowest insurance premiums as indicated in the following table, well-capitalized
financial institutions must maintain risk-based Tier 1 and total capital ratios
of at least 6.0% and 10.0% respectively. Well-capitalized financial
institutions must also maintain a leverage ratio equal to or exceeding 5.0%.

The following
table shows the risk-based capital ratios and the leverage ratios at December
31, 2007, 2006 and 2005 for the Bank.

TABLE 14

|                            |  |       |   |      |       |      |  |       |   |                                               |  |   |  |       |   | 
|--------------------------- |  | ----- | - | ---- | ----- | ---- |  | ----- | - | --------------------------------------------- |  | - |  | ----- | - | 
|Risk-Based
  Capital Ratios |  | 2007  |   | 2006 |       | 2005 |  |       |   | Minimum
  Well
  Capitalized
  Requirements | 
|                            |  |       |   |      |       |      |  |       |   |                                               | 
|                            |  |       |   |      |       |      |  |       |   |                                               | 
|Total
  Capital             |  | 11.42 | % |      | 11.98 | %    |  | 11.56 | % |                                               |  | > |  | 10.00 | % | 
|                            |  |       |   |      |       |      |  |       |   |                                               |  |   |  |       |   | 
|Tier
  1 Capital            |  | 10.47 | % |      | 11.03 | %    |  | 10.64 | % |                                               |  | > |  | 6.00  | % | 
|                            |  |       |   |      |       |      |  |       |   |                                               |  |   |  |       |   | 
|Leverage
  ratios           |  | 9.84  | % |      | 10.06 | %    |  | 9.47  | % |                                               |  | > |  | 5.00  | % | 

45

---



Liquidity

The
Companys primary source of liquidity on a stand-alone basis is dividends from
the Bank. The payment of dividends by the Bank is subject to regulatory
restrictions. Liquidity is a measure of the Companys ability to convert assets
into cash with minimum loss. Liquidity consists of cash and due from other
banks accounts, including time deposits, federal funds sold, and Securities
Available-for-Sale. The Companys policy is to maintain a liquidity ratio of
10% or greater of total assets. As of December
31, 2007, the Companys primary liquidity was 17.10%, compared to 20.98% in
2006 and 26.14% in 2005. During the fourth quarter of 2006, management of the
Bank sold investment securities and used the sale proceeds to fund loan
originations. This caused a significant decrease in the liquidity ratio for
2006. Total Liquid Assets were $110,182,000 in 2007, $121,967,000 in 2006, and
$148,761,000 in 2005. The objective of liquidity management is to ensure that
the Company has funds available to meet all present and future financial obligations
and to take advantage of business opportunities as they occur. Financial
obligations arise from withdrawals of deposits, repayment on maturity of
purchased funds, extension of loans or other forms of credit, payment of
operating expenses and payments of dividends.

Core
deposits, which consist of all deposits other than time deposits, have provided
the Company with a sizable source of relatively stable low-cost funds. The
Companys average core deposits funded 61.6% of average total assets of $598,467,000
for the year ended December 31, 2007, 62.3% of average total assets of
$575,116,000 for the year ended December 31, 2006, and 64.8% of average total
assets of $529,741,000 for the year ended December 31, 2005.

As
of December 31, 2007, the Company had contractual obligations and other
commercial commitments totaling approximately $221,594,000. The following table
sets forth the Companys contractual obligations and other commercial
commitments as of December 31, 2007. These obligations and commitments will be
funded primarily by loan repayments and the Companys liquidity sources, such
as cash and due from other banks, federal funds sold, securities available for
sale, as well as time deposits.

TABLE 15

|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|------------------------------------ |  | ------------------------------------------- | ------- | ---------------- | - | ------------------- |  | ------------------- | ------ | -------------- | - | ----- |  | - | ----- | 
|                                     |  | Payments Due by Period                      |        
|(Dollar
  amounts in thousands)      |  |                                             |         |                  |   |                     |  |                     |        |                |  
|Contractual
  Obligations            |  | Total                                       |         | 1 year
  or less |   | Over 1 to
  3 years |  | Over 3 to
  5 years |        | Over
  5 years |  
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |  
|                                    
|Federal
  Home Loan Bank Advances    |  | $                                           | 66,000  |                  | $ | 16,000              |  | $                   | 50,000 |                |   |      |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Federal
  Funds Purchased            |  | $                                           | 5,595   |                  | $ | 5,595               |  |                     |       |                |   |      |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Operating
  Leases                   |  | $                                           | 838     |                  | $ | 453                 |  | $                   | 368    |                | $ | 17    |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Total
  Contractual Cash Obligations |  | $                                           | 72,433  |                  | $ | 22,048              |  | $                   | 50,368 |                | $ | 17    |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|                                     |  | Amount of Commitment Expirations Per Period |        
|(Dollars
  in thousands)             |  |                                             |        
|Other
  Commercial Commitments       |  | Total
  Amounts
  Committed                 |         | 1 year
  or less |   | Over 1 to
  3 years |  | Over 3 to
  5 years |        | Over
  5 years |  
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |  
|                                    
|Lines
  of Credit                    |  | $                                           | 90,763  |                  | $ | 70,247              |  | $                   | 10,097 |                | $ | 8,027 |  | $ | 2,392 | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Standby
  Letters of Credit          |  |                                             | 3,157   |                  |   | 3,057               |  |                     |       |                |   | 100   |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Guarantees                           |  |                                             |        |                  |   |                    |  |                     |       |                |   |      |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Other
  Commercial Commitments       |  |                                             | 55,241  |                  |   | 50,885              |  |                     | 2,856  |                |   | 1,500 |  |   |      | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 
|Total
  Commercial Commitments       |  | $                                           | 149,161 |                  | $ | 124,189             |  | $                   | 12,953 |                | $ | 9,627 |  | $ | 2,392 | 
|                                     |  |                                             |         |                  |   |                     |  |                     |        |                |   |       |  |   |       | 

46

---



The
largest component of the Companys earnings is net interest income, which can
fluctuate widely when significant interest rate movements occur. The prime
lending rate rose from 5.25% at the beginning of 2005 to 7.25% at the end of
2005 and 8.25% at the end of 2006. The rate decreased to 7.25% at the end of
2007. The Companys management is responsible for minimizing the Banks
exposure to interest rate risk and assuring an adequate level of liquidity.
This is accomplished by developing objectives, goals and strategies designed to
enhance profitability and performance.

Ongoing
management of the Companys interest rate sensitivity limits interest rate risk
by controlling the mix and maturity of assets and liabilities. Management
regularly reviews the Companys position and evaluates alternative sources and
uses of funds as well as changes in external factors. Various methods are used
to achieve and maintain the desired rate sensitivity position including the
sale or purchase of assets and product pricing.

In
order to ensure that sufficient funds are available for loan growth and deposit
withdrawals, as well as to provide for general needs, the Company must maintain
an adequate level of liquidity. Asset liquidity comes from the Companys
ability to convert short-term investments into cash and from the maturity and
repayment of loans and investment securities.

Liability
liquidity is provided by the Companys ability to attract deposits. The primary
source of liability liquidity is the Banks customer base, which provides core
deposit growth. The overall liquidity position of the Company is closely
monitored and evaluated regularly. The Company has federal fund borrowing
facilities for a total of $70,000,000, a Federal Home Loan Bank line of credit
of up to 25% of total assets, and a Federal Reserve Bank facility. Management
believes the Companys liquidity sources at December 31, 2007 are adequate to
meet its operating needs in 2008 and into the foreseeable future.

Effect of Changing Prices

The
results of operations and financial conditions presented in this report are
based on historical cost information and are not adjusted for the effects of
inflation.

Since
the assets and liabilities of banks are primarily monetary in nature (payable
in fixed, determinable amounts), the performance of the Company is affected
more by changes in interest rates than by inflation. Interest rates generally
increase as the rate of inflation increases, but the magnitude of the change in
rates may not be the same.

The
effect of inflation on banks is normally not as significant as its influence on
those businesses that have large investments in plant and inventories. During
periods of high inflation, there are normally corresponding increases in the
money supply, and banks will normally experience above average growth in
assets, loans and deposits. Also, increases in the price of goods and services
will result in increased operating expenses.

The
following table includes key ratios, including returns on average assets and
equity.

47

---



TABLE 16

|                                 |  |                                                                                       |   |      |       |      |  |       |   | 
|-------------------------------- |  | ------------------------------------------------------------------------------------- | - | ---- | ----- | ---- |  | ----- | - | 
|                                 |  | Return on Equity and Assets
  (Key financial ratios are computed on average balances) |  
|                                 |  |                                                                                       |  
|                                 |  | Year Ended December 31,                                                               |  
|                                 |  | 2007                                                                                  |   | 2006 |       | 2005 | 
|                                 |  |                                                                                       |   |      |       |      | 
|                                
|Return
  on average assets       |  | 1.07                                                                                  | % |      | 1.32  | %    |  | 1.08  | % | 
|                                 |  |                                                                                       |   |      |       |      |  |       |   | 
|Return
  on average equity       |  | 10.39                                                                                 | % |      | 12.86 | %    |  | 10.75 | % | 
|                                 |  |                                                                                       |   |      |       |      |  |       |   | 
|Dividend
  payout ratio          |  | 25.69                                                                                 | % |      | 21.43 | %    |  | 26.92 | % | 
|                                 |  |                                                                                       |   |      |       |      |  |       |   | 
|Average
  equity to assets ratio |  | 10.31                                                                                 | % |      | 10.25 | %    |  | 10.06 | % | 
|                                 |  |                                                                                       |   |      |       |      |  |       |   | 

ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Closely
related to the concept of liquidity is the concept of interest rate sensitivity
(i. e., the extent to which assets and liabilities are sensitive to changes in
interest rates). Interest rate sensitivity is often measured by the extent to
which mismatches or gaps occur in the repricing of assets and liabilities
within a given time period. A gap analysis is one method used to quantify such
mismatches. A positive gap results when the amount of earning assets repricing
within a given time period exceeds the amount of interest-bearing liabilities
repricing within that time period. A negative gap results when the amount of
interest-bearing liabilities repricing within a given time period exceeds the
amount of earning assets repricing within such time period.

In
general, a financial institution with a positive gap in relevant time periods
will benefit from an increase in market interest rates and will experience
erosion in net interest income if such rates fall. Likewise, a financial
institution with a negative gap in relevant time periods will normally benefit
from a decrease in market interest rates and will be adversely affected by an
increase in rates. By maintaining a balanced interest rate sensitivity position,
where interest sensitive assets roughly equal interest sensitive liabilities in
relevant time periods, interest rate risk can be limited.

A gap analysis
utilizes management estimates as to when individual categories of
interest-sensitive assets and liabilities will reprice, and assumes that assets
and liabilities assigned to the same repricing period will reprice at the same
time and in the same amount within each time period reported. A gap analysis
does not account for the fact that repricing of assets and liabilities can be
discretionary and subject to competitive and other pressures.

48

---



Because of the
limitations in the gap analysis discussed above, the Company believes that
interest sensitivity modeling more accurately reflects the effects and exposure
to changes in interest rates, and will no longer use the Gap Analysis approach.

Management
uses an asset/liability model that considers the relative sensitivities of the
balance sheet, including the effect of interest rate caps on adjustable rate mortgages
and the relatively stable aspects of core deposits. As such, management can
model a net interest income simulation that is designed to address the
probability of interest rate changes and behavioral response of the balance
sheet to those changes. Market Value of Portfolio Equity represents the fair
value of the net present value of assets, liabilities and off-balance sheet
items. The starting point (or base case) for the following table is the
Companys net portfolio at December 31, 2007, using current discount rates, and
an estimate of net interest income for 2008 assuming that both interest rates
and the Companys interest-sensitive assets and liabilities remain at December
31, 2007 levels.

The rate
shock information in the table shows estimates of net portfolio value at
December 31, 2007 and net interest income for 2008 assuming fluctuations or
rate shocks of minus 100 and 200 basis points and plus 100 and 200 basis
points. Rate shocks assume that current interest rates change immediately. The
information set forth in the following table is based on significant estimates
and assumptions, and constitutes a forward-looking statement within the meaning
of that term set forth in Rule 175 under the Securities Act of 1933 and Rule
3b-6(c) of the Securities Exchange Act of 1934.

TABLE 17

|                                |  |                                                                     |        |    |    |                |   |    |        |    |    |        |   |    |        |  
|------------------------------- |  | ------------------------------------------------------------------- | ------ | -- | -- | -------------- | - | -- | ------ | -- | -- | ------ | - | -- | ------ | -
|(Dollar amounts in thousands)   |  | Market Risk in SecuritiesInterest Rate Shock
  At December 31, 2007 |       
|Available
  for Sale securities |  |                                                                     |        |    |    |                |  
|                                |  | Rates Decline                                                       |        |    |    | Rates Increase
|                                |  |                                                                     |        |    |    |                |  
|Rate
  change                   |  | (2                                                                  | %)     | (1 | %) | Current        |   | +1 | %      | +2 | % 
|                                |  |                                                                     |        |    |    |                |   |    |        |    |    |        |   |    |        |  
|Unrealized
  gain (loss)        |  | $                                                                   | 4,219  |    | $  | 2,529          |   | $  | 417    |    | ($ | 1,246  | ) | ($ | 3,198  | )
|Change
  from current           |  | $                                                                   | 3,802  |    | $  | 2,112          |   |    |        |    | ($ | 1,663  | ) | ($ | 3,615  | )
|                                |  |                                                                     |        |    |    |                |   |    |        |    |    |        |   |    |        |  
|                                |  |                                                                     |        |    |    |                |   |    |        |    |    |        |   |    |        |  
|(Dollar
  amounts in thousands) |  | Market Risk on Net Interest
  IncomeAt December 31, 2007            |       
|                                |  |                                                                     |       
|                                |  | Rates Decline                                                       |        |    |    | Rates Increase
|                                |  |                                                                     |        |    |    |                |  
|Rate
  change                   |  | (2                                                                  | %)     | (1 | %) | Current        |   | +1 | %      | +2 | % 
|                                |  |                                                                     |        |    |    |                |   |    |        |    |   
|Change
  in net interest income |  | $                                                                   | 26,397 |    | $  | 27,517         |   | $  | 28,633 |    | $  | 29,172 |   | $  | 29,710 |  
|Change
  from current           |  | ($                                                                  | 2,236  | )  | ($ | 1,116          | ) |    |        |    | $  | 539    |   | $  | 1,077  |  

49

---



ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

|                                                                                                                                           |  |     
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|INDEX TO
  FINANCIAL STATEMENTS                                                                                                            |  | Page
|                                                                                                                                           |  |     
|Report of
  Independent Registered Public Accounting Firm                                                                                  |  | 51  
|                                                                                                                                           |  |     
|Consolidated
  Balance Sheets, December 31, 2007 and 2006                                                                                  |  | 52  
|                                                                                                                                           |  |     
|Consolidated
  Statements of Earnings for the years ended December 31, 2007, 2006 and 2005                                                 |  | 53  
|                                                                                                                                           |  |     
|Consolidated
  Statements of Changes in Stockholders Equity and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005 |  | 54  
|                                                                                                                                           |  |     
|Consolidated
  Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005                                               |  | 55  
|                                                                                                                                           |  |     
|Notes to
  Consolidated Financial Statements                                                                                               |  | 56  

50

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
StockholdersFNB Bancorp

We
have audited the accompanying consolidated balance sheets of FNB Bancorp and
subsidiary, (the Company) as of December 31, 2007 and 2006 and the related
statements of earnings, changes in stockholders equity and comprehensive
income and cash flows for each of the years in the three year period ended
December 31, 2007. We have also audited FNB Bancorps internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  FNB Bancorps management is responsible for these financial
statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on these
financial statements and an opinion on the effectiveness of the Companys
internal control over financial reporting based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
An audit of internal control over financial reporting includes obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinion.

A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of the
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of FNB Bancorp and subsidiary as of
December 31, 2007 and 2006 and the results of its operations and cash flows for
each of the three years in the three year period ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States
of America.  Also, in our opinion FNB
Bancorp maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control  Integrated Framework issued by the COSO.

As
discussed in Notes 1 and 16 to the financial statements, effective January 1,
2006, the Company changed its method of accounting for share-based payment
arrangements to conform to Statement of Financial Accounting Standard No.
123(R), ShareBased Payments.

Stockton, California
March 12, 2008

51

---



|                                                                                                                                                                |  |      |         |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|FNB BANCORP AND SUBSIDIARY                                                                                                                                     
|                                                                                                                                                               
|Consolidated Balance Sheets                                                                                                                                    
|                                                                                                                                                               
|December 31, 2007 and 2006                                                                                                                                     
|                                                                                                                                                               
|                                                                                                                                                                |  |      |         |      |   |         |  
|(Dollar amounts in thousands)                                                                                                                                   |  | 2007 |         | 2006 |  
|                                                                                                                                                                |  |      |         |      |  
|Assets                                                                                                                                                          |  |      |         |      |   |         |  
|Cash and due
  from banks                                                                                                                                       |  | $    | 15,750  |      | $ | 18,297  |  
|Federal
  funds sold                                                                                                                                            |  |      |        |      |   | 8,725   |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Cash and cash equivalents                                                                                                                                       |  |      | 15,750  |      |   | 27,022  |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Securities
  available-for-sale                                                                                                                                 |  |      | 94,432  |      |   | 94,945  |  
|Loans, net                                                                                                                                                      |  |      | 489,574 |      |   | 419,437 |  
|Bank
  premises, equipment & leasehold improvements                                                                                                             |  |      | 13,686  |      |   | 13,476  |  
|Other real
  estate owned                                                                                                                                       |  |      | 440     |      |   |        |  
|Goodwill                                                                                                                                                        |  |      | 1,841   |      |   | 1,841   |  
|Accrued
  interest receivable & other assets                                                                                                                    |  |      | 28,742  |      |   | 24,549  |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Total Assets                                                                                                                                                    |  | $    | 644,465 |      | $ | 581,270 |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Liabilities & Stockholders Equity                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Deposits:                                                                                                                                                       |  |      |         |      |   |         |  
|Demand, noninterest bearing                                                                                                                                     |  | $    | 120,423 |      | $ | 123,884 |  
|Demand, interest bearing                                                                                                                                        |  |      | 61,215  |      |   | 60,378  |  
|Savings                                                                                                                                                         |  |      | 181,276 |      |   | 162,915 |  
|Time                                                                                                                                                            |  |      | 136,341 |      |   | 134,390 |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Total deposits                                                                                                                                                  |  |      | 499,255 |      |   | 481,567 |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Federal Home
  Loan Bank advances                                                                                                                               |  |      | 66,000  |      |   | 30,000  |  
|Federal
  funds purchased                                                                                                                                       |  |      | 5,595   |      |   |        |  
|Accrued
  expenses & other liabilities                                                                                                                          |  |      | 7,070   |      |   | 7,640   |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Total liabilities                                                                                                                                               |  |      | 577,920 |      |   | 519,207 |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Commitments
  and contingencies (notes 9 and 13)                                                                                                                |  |      |         |      |   |         |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Stockholders equity:                                                                                                                                           |  |      |         |      |   |         |  
|Common stock, no par value: authorized
  10,000,000 shares; issued and outstanding 2,965,000 and 2,853,000 shares on
  December 31, 2007 and 2006, respectively |  |      | 42,858  |      |   | 39,824  |  
|Additional paid-in capital                                                                                                                                      |  |      | 231     |      |   | 141     |  
|Retained earnings                                                                                                                                               |  |      | 23,039  |      |   | 22,102  |  
|Accumulated other comprehensive income
  (loss)                                                                                                                 |  |      | 417     |      |   | (4      | )
|                                                                                                                                                                |  |      |         |      |   |         |  
|Total stockholders equity                                                                                                                                      |  |      | 66,545  |      |   | 62,063  |  
|                                                                                                                                                                |  |      |         |      |   |         |  
|Total liabilities and stockholders
equity                                                                                                                      |  | $    | 644,465 |      | $ | 581,270 |  
|                                                                                                                                                                |  |      |         |      |   |         |  

|                                                              
|--------------------------------------------------------------
|See accompanying notes to
  consolidated financial statements.

52

---



|                                                           |  |      |        |      |   |        |   |   |        |  
|---------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|FNB BANCORP AND SUBSIDIARY                                
|                                                          
|Consolidated
  Statements of Earnings                     
|                                                          
|Years
  ended December 31, 2007, 2006 and 2005            
|                                                          
|(Amounts
  in thousands, except per share)                 |  | 2007 |        | 2006 |   | 2005   |  
|                                                           |  |      |        |      |   |        |  
|Interest income:                                           |  |      |        |      |   |        |   |   |        |  
|Interest and fees on loans                                 |  | $    | 38,035 |      | $ | 31,898 |   | $ | 26,754 |  
|Interest and dividends on securities                       |  |      | 1,733  |      |   | 2,576  |   |   | 2,173  |  
|Interest on tax-exempt securities                          |  |      | 2,035  |      |   | 2,039  |   |   | 1,512  |  
|Federal funds sold                                         |  |      | 487    |      |   | 683    |   |   | 293    |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Total interest income                                      |  |      | 42,290 |      |   | 37,196 |   |   | 30,732 |  
|Interest expense:                                          |  |      |        |      |   |        |   |   |        |  
|Deposits                                                   |  |      | 11,529 |      |   | 8,839  |   |   | 5,440  |  
|Federal Home Loan Bank advances                            |  |      | 2,070  |      |   | 880    |   |   | 41     |  
|Fed funds purchased                                        |  |      | 58     |      |   | 102    |   |   | 52     |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Total interest expense                                     |  |      | 13,657 |      |   | 9,821  |   |   | 5,533  |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Net interest income                                        |  |      | 28,633 |      |   | 27,375 |   |   | 25,199 |  
|Provision for loan losses                                  |  |      | 690    |      |   | 683    |   |   | 628    |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Net interest income after provision for loan
losses        |  |      | 27,943 |      |   | 26,692 |   |   | 24,571 |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Noninterest income:                                        |  |      |        |      |   |        |   |   |        |  
|Service charges                                            |  |      | 2,580  |      |   | 2,463  |   |   | 2,305  |  
|Credit card fees                                           |  |      | 778    |      |   | 839    |   |   | 856    |  
|Gain on sale of other equity securities                    |  |      |       |      |   | 1,352  |   |   |       |  
|Gain on sale of other real estate owned                    |  |      |       |      |   | 756    |   |   |       |  
|Gain (loss)
on impairment and called investment
securities |  |      | 4      |      |   | (11    | ) |   | (101   | )
|Other                                                      |  |      | 938    |      |   | 860    |   |   | 781    |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Total noninterest income                                   |  |      | 4,300  |      |   | 6,259  |   |   | 3,841  |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Noninterest expense:                                       |  |      |        |      |   |        |   |   |        |  
|Salaries and employee benefits                             |  |      | 12,778 |      |   | 12,300 |   |   | 11,344 |  
|Occupancy expense                                          |  |      | 1,975  |      |   | 1,728  |   |   | 1,444  |  
|Equipment expense                                          |  |      | 1,620  |      |   | 1,665  |   |   | 1,624  |  
|Professional fees                                          |  |      | 1,303  |      |   | 1,278  |   |   | 952    |  
|Telephone, postage, supplies                               |  |      | 1,017  |      |   | 1,056  |   |   | 939    |  
|Advertising expense                                        |  |      | 942    |      |   | 770    |   |   | 710    |  
|Bankcard expense                                           |  |      | 708    |      |   | 797    |   |   | 802    |  
|Data processing expense                                    |  |      | 503    |      |   | 452    |   |   | 416    |  
|Surety insurance                                           |  |      | 502    |      |   | 479    |   |   | 555    |  
|Director expense                                           |  |      | 195    |      |   | 207    |   |   | 180    |  
|Other                                                      |  |      | 1,639  |      |   | 1,028  |   |   | 1,289  |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Total noninterest expense                                  |  |      | 23,182 |      |   | 21,760 |   |   | 20,255 |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Earnings before income tax expense                         |  |      | 9,061  |      |   | 11,191 |   |   | 8,157  |  
|Income tax expense                                         |  |      | 2,382  |      |   | 3,609  |   |   | 2,429  |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Net earnings                                               |  | $    | 6,679  |      | $ | 7,582  |   | $ | 5,728  |  
|                                                           |  |      |        |      |   |        |   |   |        |  
|Earnings per share data:                                   |  |      |        |      |   |        |   |   |        |  
|Basic                                                      |  | $    | 2.23   |      | $ | 2.54   |   | $ | 1.93   |  
|Diluted                                                    |  | $    | 2.21   |      | $ | 2.48   |   | $ | 1.89   |  
|Weighted average shares
  outstanding:                     |  |      |        |      |   |        |   |   |        |  
|Basic                                                      |  |      | 2,993  |      |   | 2,986  |   |   | 2,975  |  
|Diluted                                                    |  |      | 3,027  |      |   | 3,056  |   |   | 3,034  |  

|                                                              
|--------------------------------------------------------------
|See accompanying notes to
  consolidated financial statements.

53

---



FNB BANCORP AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders Equity and
Comprehensive Income

Years ended December 31, 2007, 2006 and 2005

|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|------------------------------------------------------------------- |  | -------------- | ----- | ------- | - | ---------- | - | ------------- | --- | ------------------- | - | ------ | - | ----- | ---- | - | - | ----- | - | - | ------ | -
|                                                                    |  |                |       |         |   | Additional |   |               |     | Accumulated
  other |   |        |   |       |     
|                                                                    |  | Common
  stock |       | paid-in |   | Retained   |   | comprehensive |     | Comprehensive       |   |        |  
|(Amounts in
  thousands)                                            |  | Shares         |       | Amount  |   | capital    |   | earnings      |     | income(Loss)        |   | income |   | Total |     
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |     
|Balance at
  December 31, 2004                                      |  |                | 2,586 |         | $ | 31,365     |   | $             | 9   |                     | $ | 20,689 |   | $     | 566  |   |   |       |   | $ | 52,629 |  
|Net earnings                                                        |  |                |      |         |   |           |   |               |    |                     |   | 5,728  |   |       |     |   |   | 5,728 |   |   | 5,728  |  
|Other
  comprehensive income:                                       |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Unrealized loss
  on securities, net of tax benefit of $671,000     |  |                |      |         |   |           |   |               |    |                     |   |       |   |       | (967 | ) |   | (967  | ) |   | (967   | )
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Comprehensive
  income                                              |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   | $ | 4,761 |   |   |        |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Cash dividends of
  $0.15 per share,
  quarterly                    |  |                |      |         |   |           |   |               |    |                     |   | (1,535 | ) |       |     |   |   |       |   |   | (1,535 | )
|Stock dividend of
  5%                                              |  |                | 128   |         |   | 4,043      |   |               |     |                     |   | (4,043 | ) |       |      |   |   |       |   |   |       |  
|Cash on
  fractional shares related to
  stock dividend             |  |                |       |         |   |            |   |               |     |                     |   | (7     | ) |       |      |   |   |       |   |   | (7     | )
|Stock-based
  compensation
  expense                                |  |                |      |         |   |           |   |               | 10  |                     |   |       |   |       |     |   |   |       |   |   | 10     |  
|Stock repurchased
  and retired                                     |  |                | (21   | )       |   | (765       | ) |               |    |                     |   |       |   |       |     |   |   |       |   |   | (765   | )
|Stock options
  exercised                                           |  |                | 7     |         |   | 150        |   |               |    |                     |   |       |   |       |     |   |   |       |   |   | 150    |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Balance at December
  31, 2005                                      |  |                | 2,700 |         |   | 34,793     |   |               | 19  |                     |   | 20,832 |   |       | (401 | ) |   |       |   |   | 55,243 |  
|Net earnings                                                        |  |                |       |         |   |            |   |               |     |                     |   | 7,582  |   |       |      |   |   | 7,582 |   |   | 7,582  |  
|Other
  comprehensive income:                                       |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Unrealized gain
  on securities,
  net of tax provision of $276,000 |  |                |      |         |   |           |   |               |    |                     |   |       |   |       | 397  |   |   | 397   |   |   | 397    |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Comprehensive
  income                                              |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   | $ | 7,979 |   |   |        |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Cash dividends of
  $0.15
  per share, quarterly                    |  |                |      |         |   |           |   |               |    |                     |   | (1,625 | ) |       |     |   |   |       |   |   | (1,625 | )
|Stock dividend of
  5%                                              |  |                | 136   |         |   | 4,679      |   |               |     |                     |   | (4,679 | ) |       |      |   |   |       |   |   |        |  
|Stock-based
  compensation
  expense                                |  |                |      |         |   |           |   |               | 39  |                     |   |       |   |       |     |   |   |       |   |   | 39     |  
|Cash on
  fractional shares related
  to stock dividend             |  |                |       |         |   |            |   |               |     |                     |   | (8     | ) |       |      |   |   |       |   |   | (8     | )
|Stock repurchased
  and retired                                     |  |                | (2    | )       |   | (73        | ) |               |    |                     |   |       |   |       |     |   |   |       |   |   | (73    | )
|Stock options
  exercised, including
  tax benefit of $83,000       |  |                | 19    |         |   | 425        |   |               | 83  |                     |   |       |   |       |     |   |   |       |   |   | 508    |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Balance at
  December 31, 2006                                      |  |                | 2,853 |         |   | 39,824     |   |               | 141 |                     |   | 22,102 |   |       | (4   | ) |   |       |   |   | 62,063 |  
|Net earnings                                                        |  |                |       |         |   |            |   |               |     |                     |   | 6,679  |   |       |      |   |   | 6,679 |   |   | 6,679  |  
|Other
  comprehensive income:                                       |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Unrealized gain
  on securities,
  net of tax provision of $292,000 |  |                |      |         |   |           |   |               |    |                     |   |       |   |       | 421  |   |   | 421   |   |   | 421    |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Comprehensive
  income                                              |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   | $ | 7,100 |   |   |        |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Cash dividends of $0.15
  per share, quarterly                      |  |                |      |         |   |           |   |               |    |                     |   | (1,716 | ) |       |     |   |   |       |   |   | (1,716 | )
|Stock dividend of
  5%                                              |  |                | 141   |         |   | 4,022      |   |               |     |                     |   | (4,022 | ) |       |      |   |   |       |   |   |        |  
|Stock-based
  compensation
  expense                                |  |                |      |         |   |           |   |               | 68  |                     |   |       |   |       |     |   |   |       |   |   | 68     |  
|Cash on
  fractional shares related
  to stock dividend             |  |                |       |         |   |            |   |               |     |                     |   | (4     | ) |       |      |   |   |       |   |   | (4     | )
|Stock repurchased
  and retired                                     |  |                | (46   | )       |   | (1,334     | ) |               |    |                     |   |       |   |       |     |   |   |       |   |   | (1,334 | )
|Stock options
  exercised, including
  tax benefit of $22,000       |  |                | 17    |         |   | 346        |   |               | 22  |                     |   |       |   |       |     |   |   |       |   |   | 368    |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  
|Balance at
  December 31, 2007                                      |  |                | 2,965 |         | $ | 42,858     |   | $             | 231 |                     | $ | 23,039 |   | $     | 417  |   |   |       |   | $ | 66,545 |  
|                                                                    |  |                |       |         |   |            |   |               |     |                     |   |        |   |       |      |   |   |       |   |   |        |  

See accompanying notes to consolidated
financial statements.

54

---



FNB BANCORP AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended December 31, 2007, 2006 and 2005

|                                                                                         |  |      |         |      |   |         |   |   |         |  
|---------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|(Dollar amounts
  in thousands)                                                          |  | 2007 |         | 2006 |   | 2005    |  
|                                                                                         |  |      |         |      |   |         |  
|Cash flows from
  operating activities:                                                  |  |      |         |      |   |         |   |   |         |  
|Net earnings                                                                             |  | $    | 6,679   |      | $ | 7,582   |   | $ | 5,728   |  
|Adjustments to
  reconcile net earnings to net cash provided by operating activities:    |  |      |         |      |   |         |   |   |         |  
|Depreciation,
  amortization and accretion                                               |  |      | 1,264   |      |   | 1,220   |   |   | 1,594   |  
|(Gain) loss on
  impairment and called investment securities                             |  |      | (4      | )    |   | 11      |   |   | 101     |  
|Gain on sale of
  other equity securities                                                |  |      |        |      |   | (1,352  | ) |   |        |  
|Gain on sale of
  other real estate owned                                                |  |      |        |      |   | (756    | ) |   |        |  
|Securities
  write-down                                                                  |  |      |        |      |   |        |   |   | 116     |  
|Stock-based
  compensation expense                                                       |  |      | 68      |      |   | 39      |   |   | 10      |  
|Provision for
  loan losses                                                              |  |      | 690     |      |   | 683     |   |   | 628     |  
|Deferred taxes                                                                           |  |      | (306    | )    |   | (7      | ) |   | (181    | )
|Changes in assets
  and liabilities:                                                     |  |      |         |      |   |         |   |   |         |  
|Accrued interest
  receivable and other assets                                           |  |      | (1,806  | )    |   | 669     |   |   | (5,149  | )
|Accrued expenses
  and other liabilities                                                 |  |      | (861    | )    |   | 1,011   |   |   | 1,720   |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Net cash provided
  by operating activities                                              |  |      | 5,724   |      |   | 9,100   |   |   | 4,567   |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Cash flows from
  investing activities:                                                  |  |      |         |      |   |         |   |   |         |  
|Proceeds from
  matured/called securities available-for-sale                             |  |      | 37,159  |      |   | 65,092  |   |   | 31,207  |  
|Purchases of
  securities available-for-sale                                             |  |      | (38,005 | )    |   | (45,949 | ) |   | (43,386 | )
|Proceeds from
  sale of other real estate owned                                          |  |      |        |      |   | 3,356   |   |   |        |  
|Net (increase)
  decrease in loans                                                       |  |      | (71,267 | )    |   | (40,069 | ) |   | 864     |  
|Proceeds from
  sales of bank premises, equipment, and
  leasehold improvements          |  |      |        |      |   | 541     |   |   | 156     |  
|Purchases of bank
  premises, equipment, and leasehold improvements                      |  |      | (1,479  | )    |   | (3,172  | ) |   | (1,733  | )
|Cash and
  equivalents received in bank acquisition, net of cash paid                    |  |      |        |      |   |        |   |   | 9,602   |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Net cash used in
  investing activities                                                  |  |      | (73,592 | )    |   | (20,201 | ) |   | (3,290  | )
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Cash flows from
  financing activities:                                                  |  |      |         |      |   |         |   |   |         |  
|Net increase
  (decrease) in demand and savings deposits                                 |  |      | 15,736  |      |   | (19,534 | ) |   | 16,215  |  
|Net increase
  (decrease) in time deposits                                               |  |      | 1,951   |      |   | (6,443  | ) |   | 22,051  |  
|Increase in FHLB
  advances                                                              |  |      | 36,000  |      |   | 30,000  |   |   |        |  
|Net increase
  (decrease) in federal funds purchased                                     |  |      | 5,595   |      |   |        |   |   | (19,172 | )
|Cash dividends
  paid                                                                    |  |      | (1,720  | )    |   | (1,633  | ) |   | (1,542  | )
|Exercise of stock
  options including tax benefit of $22,000 in 2007 and $83,000 in 2006 |  |      | 368     |      |   | 508     |   |   | 150     |  
|Repurchases of common stock                                                              |  |      | (1,334  | )    |   | (73     | ) |   | (765    | )
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Net cash provided
  by financing activities                                              |  |      | 56,596  |      |   | 2,825   |   |   | 16,937  |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Net increase
  (decrease) in cash and cash equivalents                                   |  |      | (11,272 | )    |   | (8,276  | ) |   | 18,214  |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Cash and cash
  equivalents at beginning of year                                         |  |      | 27,022  |      |   | 35,298  |   |   | 17,084  |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Cash and cash
  equivalents at end of year                                               |  | $    | 15,750  |      | $ | 27,022  |   | $ | 35,298  |  
|                                                                                         |  |      |         |      |   |         |   |   |         |  
|Additional cash
  flow information:                                                      |  |      |         |      |   |         |   |   |         |  
|Interest paid                                                                            |  | $    | 13,215  |      | $ | 9,533   |   | $ | 4,980   |  
|Income taxes paid                                                                        |  |      | 2,335   |      |   | 4,020   |   |   | 2,224   |  
|Noncash - stock dividend                                                                 |  |      | 4,022   |      |   | 4,679   |   |   | 4,043   |  
|Change in unrealized
  gain(loss) on available-for-sale securities                       |  |      | 421     |      |   | 397     |   |   | (967    | )
|Loans transferred to Other Real Estate Owned                                             |  |      | 440     |      |   |        |   |   |        |  

See accompanying notes to consolidated financial statements.

55

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company and Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | FNB Bancorp
  (the Company) is a bank holding company registered under the Bank Holding
  Company Act of 1956, as amended. The Company was incorporated under the laws
  of the State of California on February 28, 2001. The consolidated financial
  statements include the accounts of FNB Bancorp and its wholly owned
  subsidiary, First National Bank of Northern California (the Bank). The Bank
  provides traditional banking services in San Mateo and San Francisco
  counties.                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Bank and
  the Company entered into an Agreement and Plan of Reorganization dated
  November 1, 2001 (the Plan of Reorganization), and the shareholders of the
  Bank approved the Plan of Reorganization at a Special Meeting of the
  Shareholders of the Bank held on February 27, 2002. The Plan of
  Reorganization was consummated on March 15, 2002. Each outstanding share of
  the common stock, par value $1.25 per share, of the Bank (other than any
  shares as to which dissenters rights of appraisal have been properly
  exercised) was converted into one share of the no par common stock of the
  Company, and the former holders of Bank common stock became the holders of
  all of the Company common stock. The change in capital structure has been
  included for all periods presented.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The
  preparation of 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 the disclosure of contingent
  assets and liabilities at the date of the financial statements and revenue
  and expenses during the reporting period. Actual results could differ from
  those estimates. For the Bank, the significant accounting estimate is the
  allowance for loan losses (note 1f). A summary of the significant accounting
  policies applied in the preparation of the accompanying consolidated
  financial statements follows.                                                                                 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Basis of
  Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The
  accounting and reporting policies of the Company and its wholly owned
  subsidiary are in accordance with accounting principles generally accepted in
  the United States of America. All intercompany balances and transactions have
  been eliminated.                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | Cash and Cash
  Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Cash and
  cash equivalents include cash on hand, amounts due from banks, and federal
  funds sold. Generally, federal funds are sold for one-day periods. The cash
  equivalents are readily convertible to known amounts of cash and present
  insignificant risk of changes in value due to original maturity dates of 90
  days or less. Included in cash and cash equivalents are amounts restricted
  for the Federal Reserve requirement of approximately $791,000 and $1,219,000
  at December 31, 2007 and 2006, respectively.

56

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Investment
  securities consist of U.S. Treasury securities, U.S. agency securities,
  obligations of states and political subdivisions, obligations of U.S.
  corporations, mortgage-backed securities and other securities. At the time of
  purchase of a security, the Company designates the security as
  held-to-maturity or available-for-sale, based on its investment objectives,
  operational needs, and intent to hold. The Company does not purchase
  securities with the intent to engage in trading activity. Held to maturity
  securities are recorded at amortized cost, adjusted for amortization of
  premiums or accretion of discounts. The Company did not have any investments
  in the held-to-maturity portfolio at December 31, 2007 or 2006.
  Available-for-sale securities are recorded at fair value with unrealized
  holding gains or losses, net of the related tax effect, reported as a
  separate component of stockholders equity until realized.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | A decline in
  the market value of any available-for-sale or held-to-maturity security below
  cost that is deemed other than temporary results in a charge to earnings and
  the corresponding establishment of a new cost basis for the security.
  Amortization of premiums and accretion of discounts on debt securities are
  included in interest income over the life of the related held-to-maturity or
  available-for-sale security using the effective interest method. Dividend and
  interest income are recognized when earned. Realized gains and losses for
  securities classified as available-for-sale and held-to-maturity are included
  in earnings and are derived using the specific identification method for
  determining the cost of securities sold.                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (d) | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | All
  derivatives are recognized as either assets or liabilities in the balance
  sheet and measured at fair value. The Company did not hold any derivatives at
  December 31, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

57

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Loans are
  reported at the principal amount outstanding, net of deferred loan fees and
  the allowance for loan losses. A loan is considered impaired when, based on
  current information and events, it is probable that the Company will be
  unable to collect all amounts due according to the contractual terms of the
  loan agreement, including scheduled interest payments. For a loan that has
  been restructured, the contractual terms of the loan agreement refer to the
  contractual terms specified by the original loan agreement, not the
  contractual terms specified by the restructuring agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | An impaired
  loan is measured based upon the present value of future cash flows discounted
  at the loans effective rate, the loans observable market price, or the fair
  value of collateral if the loan is collateral dependent. Interest on impaired
  loans is recognized on a cash basis. If the measurement of the impaired loan
  is less than the recorded investment in the loan, an impairment is recognized
  by a charge to the allowance for loan losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Unearned
  discount on installment loans is recognized as income over the terms of the
  loans by the interest method. Interest on other loans is calculated by using
  the simple interest method on the daily balance of the principal amount
  outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Loan fees
  net of certain direct costs of origination, which represent an adjustment to
  interest yield, are deferred and amortized over the contractual term of the
  loan using the interest method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Loans on
  which the accrual of interest has been discontinued are designated as
  nonaccrual loans. Accrual of interest on loans is discontinued either when
  reasonable doubt exists as to the full and timely collection of interest or
  principal when a loan becomes contractually past due by 90 days or more with
  respect to interest or principal. When a loan is placed on nonaccrual status,
  all interest previously accrued but not collected is reversed against current
  period interest income. Interest accruals are resumed on such loans only when
  they are brought fully current with respect to interest and principal and
  when, in the judgment of management, the loans are estimated to be fully
  collectible as to both principal and interest. Restructured loans are loans
  on which concessions in terms have been granted because of the borrowers
  financial difficulties. Interest is generally accrued on such loans in
  accordance with the new terms. Net interest written off in 2007 was not
  considered material (see Allowance for Loan Losses discussed in the
  Management Discussion and Analysis section).

58

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (f) | Allowance for Loan
  Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The
  allowance for loan losses is established through a provision for loan losses
  charged to expense. Loans are charged off against the allowance for loan
  losses when management believes that the collectibility of the principal is
  unlikely. The allowance is an amount that management believes will be
  adequate to absorb probable losses inherent in existing loans, standby
  letters of credit, overdrafts, and commitments to extend credit based on
  evaluations of collectibility and prior loss experience. The evaluations take
  into consideration such factors as changes in the nature and volume of the
  portfolio, overall portfolio quality, loan concentrations, specific problem
  loans and current and anticipated economic conditions that may affect the
  borrowers ability to pay. While management uses these evaluations to
  determine the level of the allowance for loan losses, future provisions may
  be necessary based on changes in the factors used in the evaluations.
  Material estimates relating to the determination of the allowance for loan
  losses are particularly susceptible to significant change in the near term.
  Management believes that the allowance for loan losses is adequate. While
  management uses available information to recognize losses on loans, future
  additions to the allowance may be necessary based on changes in economic
  conditions. In addition, the banking regulators, as an integral part of its
  examination process, periodically review the Banks allowance for loan
  losses. The banking regulators may require the Bank to recognize additions to
  the allowance based on their judgment about information available to them at
  the time of their examination.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (g) | Premises and
  Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Premises and
  equipment are reported at cost less accumulated depreciation using the
  straight-line method over the estimated service lives of related assets
  ranging from 3 to 50 years original life. Those set up for 50 years were
  before 1986, when the IRS rules shortened the allowable lives for assets.
  Leasehold improvements are amortized over the lives of the respective leases
  or the service lives of the improvements, whichever is shorter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (h) | Cash Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The
  Companys ability to pay cash dividends is subject to restrictions set forth
  in the California General Corporation Law. Funds for payment of any cash
  dividends by the Company would be obtained from its investments as well as
  dividends and/or management fees from First National Bank. First National
  Banks ability to pay cash dividends is subject to restrictions imposed under
  the National Bank Act and regulations promulgated by the Office of the Comptroller
  of the Currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

59

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | Stock Dividend                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | On December
  5, 2007, the Company announced that its Board of Directors had declared a
  five percent (5%) stock dividend resulting in approximately 143,227 shares,
  payable at the rate of one share of Common Stock for every twenty (20) shares
  of Common Stock owned. The stock dividend was paid on December 14, 2007, to
  shareholders of record on November 30, 2007. The earnings per share data
  presented have been adjusted for this stock dividend.                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (j) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Deferred
  income taxes are determined using the assets and liabilities method. Under
  this method, the net deferred tax asset or liability is recognized for tax
  consequences of temporary differences by applying current tax rates to
  differences between the financial reporting and the tax basis of existing
  assets and liabilities. Deferred tax assets and liabilities are reflected at
  currently enacted income tax rates applicable to the period in which the
  deferred tax assets or liabilities are expected to be realized or settled. As
  changes in tax laws or rates are enacted, deferred tax assets and liabilities
  are adjusted through the provision for income taxes.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Accounting for
  Income Tax Uncertainties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company
  adopted the provisions of FASB Interpretation No. 48, Accounting for
  Uncertainty in Income Taxes, on January 1, 2007. The Company had no
  unrecognized tax benefits which would require adjustment to the January 1,
  2007 beginning balance of retained earnings. The Company had unrecognized tax
  benefits of $37,500 at December 31, 2007.                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company
  recognizes interest accrued and penalties related to unrecognized tax benefits
  in tax expense. During the years ended December 31, 2007 and 2006 the Company
  believes that any penalty and interest penalties that may exist are not
  material and have not been accrued for.                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (k) | Earnings per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Basic
  earnings per share is computed by dividing net income by the weighted average
  common shares outstanding. Diluted earnings per share reflects potential
  dilution from outstanding stock options, using the treasury stock method.
  There were 44,290 and 46,283 antidilutive shares in the years ended December
  31, 2007 and 2006, respectively. There were no antidilutive shares in the
  year ended December 31, 2005.                                                                                                                                                                                                                                                                 

60

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For each of
  the years presented, net income is the same for basic and diluted earnings
  per share. Reconciliation of weighted average shares used in computing basic
  and diluted earnings per share is as follows:

|                                                                                        |  |      |       |      |  |       |  |  |       | 
|--------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- |  |  | ----- | 
|(Number of shares in thousands)                                                         |  | 2007 |       | 2006 |  | 2005  | 
|                                                                                        |  |      |       |      |  |       | 
|Weighted average common shares
  outstanding-used in computing basic earnings per share |  |      | 2,993 |      |  | 2,986 |  |  | 2,975 | 
|Dilutive effect of stock options
  outstanding, using the treasury stock method         |  |      | 34    |      |  | 70    |  |  | 59    | 
|                                                                                        |  |      |       |      |  |       |  |  |       | 
|Shares used in computing diluted earnings
  per share                                   |  |      | 3,027 |      |  | 3,056 |  |  | 3,034 | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (l) | Stock Option Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | In December
  2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment.
  This Statement requires that compensation costs related to share-based
  payment transactions be recognized in the financial statements. Effective
  January 1, 2006, the Company adopted SFAS No. 123® Share-Based Payment, on
  a moodified basis. Measurement of the cost of stock options granted is based
  on the grant-date fair value of each stock option granted using the
  Black-Scholes valuation model. The cost is then amortized to expense on a
  straight-line basis over each options five year vesting period. The
  amortized expense of the stock options fair value has been included in
  salaries and employee benefits expense for the three years ended December 31,
  2007, 2006 and 2005.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The expected
  term of options granted is derived from the output of the option valuation
  model and represents the period of time that options granted are expected to
  be outstanding. The risk-free rate for periods within the contractual life of
  the option is based on the U. S. Treasury yield curve in effect at the time
  of the grant. FNB Bancorp stock has limited liquidity and limited trading
  activity. Volatility was calculated using historical price changes on a
  monthly basis over the expected life of the option.                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (m) | Fair Values of
  Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The notes to
  financial statements include various estimated fair value information as of December
  31, 2007 and 2006. Such information, which pertains to the Company financial
  instruments, does not purport to represent the aggregate net fair value of
  the Company. Further, the fair value estimates are based on various
  assumptious, methodologies and subjective consideration, which vary widely
  among different financial institutions and which are subject to change.                                                                                                                                                                                                                                                                                                                        

61

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (n) | Income Tax Credits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | At December
  31, 2007, the Bank had a $2,376,000 equity investment in three partnerships,
  which own low-income affordable housing projects that generate tax benefits
  in the form of federal and state housing tax credits. As a limited partner investor
  in these partnerships, the Company receives tax benefits in the form of tax
  deductions from partnership operating losses and federal and state income tax
  credits. The federal and state income tax credits are earned over a 10-year
  period as a result of the investment properties meeting certain criteria and
  are subject to recapture for noncompliance with such criteria over a 15-year
  period. The expected benefit resulting from the low-income housing tax
  credits is recognized in the period for which the tax benefit is recognized
  in the Companys consolidated tax returns. These investments are accounted
  for using the effective yield method and are recorded in other assets on the
  balance sheet. Under the effective yield method, the Company recognizes tax credits
  as they are allocated and amortizes the initial cost of the investments to
  provide a constant effective yield over the period that tax credits are
  allocated to the Company. The effetive yield is the internal rate of return
  on the investment, based on the cost of the investment and the guaranteed tax
  credits allocated to the Company. Any expected residual value of the
  investment was excluded from the effective yield calculation. Cash received
  from operations of the limited partnership or sale of the properties, if any,
  will be included in earnings when realized or realizable.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (o) | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Certain
  prior year information has been reclassified to conform to current year
  presentation. The reclassifications had no impact on net income or retained
  earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (p) | Bank Owned Life
  Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The
  Corporation purchased insurance on the lives of certain employees. The
  policies accumulate asset values to meet future liabilities including the
  payment of employee benefits such as the deferred compensation plan. Increases in the cash surrender value are recorded
  as other noninterest income in the consolidated statements of income. The
  cash surrender value of bank owned life insurance is reflected in other
  assets on the consolidated balance sheets in the amount of $9,617,000 and
  $7,267,000 at December 31, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

62

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006, and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (q) | Federal Home Loan
  Bank Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Bank
  maintains a collateralized line of credit with the Federal Home Loan Bank
  (FHLB) of San Francisco. Under this line, the Bank may borrow on a short
  term or a long term (over one year) basis. FHLB advances are recorded and
  carried at their historical cost. FHLB advances are not transferable and may
  contain prepayment penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (r) | Recently Iissued
  Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In June
  2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for
  Uncertainty in Income Taxes. This interpretation guides the accounting and
  reporting of income taxes where interpretation of the law is uncertain. FIN
  48 prescribes a comprehensive model for the financial statement recognition,
  measurement, presentation and disclosure of income tax uncertainties with
  respect to positions taken or expected to be taken in income tax returns. FIN
  48 is effective for fiscal years beginning after December 31, 2006. The
  Company adopted this Statement on January 1, 2007. As a result of the implementation
  of FIN 48, it was not necessary for the Company to recognize any increase in
  the liability for unrecognized tax benefits. The total amount of unrecognized
  tax benefits as of the adoption of FIN 48, including estimated penalties and
  interest, was $35,000 and relates to the level of Enterprise Zone credits
  that have been claimed on filed California tax returns. The Company
  recognizes interest and penalties accrued related to unrecognized tax
  benefits in income tax expense. The statute of limitations for assessment of
  additional taxes on income for Federal income and California franchise tax
  purposes are closed years prior to 2004 and 2003, respectively.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | In September
  2006, FASB issued Statement No. 157, Fair Value Measurements. This
  Statement defines fair value, establishes a framework for measuring fair
  value in accordance with generally accepted accounting principles (GAAP),
  and expands disclosures about fair value measurements. This Statement
  supplements other accounting pronouncements that require or permit fair value
  measurements. This Statement
  also expands disclosures using fair value to measure assets and liabilities
  in interim and annual periods subsequent to the period of initial
  recognition. This Statement is effective for financial statements issued for
  fiscal years beginning after November 15, 2007, and interim periods within
  those fiscal years. The adoption of this standard is not expected to have a
  material effect on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

63

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006, and 2005

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |  | In February
  2007, the Financial Accounting Standards Board (FASB) issued Statement No.
  159 The Fair Value Option for Financial Assets and Financial Liabilities 
  Including an amendment of FASB Statement No. 115. Statement No. 159
  establishes a fair value option that allows an entity to designate individual
  financial assets and liabilities as fair value option instruments. Under the
  fair value option, the change in unrealized gains and losses created by the
  change in fair value of financial instruments shall be reported in an
  entitys earnings for each reporting period. Additional disclosures regarding
  fair value for financial assets and liabilities accounting for under the fair
  value option are also required. This statement is effective as of the
  beginning of an entitys first fiscal year that begins after November 15,
  2007. The Company does not expect this standard to have a material impact on
  the Companys financial statements.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
| |  | In December
  2007, the Financial Accounting Standards Board (FASB) announced that it had
  revised Statement 141, Business Combinations, with 141(R). The revised
  Statement No. 141 was written to improve the relevance, representational
  faithfulness and comparability of the information that a reporting entity
  provides in its financial reports about a business combination and its
  effects. This Statement establishes principles and requirements for how the
  acquirer:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |  |    |                                                                                                                                                                   
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) | Recognizes
  and measures in its financial statements the identifiable assets acquired,
  the liabilities assumed, and any noncontrolling interest in the acquiree
| |  |    |                                                                                                                                                                   
| |  | b) | Recognizes
  and measures the goodwill acquired in the business combination or a gain from
  a bargain purchase                                                   

64

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006, and 2005

| |  |    |                                                                                                                                                                 
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | c) | Determines
  what information to disclose to enable users of the financial statements to
  evaluate the nature and financial effects of the business combination

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |  | This
  Statement applies prospectively to business combinations for which the
  acquisition date is on or after the beginning of the first annual reporting
  period beginning on or after December 15, 2008. The Company does not expect
  this Standard to have a material effect on the Companys financial
  statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
| |  | In December
  2007, the Financial Accounting Standards Board (FASB) issued Statement No.
  160, Noncontrolling Interest in Consolidated Financial Statements  an
  amendment of ARB No. 51. Statement No. 160 clarifies reporting and
  disclosure requirements related to noncontrolling interest included in an
  entitys consolidated financial statements. This Statement clarifies that
  noncontrolling interests are to be reported in the noncontrolling section of
  the balance sheet and requires net income to include amounts from both the
  parent and the noncontrolling interest. This Statement also requires the
  parent company to recognize a gain or loss in net income when a subsidiary is
  deconsolidated. This Statement is effective for fiscal years (and interim
  periods within those years), beginning on or after December 15, 2008. The
  Company will apply this Statement prospectively and does not expect the
  Statement to have a material impact on the Companys financial statements.

|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Restricted Cash Balance                                                                                                                                                                                                                                                                                                                
|    | Cash and due
  from banks includes balances with the Federal Reserve Bank (the FRB). The
  Bank is required to maintain specified minimum average balances with the FRB,
  based primarily upon the Banks deposit balances. As of December 31, 2007 and
  2006, the Bank maintained deposits in excess of the FRB reserve requirement.

65

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006, and 2005

|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|(3) | Securities Available-for-Sale                                                              
|    | The
  amortized cost and carrying values of securities available-for-sale are as
  follows:

|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 
|-------------------------------------------------- |  | --------- | ------ | ---------- | - | ---------- |  | -------- | ---- | - | - | ------ | 
|                                                   |  | Amortized |        | Unrealized |   | Unrealized |  | Carrying |     
|(Dollar amounts in thousands)                      |  | cost      |        | gains      |   | losses     |  | value    |     
|                                                   |  |           |        |            |   |            |  |          |     
|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 
|December 31, 2007:                                 |  |           |        |            |   |            |  |          |      |   |   |        | 
|Obligations of U.S. Government agencies            |  | $         | 38,370 |            | $ | 302        |  | $        |     |   | $ | 38,672 | 
|Obligations of states and political
  subdivisions |  |           | 52,357 |            |   | 440        |  |          | (37  | ) |   | 52,760 | 
|Corporate debt                                     |  |           | 2,999  |            |   | 2          |  |          | (1   | ) |   | 3,000  | 
|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 
|                                                   |  | $         | 93,726 |            | $ | 744        |  | ($       | 38   | ) | $ | 94,432 | 
|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 
|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 
|December 31, 2006:                                 |  |           |        |            |   |            |  |          |      |   |   |        | 
|Obligations of U.S. Government agencies            |  | $         | 29,197 |            | $ | 2          |  | ($       | 67   | ) | $ | 29,132 | 
|Obligations of states and political
  subdivisions |  |           | 59,693 |            |   | 297        |  |          | (229 | ) |   | 59,761 | 
|Corporate debt                                     |  |           | 3,984  |            |   |           |  |          | (10  | ) |   | 3,974  | 
|Other securities                                   |  |           | 2,078  |            |   |           |  |          |     |   |   | 2,078  | 
|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 
|                                                   |  | $         | 94,952 |            | $ | 299        |  | ($       | 306  | ) | $ | 94,945 | 
|                                                   |  |           |        |            |   |            |  |          |      |   |   |        | 

66

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006, and 2005

| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | An analysis
  of gross unrealized losses of the available for sale investment securities
  portfolio as of December 31, 2007 and December 31, 2006 follows.

|                                                   |  |            |       |            |             |            |   |            |       |             |    |            |   |   |        |  |    |    |  
|-------------------------------------------------- |  | ---------- | ----- | ---------- | ----------- | ---------- | - | ---------- | ----- | ----------- | -- | ---------- | - | - | ------ |  | -- | -- | -
|                                                   |  |            |       |            | Less
  than |            |   |            |       | 12
  Months |    |            |   |   |        |  |   
|                                                   |  |            |       |            | 12 Months   |            |   |            |       | or Longer   |    |            |   |   | Total  | 
|December 31, 2007:                                 |  |            |       | Unrealized |             |            |   | Unrealized |       |             |    | Unrealized |  
|(Dollar amounts in thousands)                      |  | Fair Value |       | Losses     |             | Fair Value |   | Losses     |       | Fair Value  |    | Losses     |  
|                                                   |  |            |       |            |             |            |   |            |       |             |    |            |   |   |        |  |    |    |  
|Obligations
  of states and political subdivisions |  | $          | 2,007 |            | ($          | 13         | ) | $          | 8,486 |             | ($ | 24         | ) | $ | 10,493 |  | ($ | 37 | )
|Corporate
  debt                                   |  |            | 996   |            |             | (1         | ) |            |      |             |    |           |   |   | 996    |  |    | (1 | )
|                                                   |  |            |       |            |             |            |   |            |       |             |    |            |   |   |        |  |    |    |  
|Total                                              |  | $          | 3,003 |            | ($          | 14         | ) | $          | 8,486 |             | ($ | 24         | ) | $ | 11,489 |  | ($ | 38 | )
|                                                   |  |            |       |            |             |            |   |            |       |             |    |            |   |   |        |  |    |    |  

|                                                   |  |            |        |            |             |            |   |            |        |             |    |            |   |   |        |  |    |      |  
|-------------------------------------------------- |  | ---------- | ------ | ---------- | ----------- | ---------- | - | ---------- | ------ | ----------- | -- | ---------- | - | - | ------ |  | -- | ---- | -
|                                                   |  |            |        |            | Less
  than |            |   |            |        | 12
  Months |    |            |   |   |        |  |   
|                                                   |  |            |        |            | 12 Months   |            |   |            |        | or Longer   |    |            |   |   | Total  | 
|At December 31, 2006:                              |  |            |        | Unrealized |             |            |   | Unrealized |        |             |    | Unrealized |  
|(Dollar amounts in thousands)                      |  | Fair Value |        | Losses     |             | Fair Value |   | Losses     |        | Fair Value  |    | Losses     |  
|                                                   |  |            |        |            |             |            |   |            |        |             |    |            |   |   |        |  |    |      |  
|Obligations
  of U.S. government agencies          |  | $          | 14,708 |            | ($          | 10         | ) | $          | 11,945 |             | ($ | 57         | ) | $ | 26,653 |  | ($ | 67   | )
|Obligations
  of states and political subdivisions |  |            | 7,053  |            |             | (25        | ) |            | 22,009 |             |    | (204       | ) |   | 29,062 |  |    | (229 | )
|Corporate
  debt                                   |  |            | 2,973  |            |             | (3         | ) |            | 1,001  |             |    | (7         | ) |   | 3,974  |  |    | (10  | )
|                                                   |  |            |        |            |             |            |   |            |        |             |    |            |   |   |        |  |    |      |  
|Total                                              |  | $          | 24,734 |            | ($          | 38         | ) | $          | 34,955 |             | ($ | 268        | ) | $ | 59,689 |  | ($ | 306  | )
|                                                   |  |            |        |            |             |            |   |            |        |             |    |            |   |   |        |  |    |      |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December
  31, 2007, a total of 27 securities make up the amount of securities in an
  unrealized loss position for greater than 12 consecutive months. Management
  periodically evaluates each security in an unrealized loss position to
  determine if the impairment is temporary or other-than-temporary. Management
  has determined that no investment security is other-than-temporarily
  impaired. The unrealized losses are due solely to interest rate changes and
  the Company has the ability and intent to hold all investment securities with
  identified impairments resulting from interest rate changes to the earliest
  of forecasted recovery or the maturity of the underlying investment security.

67

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  amortized cost and carrying value of debt securities as of December 31, 2007,
  by contractual maturity, are shown below. Expected maturities may differ from
  contractual maturities because borrowers may have the right to call or prepay
  obligations with or without call or prepayment penalties.

|                                       |  |           |        |          |  |        | 
|-------------------------------------- |  | --------- | ------ | -------- |  | ------ | 
|                                       |  | Amortized |        | Carrying | 
|(Dollar amounts in thousands)          |  | Cost      |        | Value    | 
|                                      
|Available-for-sale:                    |  |           |        |          |  |        | 
|Due in one year or less                |  | $         | 16,839 |          |  | 16,869 | 
|Due after one through five years       |  |           | 46,019 |          |  | 46,364 | 
|Due after five years through ten years |  |           | 21,847 |          |  | 22,064 | 
|Due after ten years                    |  |           | 9,021  |          |  | 9,135  | 
|                                       |  |           |        |          |  |        | 
|                                       |  | $         | 93,726 |          |  | 94,432 | 
|                                       |  |           |        |          |  |        | 

| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the
  years ended December 31, 2007, 2006, and 2005, gross realized gains amounted
  to $4,000, $185,000, and $15,000, respectively. For the years ended December
  31, 2007, 2006, and 2005, gross realized losses amounted to $0, $196,000, and
  $116,000, respectively.            
| |                                                                                                                                                                                                                                                                                            
| | At December
  31, 2007 and 2006, securities with an amortized cost of $83,874,000 and
  $49,551,000, and fair value of $84,505,000 and $49,635,000, respectively,
  were pledged as collateral for public deposits and for other purposes
  required by law.                               
| |                                                                                                                                                                                                                                                                                            
| | As of
  December 31, 2007 and 2006, the Bank had investments in Federal Reserve Bank
  stock classified as other assets in the accompanying balance sheets of
  $702,000. These investments in Federal Reserve Bank stock are carried at
  cost, and evaluated periodically for impairment.

68

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|    |                                                  
|--- | -------------------------------------------------
|(4) | Loans, Net                                       
|    | Loans are
  summarized as follows at December 31:

|                              |  |      |         |      |   |         |  
|----------------------------- |  | ---- | ------- | ---- | - | ------- | -
|(Dollar amounts in thousands) |  | 2007 |         | 2006 |  
|                              |  |      |         |      |  
|                             
|Real Estate                   |  | $    | 352,050 |      | $ | 318,655 |  
|Construction                  |  |      | 57,362  |      |   | 37,094  |  
|Commercial                    |  |      | 82,228  |      |   | 66,139  |  
|Consumer                      |  |      | 3,636   |      |   | 3,279   |  
|                              |  |      |         |      |   |         |  
|Gross loans                   |  |      | 495,276 |      |   | 425,167 |  
|                              |  |      |         |      |   |         |  
|Net deferred loan fees        |  |      | (64     | )    |   | (728    | )
|Allowance for loan losses     |  |      | (5,638  | )    |   | (5,002  | )
|                              |  |      |         |      |   |         |  
|Net loans                     |  | $    | 489,574 |      | $ | 419,437 |  
|                              |  |      |         |      |   |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Bank had
  total impaired loans of $12,158,000 and $2,628,000 at December 31, 2007 and
  2006, respectively. The allowance for loan losses related to the impaired
  loans was $707,000 and $51,000 as of December 31, 2007 and 2006,
  respectively. The amount of the recorded investment in impaired loans for
  which there is no related allowance is $11,451,000 and $2,577,000 as of
  December 31, 2007 and 2006. During 2007 and 2006, nonaccrual loans
  represented all impaired loans. The average recorded investment in impaired
  loans during 2007, 2006 and 2005 was $6,036,000, $610,000, and $1,205,000,
  respectively. Interest income on impaired loans of $69,000, $3,000, and $0,
  was recognized for cash payments received in 2007, 2006, and 2005,
  respectively. The amount of interest on impaired loans not collected in 2007,
  2006 and 2005, was $547,000, $70,000, and $2,000, respectively.

69

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|    |                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------
|(5) | Allowance for Loan Losses                                                                              
|    | Changes in
  the allowance for loan losses are summarized as follows for the years ended
  December 31:

|                                           |  |      |       |      |  |       |   |  |       |  
|------------------------------------------ |  | ---- | ----- | ---- |  | ----- | - |  | ----- | -
|(Dollar amounts in thousands)              |  | 2007 |       | 2006 |  | 2005  |  
|                                           |  |      |       |      |  |       |  
|Balance, beginning of year                 |  |      | 5,002 |      |  | 4,374 |   |  | 3,133 |  
|Loans charged off                          |  |      | (80   | )    |  | (59   | ) |  | (110  | )
|Recoveries                                 |  |      | 26    |      |  | 4     |   |  | 23    |  
|                                           |  |      |       |      |  |       |   |  |       |  
|Net loans charged off                      |  |      | (54   | )    |  | (55   | ) |  | (87   | )
|                                           |  |      |       |      |  |       |   |  |       |  
|Provision for loan losses                  |  |      | 690   |      |  | 683   |   |  | 628   |  
|Allowance acquired in business combination |  |      |      |      |  |      |   |  | 700   |  
|                                           |  |      |       |      |  |       |   |  |       |  
|Balance, end of year                       |  |      | 5,638 |      |  | 5,002 |   |  | 4,374 |  
|                                           |  |      |       |      |  |       |   |  |       |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In the
  ordinary course of business, the Bank made loans and advances under lines of
  credit to directors, officers, and their related interests. The Banks
  policies require that all such loans be made at substantially the same terms
  as those prevailing at the time for comparable transactions with unrelated
  parties and do not involve more than normal risk or unfavorable features. The
  following summarizes activities of loans to such parties in 2007 and 2006:

|                              |  |      |        |      |   |       |  | 
|----------------------------- |  | ---- | ------ | ---- | - | ----- |  | 
|(Dollar amounts in thousands) |  | 2007 |        | 2006 |   |      
|                              |  |      |        |      |   |      
|Balance, beginning of year    |  | $    | 3,521  |      | $ | 3,918 |  | 
|Additions                     |  |      | 7,706  |      |   | 3,354 |  | 
|Repayments                    |  |      | 853    |      |   | 3,751 |  | 
|                              |  |      |        |      |   |       |  | 
|Balance, end of year          |  | $    | 10,374 |      | $ | 3,521 |  | 
|                              |  |      |        |      |   |       |  | 

|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Bank Premises, Equipment, and Leasehold Improvements                                                                                                                       
|    | Bank
  premises, equipment and leasehold improvements are stated at cost, less
  accumulated depreciation and amortization, and are summarized as follows at
  December 31:

|                                          |  |      |        |      |  |         |   | 
|----------------------------------------- |  | ---- | ------ | ---- |  | ------- | - | 
|(Dollar amounts in thousands)             |  | 2007 |        | 2006 |  |        
|                                          |  |      |        |      |  |        
|Buildings                                 |  | $    | 9,032  |      |  | 8,619   |   | 
|Equipment                                 |  |      | 8,667  |      |  | 10,226  |   | 
|Leasehold improvements                    |  |      | 1,010  |      |  | 1,093   |   | 
|                                          |  |      |        |      |  |         |   | 
|                                          |  |      | 18,709 |      |  | 19,938  |   | 
|Accumulated depreciation and amortization |  |      | (9,437 | )    |  | (10,876 | ) | 
|                                          |  |      |        |      |  |         |   | 
|                                          |  |      | 9,272  |      |  | 9,062   |   | 
|Land                                      |  |      | 4,414  |      |  | 4,414   |   | 
|                                          |  |      |        |      |  |         |   | 
|                                          |  | $    | 13,686 |      |  | 13,476  |   | 
|                                          |  |      |        |      |  |         |   | 

70

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Depreciation
  expense for the years ended December 31, 2007, 2006, and 2005 was $1,270,000,
  $1,183,000, and $1,163,000, respectively.                                                 
|    |                                                                                                                                                                                          
|(8) | Deposits                                                                                                                                                                                 
|    | The
  aggregate amount of jumbo time certificates, each with a minimum denomination
  of $100,000 or more, was $81,169,000 and $77,039,000 at December 31, 2007 and
  2006, respectively.
|    |                                                                                                                                                                                          
|    | At December
  31, 2007, the scheduled maturities of all time certificates are as follows:                                                                                                

|                              |  |   |         | 
|----------------------------- |  | - | ------- | 
|(Dollar amounts in thousands) |  |   |         | 
|                              |  |   |         | 
|Year ending December 31:      |  |   |         | 
|2008                          |  | $ | 122,931 | 
|2009                          |  |   | 6,035   | 
|2010                          |  |   | 7,375   | 
|                              |  |   |         | 
|                              |  | $ | 136,341 | 
|                              |  |   |         | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Federal home Loan Bank Advances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | As of
  December 31, 2007, these consisted of $36,000,000 in short-term advances due
  in one year or less, and $30,000,000 in long-term advances due in over one to
  three years. The interest rate on total advances ranged from 3.82% to 5.57%
  at year end December 31, 2007. As of December 31, 2006, the short-term
  advances consisted of $10,000,000 due in one year or less, and in long-term
  advances of $20,000,000 due in over one to three years. The interest rate on
  total advances ranged from 5.57% to 5.59% at year end December 31, 2006.
  Average Federal Home loan Bank advances were $39,482,000 and $15,863,000 in
  2007 and 2006, respectively. Weighted average rates were 5.24% and 5.55% in
  2007 and 2006, respectively. The maximum amount borrowed during 2007 and 2006
  was $66,000,000 and $30,000,000, respectively. At December 31, 2007, the Bank
  had a maximum borrowing capacity under Federal Home Loan Bank advances of
  $193,337,000, of which $127,337,000 was available. The Federal Home Loan Bank
  advances are secured by a blanket collateral agreement by a pledge of FHLB
  stock nad certain other qualifying collateral, such as commercial and
  mortgage loans.

71

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|     |                                                                                                                                                                                                                                                                                                                                                                              
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                
|     | The Bank
  leases a portion of its facilities and equipment under noncancelable
  operating leases expiring at various dates through 2011. Some of these leases
  provide that the Bank pay taxes, maintenance, insurance, and other occupancy
  expenses applicable to leased premises. Generally, the leases provide for
  renewal for various periods at stipulated rates.
|     |                                                                                                                                                                                                                                                                                                                                                                              
|     | The minimum
  rental commitments under the operating leases as of December 31, 2007 are as
  follows:                                                                                                                                                                                                                                                                        

|                         |  |   |     | 
|------------------------ |  | - | --- | 
|(Dollars in thousands)   |  |   |     | 
|                         |  |   |     | 
|Year ending December 31: |  |   |     | 
|2008                     |  | $ | 440 | 
|2009                     |  |   | 250 | 
|2010                     |  |   | 77  | 
|2011                     |  |   | 13  | 
|                         |  |   |     | 
|                         |  | $ | 780 | 
|                         |  |   |     | 

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Total rent
  expense for operating leases was $591,000, $554,000 and $401,000, in 2007,
  2006, and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The Bank is
  engaged in various lawsuits either as plaintiff or defendant in the ordinary
  course of business and, in the opinion of management, based upon the advice
  of counsel, the ultimate outcome of these lawsuits will not have a material
  effect on the Banks financial statements.                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(11) | Bank Savings Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | The Bank
  maintains a salary deferral 401(k) plan covering substantially all employees,
  known as the First National Bank Savings Plan (the Plan). The Plan allows
  employees to make contributions to the Plan up to a maximum allowed by law
  and the Banks contribution is discretionary. The Banks contribution to the
  Plan for the years ended December 31, 2007, 2006, and 2005 was $600,000,
  $602,000, and $626,000, respectively.                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(12) | Salary Continuation and Deferred Compensation Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | The Bank
  maintains a Salary Continuation Plan for certain Bank officers. Officers
  participating in the Salary Continuation Plan are entitled to receive a
  monthly payment for a period of fifteen to twenty years upon retirement. The
  Company accrues such post-retirement benefits
  over the individuals employment period. The Salary Continuation Plan expense
  for the years ended December 31, 2007, 2006, and 2005 was $181,000, $239,000,
  and $325,000, respectively. Accrued compensation payable under the salary
  continuation plan totaled $2,010,000 and $1,959,000 at December 31, 2007 and
  2006, respectively.

72

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | The Deferred
  Compensation Plan allows eligible officers to defer annually their
  compensation up to a maximum 80% of their base salary and 100% of their cash
  bonus. The officer will be entitled to receive distribution upon reaching a
  specified age, passage of at least five years or termination of employment.
  As of December 31, 2007 and 2006, the related liability included in accrued
  expenses and other liabilities was $1,715,000 and $1,935,000, respectively.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(13) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | The provision
  for income taxes for the years ended December 31, consists of the following:                                                                                                                                                                                                                                                                                                                                                                                            

|                              |  |      |       |      |   |       |   |   |       |  
|----------------------------- |  | ---- | ----- | ---- | - | ----- | - | - | ----- | -
|(Dollar amounts in thousands) |  | 2007 |       | 2006 |   | 2005  |  
|                              |  |      |       |      |   |       |  
|Current:                      |  |      |       |      |   |       |   |   |       |  
|Federal                       |  | $    | 1,961 |      | $ | 2,789 |   | $ | 2,223 |  
|State                         |  |      | 727   |      |   | 827   |   |   | 387   |  
|                              |  |      |       |      |   |       |   |   |       |  
|                              |  | $    | 2,688 |      | $ | 3,616 |   | $ | 2,610 |  
|                              |  |      |       |      |   |       |   |   |       |  
|                              |  |      |       |      |   |       |   |   |       |  
|Deferred:                     |  |      |       |      |   |       |   |   |       |  
|Federal                       |  | $    | (252  | )    | $ | (69   | ) | $ | (207  | )
|State                         |  |      | (54   | )    |   | 62    |   |   | 26    |  
|                              |  |      |       |      |   |       |   |   |       |  
|                              |  |      | (306  | )    |   | (7    | ) |   | (181  | )
|                              |  |      |       |      |   |       |   |   |       |  
|                              |  | $    | 2,382 |      | $ | 3,609 |   | $ | 2,429 |  
|                              |  |      |       |      |   |       |   |   |       |  

| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The reason
  for the differences between the statutory federal income tax rate and the
  effective tax rates for the years ending December 31, are summarized as
  follows:

|                                                |  |      |      |      |  |      |   |  |      |  
|----------------------------------------------- |  | ---- | ---- | ---- |  | ---- | - |  | ---- | -
|                                                |  | 2007 |      | 2006 |  | 2005 |  
|                                                |  |      |      |      |  |      |  
|Statutory rates                                 |  |      | 34.0 | %    |  | 34.0 | % |  | 34.0 | %
|                                                |  |      |      |      |  |      |   |  |      |  
|Increase (decrease) resulting from:             |  |      |      |      |  |      |   |  |      |  
|Income tax exempt for federal purposes          |  |      | (6.8 | )    |  | (6.1 | ) |  | (7.1 | )
|State taxes on income, net of federal
  benefit |  |      | 4.9  |      |  | 5.2  |   |  | 3.3  |  
|Benefits from low income housing credits        |  |      | (4.8 | )    |  | (1.3 | ) |  | (1.1 | )
|Other, net                                      |  |      | (1.0 | )    |  | 0.4  |   |  | 0.6  |  
|                                                |  |      |      |      |  |      |   |  |      |  
|Effective tax rate                              |  |      | 26.3 | %    |  | 32.2 | % |  | 29.7 | %
|                                                |  |      |      |      |  |      |   |  |      |  

73

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, and 2006 and 2005

| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | The tax
  effect of temporary differences giving rise to the Banks net deferred tax
  asset is as follows:

|                                                            |  |              |       |      |   |       | 
|----------------------------------------------------------- |  | ------------ | ----- | ---- | - | ----- | 
|                                                            |  | December 31, |      
|                                                            |  |              |      
|(Dollar amounts in thousands)                               |  | 2007         |       | 2006 |  
|                                                            |  |              |       |      |  
|                                                           
|Deferred tax assets                                         |  |              |       |      |   |       | 
|Allowance for loan losses                                   |  | $            | 2,463 |      | $ | 2,123 | 
|Accrued salaries and officers
compensation                  |  |              | 1,423 |      |   | 1,469 | 
|Capitalized interest on buildings                           |  |              | 25    |      |   | 27    | 
|Expenses accrued on books, not yet deductible in tax return |  |              | 706   |      |   | 591   | 
|Depreciation                                                |  |              | 586   |      |   | 572   | 
|Net operating loss carryforward                             |  |              | 1,046 |      |   | 1,236 | 
|Unrealized loss on available-for-sale
  securities          |  |              | 0     |      |   | 3     | 
|                                                            |  |              |       |      |   |       | 
|Total deferred tax assets                                   |  |              | 6,249 |      |   | 6,021 | 
|                                                            |  |              |       |      |   |       | 
|                                                            |  |              |       |      |   |       | 
|Deferred tax liabilities                                    |  |              |       |      |   |       | 
|Unrealized appreciation on
  available-for-sale securities  |  | $            | 292   |      | $ |      | 
|State income taxes                                          |  |              | 405   |      |   | 379   | 
|Core deposit intangible                                     |  |              | 374   |      |   | 453   | 
|Expenses and credits deducted on tax
  return, not books    |  |              | 14    |      |   | 37    | 
|                                                            |  |              |       |      |   |       | 
|Total deferred tax liabilities                              |  |              | 1,085 |      |   | 869   | 
|                                                            |  |              |       |      |   |       | 
|Net deferred tax asset (included in other
  assets)         |  | $            | 5,164 |      | $ | 5,152 | 
|                                                            |  |              |       |      |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of
  December 31, 2007, the Bank had no state tax credit carryforwards for income
  tax purposes as these were all used during 2005. Accordingly, there is no
  valuation allowance as of December 31, 2007 or 2006. Additionally, management
  believes that it is more likely than not that the deferred tax assets will be
  realized through recovery of taxes previously paid and/or future taxable
  income. The Bank has net operating loss carryforwards resulting from the
  acquisition of Sequoia National Bank which expire from December 31, 2009
  through December 31, 2020, for a total balance of $3,078,425.

74

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | In assessing
  the Companys ability to realize the tax benefits of deferred tax assets,
  management considers whether it is more likely than not that some portion or
  all of the deferred tax assets will be realized. The ultimate realization of
  deferred tax assets is dependent upon the generation of future taxable income
  during the periods in which those temporary
  differences become deductible. Management considers the scheduled reversal of
  deferred tax liabilities, projected future taxable income, and tax planning
  strategies in making this assessment. Based upon the level of historical
  taxable income and projections for future taxable income over the periods
  which the deferred tax assets are deductible, management believes it is more
  likely than not that the Company will realize the recorded benefits of these
  deductible differences.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(14) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | The Bank is
  a party to financial instruments with off-balance-sheet risk in the normal
  course of business to meet the financing needs of its customers. These
  financial instruments include commitments to extend credit in the form of
  loans or through standby letters of credit. These instruments involve, to
  varying degrees, elements of credit and interest-rate risk in excess of the
  amount recognized in the balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The Banks
  exposure to credit loss is represented by the contractual amount of those instruments
  and is usually limited to amounts funded or drawn. The contract or notional
  amounts of these agreements, which are not included in the balance sheets,
  are an indicator of the Banks credit exposure. Commitments to extend credit
  generally carry variable interest rates and are subject to the same credit
  standards used in the lending process for on-balance-sheet instruments.
  Additionally, the Bank periodically reassesses the customers
  creditworthiness through ongoing credit reviews. The Bank generally requires
  collateral or other security to support commitments to extend credit. The
  following table provides summary information on financial institutions whose
  contract amounts represent credit risk as of December 31:                        

|                                                                      |  |             |         |      |   |         | 
|--------------------------------------------------------------------- |  | ----------- | ------- | ---- | - | ------- | 
|                                                                      |  | December 31 |        
|                                                                      |  |             |        
|(Dollars amounts in thousands)                                        |  | 2007        |         | 2006 |  
|                                                                      |  |             |         |      |  
|Financial instruments whose contract
  amounts represent credit risk: |  |             |         |      |   |         | 
|Undisbursed loan commitments                                          |  | $           | 70,116  |      | $ | 60,591  | 
|Lines of credit                                                       |  |             | 72,211  |      |   | 72,311  | 
|Mastercard lines                                                      |  |             | 3,677   |      |   | 2,968   | 
|Standby letters of credit                                             |  |             | 3,157   |      |   | 1,351   | 
|                                                                      |  |             |         |      |   |         | 
|                                                                      |  | $           | 149,161 |      | $ | 137,221 | 
|                                                                      |  |             |         |      |   |         | 

75

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------
| | Commitments
  to extend credit are agreements to lend to a customer as long as there is no
  violation of any condition established in the contract. Commitments generally
  have fixed expiration dates or other termination clauses and may require
  payment of a fee. Since many of the commitments are expected to expire
  without being drawn upon, the total commitment amounts do not necessarily
  represent future cash requirements. The Bank evaluates each customers
  creditworthiness on a case-by-case basis. The amount of collateral obtained,
  if deemed necessary by the Bank upon extension of credit, is based on
  managements credit evaluation. Collateral held varies but may include
  accounts receivable, inventory, property, plant and equipment, and
  income-producing commercial and residential properties.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                 
| | Equity
  reserve and unused credit card lines are additional commitments to extend
  credit. Many of these customers are not expected to draw down their total
  lines of credit, and therefore, the total contract amount of these lines does
  not necessarily represent future cash requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                 
| | Standby
  letters of credit are conditional commitments issued by the Bank to guarantee
  the performance of a customer to a third party. The credit risk involved in
  issuing letters of credit is essentially the same as that involved in
  extending loan facilities to customers. The Bank issues both financial and
  performance standby letters of credit. The financial standby letters of
  credit are primarily to guarantee payment to third parties. As of December
  31, 2007, there were $2,200,000 issued in financial standby letters of
  credit. The performance standby letters of credit are typically issued to
  municipalities as specific performance bonds. As of December 31, 2007 there
  were $957,000 issued in performance standby letters of credit. The terms of
  the guarantees will expire in 2008.          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                 
| | The Bank has
  experienced no draws on these letters of credit, and does not expect to in
  the future; however, should a triggering event occur, the Bank either has
  collateral in excess of the letters of credit or embedded agreements of
  recourse from the customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                 
| | The
  following methods and assumptions were used by the Company to estimate the
  fair value of financial instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                 
| | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Cash and Cash
  Equivalents                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | The carrying
  amounts reported in the balance sheet for cash and short-term instruments
  approximate those assets fair values.

76

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Fair values
  for securities are based on quoted market prices, where available. If quoted
  market prices are not available, fair values are based on quoted market
  prices of comparable instruments.                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (c) | Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Fair values
  for variable-rate loans that reprice frequently and have no significant
  change in credit risk are based on carrying values. The fair values for other
  loans are estimated using discounted cash flow analyses, using interest rates
  currently being offered for loans with similar terms to borrowers of similar
  credit quality.                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (d) | Off-Balance Sheet
  Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Fair values
  for the companys off-balance-sheet lending commitments are based on fees
  currently charged to enter into similar agreements, taking into account the
  remaining terms of the agreements and the credit standing of the
  counterparties.                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (e) | Deposit
  Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The fair
  values estimated for demand deposits (interest and noninterest checking,
  passbook savings, and certain types of money market accounts) are, by
  definition, equal to the amount payable on demand at the reporting date
  (i.e., their carrying amounts). Fair values for fixed-rate certificates of
  deposit are estimated using a discounted cash flow calculation that applies
  interest rates currently being offered on certificates for a schedule of the
  aggregate expected monthly maturities on time deposits.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (f) | Federal Funds Sold/Purchased                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The carrying
  amount of federal funds sold/purchased approximates their fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (g) | Federal Home Loan
  Bank Advances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The fair
  values of FHLB advances were estimated by discounting future cash flows
  related to these financial instruments using current market rates for
  financial instruments with similar characteristics.                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (h) | Bank Owned Life
  Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The carrying
  amount is the cash surrender value for all policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

77

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The
  following table provides summary information on the estimated fair value of
  financial instruments at December 31, 2007:

|                                                                                              |  |                   |         |               |  |         | 
|--------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------- |  | ------- | 
|(Dollar
  amounts in thousands)                                                               |  | Carrying
  amount |         | Fair 
  value | 
|                                                                                              |  |                   |         |               | 
|Financial assets:                                                                             |  |                   |         |               |  |         | 
|Cash and cash equivalents                                                                     |  |                   | 15,750  |               |  | 15,750  | 
|Securities available for sale                                                                 |  |                   | 94,432  |               |  | 94,432  | 
|Loans, net                                                                                    |  |                   | 489,574 |               |  | 507,981 | 
|Bank owned life insurance                                                                     |  |                   | 9,617   |               |  | 9,617   | 
|                                                                                             
|Financial liabilities:                                                                        |  |                   |         |               |  |         | 
|Deposits                                                                                      |  |                   | 499,255 |               |  | 499,719 | 
|Federal Home Loan Bank advances                                                               |  |                   | 66,000  |               |  | 66,783  | 
|                                                                                             
|Off-balance-sheet liabilities:                                                                |  |                   |         |               |  |         | 
|Undisbursed loan commitments, lines of
  credit,Mastercard line and standby letters of credit |  |                   |        |               |  | 987     | 

| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The
  following table provides summary information on the estimated fair value of
  financial instruments at December 31, 2006:

|                                                                              |  |                   |         |              |  |         | 
|----------------------------------------------------------------------------- |  | ----------------- | ------- | ------------ |  | ------- | 
|(Dollar amounts in thousands)                                                 |  | Carrying
  amount |         | Fair
  value | 
|                                                                              |  |                   |         |              | 
|Financial assets:                                                             |  |                   |         |              |  |         | 
|Cash and cash equivalents                                                     |  |                   | 27,022  |              |  | 27,022  | 
|Securities available for sale                                                 |  |                   | 94,945  |              |  | 94,945  | 
|Loans, net                                                                    |  |                   | 419,437 |              |  | 428,195 | 
|Bank owned life insurance                                                     |  |                   | 7,267   |              |  | 7,267   | 
|                                                                              |  |                   |         |              |  |         | 
|Financial liabilities:                                                        |  |                   |         |              |  |         | 
|Deposits                                                                      |  |                   | 481,567 |              |  | 481,785 | 
|Federal Home Loan Bank advances                                               |  |                   | 30,000  |              |  | 30,323  | 
|                                                                              |  |                   |         |              |  |         | 
|Off-balance-sheet liabilities:                                                |  |                   |         |              |  |         | 
|Undisbursed loan commitments, lines of
  credit,and standby letters of credit |  |                   |        |              |  | 936     | 

78

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The carrying
  amounts of loans include $11,465,000 and $2,628,000 of nonaccrual loans
  (loans that are not accruing interest) at December 31, 2007 and 2006,
  respectively. Management has determined that primarily because of the
  uncertainty of predicting an observable market interest rate, excessive
  amounts of time and money would be incurred to estimate the fair values of
  nonperforming loans. As such, these loans are recorded at their carrying
  amount in the estimated fair value columns. The following aggregate
  information is provided at December 31, about the contractual provisions of
  these loans:

|                               |  |      |           |      |   |          |  
|------------------------------ |  | ---- | --------- | ---- | - | -------- | -
|(Dollars amounts in thousands) |  | 2007 |           | 2006 |  
|                               |  |      |           |      |  
|Aggregate carrying amount      |  | $    | 11,465    |      | $ | 2,628    |  
|Effective rate                 |  |      | 9.67      | %    |   | 9.61     | %
|Average term to maturity       |  |      | 16 months |      |   | 7 months |  

|     |                                                
|---- | -----------------------------------------------
|(15) | Significant Group Concentrations of Credit Risk

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Most of the
  Banks business activity is with customers located within San Mateo and San
  Francisco counties. Generally, the loans are secured by assets of the
  borrowers. The loans are expected to be repaid from cash flows or proceeds
  from the sale of selected assets of the borrowers. The Bank does not have
  significant concentrations of loans to any one industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | The
  distribution of commitments to extend credit approximates the distribution of
  loans outstanding. Commercial and standby letters of credit were granted
  primarily to commercial borrowers. The contractual amounts of credit-related
  financial instruments such as commitments to extend credit, credit-card
  arrangements, and letters of credit represent the amounts of potential
  accounting loss should the contract be fully drawn upon, the customer
  default, and the value of any existing collateral become worthless.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(16) | Regulatory matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | The Company,
  as a bank holding company, is subject to regulation by the Board of Governors
  of the Federal Reserve System under the Bank Holding Company Act of 1956, as
  amended. The Bank is subject to various regulatory capital requirements
  administered by the federal banking agencies. Failure to meet minimum capital
  requirements can initiate certain mandatory and possibly additional
  discretionary actions by regulators that, if undertaken, could have a direct
  material effect on the Companys financial statements. Under capital adequacy
  guidelines and the regulatory framework for prompt corrective action, the
  Company and the Bank must meet specific capital guidelines that involve
  quantitative measures of
  the Companys and the Banks assets, liabilities and certain off
  balance-sheet items as calculated under regulatory accounting practices. The
  capital amounts and classification are also subject to qualitative judgments
  by the regulators about components, risk weightings and other factors.

79

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Quantitative
  measures established by regulation to ensure capital adequacy require the
  Company and the Bank to maintain minimum amounts and ratios (set forth in the
  table below) of total and Tier 1 capital (as defined in the regulations) to
  risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
  average assets (as defined). Management believes, as of December 31, 2007,
  that the Company and the Bank have met all capital adequacy requirements to
  which they are subject.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | As of
  December 31, 2007, the most recent notification from the regulatory agencies
  categorized the Bank as well capitalized under the regulatory framework for
  prompt corrective action. To be categorized as well capitalized the Bank must
  maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
  ratios as set forth in the table. There are no conditions or events since
  that notification that management believes have changed the Banks
  categories.                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The
  consolidated actual capital amounts and ratios of FNB Bancorp and Subsidiary
  are also presented in the following table:                                                                                                                                                                                                                                                                                                                                                                                       

|                                                    |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|--------------------------------------------------- |  | ------ | ------ | ----- | ----------- | ------ | ----------------- | ----- | ------ | ------ |  | ----- | - |  | ------ | - |  | ----- | -
|                                                    |  |        |        |       |             |        | To be well        |      
|                                                    |  |        |        |       | For capital |        | capitalized under |      
|                                                    |  |        |        |       | adequacy    |        | prompt corrective |      
|                                                    |  |        | Actual |       | purposes    |        | action provisions |      
|                                                    |  |        |        |       |             |        |                  
|(Dollar amounts in thousands)                       |  | Amount |        | Ratio |             | Amount |                   | Ratio |        | Amount |  | Ratio |  
|                                                    |  |        |        |       |             |        |                   |       |        |        |  |       |  
|December 31, 2007:                                  |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|Total risk-based capital  (to risk weighted assets) |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|Consolidated Company                                |  | $      | 69,455 |       |             | 11.47  | %                 |       | 48,443 |        |  | 8.00  | % |  | 60,533 |   |  | n/a   |  
|Bank                                                |  | $      | 69,129 |       |             | 11.42  | %                 |       | 48,443 | ≥      |  | 8.00  | % |  | 60,533 | ≥ |  | 10.00 | %
|                                                    |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|Tier 1 capital (to risk weighted assets)            |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|Consolidated Company                                |  | $      | 63,707 |       |             | 10.52  | %                 |       | 24,221 |        |  | 4.00  | % |  | 36,321 |   |  | n/a   |  
|Bank                                                |  | $      | 63,381 |       |             | 10.47  | %                 |       | 24,221 |        |  | 4.00  | % |  | 36,321 |   |  | 6.00  | %
|                                                    |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|Tier 1 capital (to total average
  assets)          |  |        |        |       |             |        |                   |       |        |        |  |       |   |  |        |   |  |       |  
|Consolidated Company                                |  | $      | 63,707 |       |             | 9.89   | %                 |       | 25,757 |        |  | 4.00  | % |  | 32,206 |   |  | n/a   |  
|Bank                                                |  | $      | 63,381 |       |             | 9.84   | %                 |       | 25,757 |        |  | 4.00  | % |  | 32,206 |   |  | 5.00  | %

80

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|                                                   |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|-------------------------------------------------- |  | ------ | ------ | ----------- |  | ----------------- | - | ----- | ------ | ------ |  | ----- | - |  | ------ | - |  | ----- | -
|                                                   |  |        |        |             |  | To be well        |  
|                                                   |  |        |        | For capital |  | capitalized under |  
|                                                   |  |        |        | adequacy    |  | prompt corrective |  
|                                                   |  | Actual |        | purposes    |  | action provisions |  
|                                                   |  |        |        |             |  |                   |  
|(Dollar amounts in thousands)                      |  | Amount |        | Ratio       |  | Amount            |   | Ratio |        | Amount |  | Ratio |  
|                                                   |  |        |        |             |  |                   |   |       |        |        |  |       |  
|December 31, 2006:                                 |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|Total risk-based capital (to risk weighted assets) |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|Consolidated Company                               |  |        | 64,297 |             |  | 12.00             | % |       | 42,855 |        |  | 8.00  | % |  | 53,569 |   |  | n/a   |  
|Bank                                               |  |        | 64,176 |             |  | 11.98             | % |       | 42,855 | ≥      |  | 8.00  | % |  | 53,569 | ≥ |  | 10.00 | %
|                                                   |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|Tier 1 capital (to risk weighted assets)           |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|Consolidated Company                               |  |        | 59,216 |             |  | 11.05             | % |       | 21,431 |        |  | 4.00  | % |  | 32,146 |   |  | n/a   |  
|Bank                                               |  |        | 59,095 |             |  | 11.03             | % |       | 21,431 |        |  | 4.00  | % |  | 32,146 |   |  | 6.00  | %
|                                                   |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|Tier 1 capital (to total average assets)           |  |        |        |             |  |                   |   |       |        |        |  |       |   |  |        |   |  |       |  
|Consolidated Company                               |  |        | 59,216 |             |  | 10.08             | % |       | 23,497 |        |  | 4.00  | % |  | 29,371 |   |  | n/a   |  
|Bank                                               |  |        | 59,095 |             |  | 10.06             | % |       | 23,497 |        |  | 4.00  | % |  | 29,371 |   |  | 5.00  | %

|     |                    
|---- | -------------------
|(17) | (Stock Option Plans

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 1997, the
  Company adopted an incentive employee stock option plan, known as the 1997
  FNB Bancorp Plan. In 2002, the Company adopted an incentive employee option
  plan known as the 2002 FNB Bancorp Plan. The Plans allow the Company to grant
  options to employees of up to 378,600 shares, which includes the effect of
  stock dividends of common stock. Options currently outstanding become
  exercisable in one to five years from the grant date, based on a vesting
  schedule of 20% per year and expire 10 years after the grant date. The
  options exercise price is the fair value of the options at the grant date.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The amount
  of compensation expense for options recorded in the years ended December 31,
  2007, December 31 2006 and December 31, 2005 was $68,000, $39,000 and $10,000,
  respectively. The income tax benefit recognized in the income statements for
  these amounts was under $3,000 for 2007, but under $1,000 for 2006 and 2005.                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The total
  intrinsic value of options exercised during the year ended December 31, 2007
  was $62,000 under the 2002 Plan and $96,000 under the 1997 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

81

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The total
  intrinsic value of options exercised during the year ended December 31, 2006
  was $60,000 under the 2002 Plan and $203,000 under the 1997 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The total
  intrinsic value of options exercised during the year ended December 31, 2005
  was $12,000 under the 2002 Plan and $63,000 under the 1997 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The amount
  of total unrecognized compensation expense related to non-vested options at
  December 31, 2007 was $304,000, and the weighted average period it will be
  amortized over is 2.4 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The fair
  value of each option granted is estimated on the date of grant using the fair
  value method with the following weighted average assumptions used for grants
  in 2007; dividend yield of 1.97% for the year; risk-free interest rate of
  5.11%; expected volatility of 11.32%; expected life of 6.4 years; and
  weighted average fair value of $5.82. The assumptions for grants in 2006;
  dividend yield of 6.66% for the year; risk-free interest rate of 5.19%;
  expected volatility of 10%; expected life of 6.5 years; and weighted average
  fair value of $1.50. The assumptions used for grants in 2005; dividend yield
  of 6.98% for the year; risk-free interest rate of 3.91%; expected volatility
  of 10%; expected life of 5.0 years; and weighted average fair value of $0.75.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | A summary of
  option activity under the 2002 FNB Bancorp Plan as of December 31, 2007 and
  changes during the year then ended is presented below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                 |  |        |         |          |   |             |  |           |     |  |   |     | 
|-------------------------------- |  | ------ | ------- | -------- | - | ----------- |  | --------- | --- |  | - | --- | 
|                                 |  |        |         |          |   | Weighted-   |  |           |    
|                                 |  |        |         |          |   | Average     |  |           |    
|2002 FNB Bancorp Plan            |  |        |         | Weighted |   | Remaining   |  | Aggregate |    
|                                 |  |        |         | Average  |   | Contractual |  | Intrinsic |    
|                                 |  |        |         | Exercise |   | Term        |  | Value     |    
|Options                          |  | Shares |         | Price    |   | (in years)  |  | (000)     |    
|                                 | 
|Outstanding at January 1, 2007   |  |        | 205,877 |          | $ | 25.53       |  |           |     |  |   |     | 
|Granted                          |  |        | 32,743  |          | $ | 29.05       |  |           |     |  |   |     | 
|Exercised                        |  |        | (8,323  | )        | $ | 21.14       |  |           |     |  |   |     | 
|Forfeited or expired             |  |        | (14,571 | )        | $ | 25.87       |  |           |     |  |   |     | 
|                                 |  |        |         |          |   |             |  |           |     |  |   |     | 
|Outstanding at December 31, 2007 |  |        | 215,726 |          | $ | 26.21       |  |           | 6.9 |  | $ | 286 | 
|Exercisable at December 31, 2007 |  |        | 113,222 |          | $ | 24.06       |  |           | 6.1 |  | $ | 251 | 

82

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

The following
supplemental information applies to the three years ended December 31:

|                                                         |  |      |               |      |  |               |  |  |               | 
|-------------------------------------------------------- |  | ---- | ------------- | ---- |  | ------------- |  |  | ------------- | 
|                                                         |  | 2007 |               | 2006 |  | 2005          | 
|                                                         |  |      |              
|Options outstanding                                      |  |      | 215,726       |      |  | 205,877       |  |  | 170,732       | 
|Range
  of exercise prices                               |  |      | $19.59-$32.88 |      |  | $19.59-$32.88 |  |  | $19.59-$26.73 | 
|Weighted
  average remaining contractual life            |  |      | 6.9           |      |  | 7.6           |  |  | 8.0           | 
|Fully
  vested options                                   |  |      | 113,222       |      |  | 77,784        |  |  | 51,573        | 
|Weighted
  average exercise price                        |  |      | $26.21        |      |  | $22.76        |  |  | $21.76        | 
|Aggregate
  intrinsic value                              |  |      | $286,000      |      |  | $670,000      |  |  | $1,177,000    | 
|Weighted
  average remaining contractual life (in years) |  |      | 6.1           |      |  | 6.7           |  |  | 7.2           | 

A summary of
option activity under the 1997 FNB Bancorp Plan as of December 31, 2007, and
changes during the year then ended is presented below.

|                                 |  |        |        |          |   |             |  |           |     |  |   |     | 
|-------------------------------- |  | ------ | ------ | -------- | - | ----------- |  | --------- | --- |  | - | --- | 
|                                 |  |        |        |          |   | Weighted-   |  |           |    
|                                 |  |        |        |          |   | Average     |  |           |    
|1997
  FNB Bancorp Plan          |  |        |        | Weighted |   | Remaining   |  | Aggregate |    
|                                 |  |        |        | Average  |   | Contractual |  | Intrinsic |    
|                                 |  |        |        | Exercise |   | Term        |  | Value     |    
|Options                          |  | Shares |        | Price    |   | (in years)  |  | (000)     |    
|                                 | 
|Outstanding at January 1, 2007   |  |        | 61,797 |          | $ | 18.01       |  |           |     |  |   |     | 
|Granted                          |  |        | 22,470 |          | $ | 29.05       |  |           |     |  |   |     | 
|Exercised                        |  |        | (9,288 | )        | $ | 18.34       |  |           |     |  |   |     | 
|Forfeited or expired             |  |        | (923   | )        | $ | 17.54       |  |           |     |  |   |     | 
|                                 |  |        |        |          |   |             |  |           |     |  |   |     | 
|Outstanding at December 31, 2007 |  |        | 74,056 |          | $ | 21.33       |  |           | 4.4 |  | $ | 337 | 
|Exercisable at December 31, 2007 |  |        | 51,586 |          | $ | 17.96       |  |           | 2.3 |  | $ | 337 | 

The following
supplemental information applies to the three years ended December 31:

|                                                         |  |      |               |      |  |               |  |  |               | 
|-------------------------------------------------------- |  | ---- | ------------- | ---- |  | ------------- |  |  | ------------- | 
|                                                         |  | 2007 |               | 2006 |  | 2005          | 
|                                                         |  |      |              
|Options outstanding                                      |  |      | 74,056        |      |  | 61,797        |  |  | 75,783        | 
|Range of exercise prices                                 |  |      | $17.01-$29.05 |      |  | $17.01-$19.65 |  |  | $17.01-$19.65 | 
|Weighted average remaining contractual
  life            |  |      | 4.4           |      |  | 3.2           |  |  | 4.1           | 
|Fully vested options                                     |  |      | 51,586        |      |  | 58,849        |  |  | 67,205        | 
|Weighted average exercise price                          |  |      | $21.33        |      |  | $18.02        |  |  | $18.01        | 
|Aggregate intrinsic value                                |  |      | $337,000      |      |  | $799,000      |  |  | $1,271,000    | 
|Weighted average remaining contractual
  life (in years) |  |      | 2.3           |      |  | 3.2           |  |  | 4.0           | 

83

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|     |                             
|---- | ----------------------------
|(18) | Quarterly
  Data (Unaudited)

|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|------------------------------------------------------ |  | ----- | ----- | ------ |  | ------ |  | ------ | ------ |  |  | ------ | 
|                                                       |  |       |       |        |  |        |  |        |       
|(Dollars in thousands)                                 |  | First |       | Second |  | Third  |  | Fourth |       
|                                                       |  |       |       |        |  |        |  |        |       
|2007:                                                  |  |       |       |        |  |        |  |        |        |  |  |        | 
|Interest income                                        |  | $     | 9,904 |        |  | 10,654 |  |        | 10,881 |  |  | 10,851 | 
|Interest expense                                       |  |       | 3,086 |        |  | 3,429  |  |        | 3,531  |  |  | 3,611  | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|Net interest income                                    |  |       | 6,818 |        |  | 7,225  |  |        | 7,350  |  |  | 7,240  | 
|Provision for loan losses                              |  |       | 150   |        |  | 180    |  |        | 180    |  |  | 180    | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|Net interest income, after provision for
  loan losses |  |       | 6,668 |        |  | 7,045  |  |        | 7,170  |  |  | 7,060  | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|Non-interest income                                    |  |       | 1,004 |        |  | 1,142  |  |        | 1,093  |  |  | 1,061  | 
|Non-interest expense                                   |  |       | 5,758 |        |  | 5,808  |  |        | 5,761  |  |  | 5,855  | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|Income before income taxes                             |  |       | 1,914 |        |  | 2,379  |  |        | 2,502  |  |  | 2,266  | 
|Provision for income taxes                             |  |       | 455   |        |  | 652    |  |        | 707    |  |  | 568    | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|Net earnings                                           |  | $     | 1,459 |        |  | 1,727  |  |        | 1,795  |  |  | 1,698  | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|                                                       |  |       |       |        |  |        |  |        |        |  |  |        | 
|Basic earnings per share                               |  | $     | 0.49  |        |  | 0.58   |  |        | 0.60   |  |  | 0.57   | 
|Diluted earnings per share                             |  | $     | 0.48  |        |  | 0.57   |  |        | 0.59   |  |  | 0.57   | 

|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|------------------------------------------------------ |  | ----- | ----- | ------ |  | ----- |  | ------ | ----- |  |  | ----- | 
|                                                       |  |       |       |        |  |       |  |        |      
|(Dollars in thousands)                                 |  | First |       | Second |  | Third |  | Fourth |      
|                                                       |  |       |       |        |  |       |  |        |      
|2006:                                                  |  |       |       |        |  |       |  |        |       |  |  |       | 
|Interest income                                        |  | $     | 8,837 |        |  | 8,928 |  |        | 9,502 |  |  | 9,929 | 
|Interest expense                                       |  |       | 1,951 |        |  | 2,168 |  |        | 2,786 |  |  | 2,916 | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|Net interest income                                    |  |       | 6,886 |        |  | 6,760 |  |        | 6,716 |  |  | 7,013 | 
|Provision for loan losses                              |  |       | 193   |        |  | 163   |  |        | 163   |  |  | 164   | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|Net interest income, after provision for
  loan losses |  |       | 6,693 |        |  | 6,597 |  |        | 6,553 |  |  | 6,849 | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|Non-interest income                                    |  |       | 2,316 |        |  | 1,827 |  |        | 1,046 |  |  | 1,070 | 
|Non-interest expense                                   |  |       | 5,486 |        |  | 5,303 |  |        | 5,346 |  |  | 5,625 | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|Income before income taxes                             |  |       | 3,523 |        |  | 3,121 |  |        | 2,253 |  |  | 2,294 | 
|Provision for income taxes                             |  |       | 1,075 |        |  | 1,012 |  |        | 787   |  |  | 735   | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|Net earnings                                           |  | $     | 2,448 |        |  | 2,109 |  |        | 1,466 |  |  | 1,559 | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|                                                       |  |       |       |        |  |       |  |        |       |  |  |       | 
|Basic earnings per share                               |  |       | 0.82  |        |  | 0.71  |  |        | 0.49  |  |  | 0.52  | 
|Diluted earnings per share                             |  |       | 0.80  |        |  | 0.69  |  |        | 0.48  |  |  | 0.51  | 

84

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|     |                                                    
|---- | ---------------------------------------------------
|(19) | Condensed
  Financial Information of Parent Company

| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
parent company-only condensed balance sheets, condensed statements of income,
and condensed statements of cash flows information are presented as of and for
the year ended December 31, as follows:

|                                           |  |                          |        |      |  |        |  | 
|------------------------------------------ |  | ------------------------ | ------ | ---- |  | ------ |  | 
|                                           |  | Condensed balance sheets |        |     
|FNB Bancorp                                |  |                          |        |     
|(Dollars in thousands)                     |  | 2007                     |        | 2006 |  |       
|                                           |  |                          |        |      |  |       
|Assets:                                    |  |                          |        |      |  |        |  | 
|Cash and due from banks                    |  | $                        | 55     |      |  | 37     |  | 
|Investments in subsidiary                  |  |                          | 66,473 |      |  | 61,942 |  | 
|Income tax receivable from subsidiary      |  |                          | 17     |      |  | 83     |  | 
|Other assets                               |  |                          | 10     |      |  | 1      |  | 
|                                           |  |                          |        |      |  |        |  | 
|Total assets                               |  | $                        | 66,555 |      |  | 62,063 |  | 
|                                           |  |                          |        |      |  |        |  | 
|                                           |  |                          |        |      |  |        |  | 
|Liabilities:                               |  |                          |        |      |  |        |  | 
|Other liabilities                          |  | $                        | 10     |      |  |       |  | 
|                                           |  |                          |        |      |  |        |  | 
|Total liabilities                          |  |                          | 10     |      |  |       |  | 
|Stockholdersequity                        |  |                          | 66,545 |      |  | 62,063 |  | 
|                                           |  |                          |        |      |  |        |  | 
|Total liabilities and stockholders equity |  | $                        | 66,555 |      |  | 62,063 |  | 
|                                           |  |                          |        |      |  |        |  | 

|                                                                                |  |                                |       |      |  |       |  |  |       | 
|------------------------------------------------------------------------------- |  | ------------------------------ | ----- | ---- |  | ----- |  |  | ----- | 
|                                                                                |  | Condensed statements of income |      
|FNB Bancorp                                                                     |  |                                |      
|(Dollars
  in thousands)                                                        |  | 2007                           |       | 2006 |  | 2005  | 
|                                                                                |  |                                |       |      |  |       | 
|Income:                                                                         |  |                                |       |      |  |       |  |  |       | 
|Dividends from subsidiary                                                       |  | $                              | 2,636 |      |  | 1,172 |  |  | 2,269 | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|Total income                                                                    |  |                                | 2,636 |      |  | 1,172 |  |  | 2,269 | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|Expense:                                                                        |  |                                |       |      |  |       |  |  |       | 
|Other expense                                                                   |  |                                | 72    |      |  | 27    |  |  | 17    | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|Total expense                                                                   |  |                                | 72    |      |  | 27    |  |  | 17    | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|Income before income taxes and equity in
  undistributed earnings of subsidiary |  |                                | 2,564 |      |  | 1,145 |  |  | 2,252 | 
|Income tax expense (credit)                                                     |  |                                | (4    | )    |  | 1     |  |  |      | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|Income before equity in undistributed
  earnings of subsidiary                  |  |                                | 2,568 |      |  | 1,144 |  |  | 2,252 | 
|Equity in undistributed earnings of
  subsidiary                                |  |                                | 4,111 |      |  | 6,438 |  |  | 3,476 | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 
|Net earnings                                                                    |  | $                              | 6,679 |      |  | 7,582 |  |  | 5,728 | 
|                                                                                |  |                                |       |      |  |       |  |  |       | 

85

---



FNB BANCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005

|                                                 |  |                                   |        |      |  |        |   |  |        |  
|------------------------------------------------ |  | --------------------------------- | ------ | ---- |  | ------ | - |  | ------ | -
|                                                 |  | Condensed statement of cash flows |       
|FNB Bancorp                                      |  |                                   |       
|(Dollars in thousands)                           |  | 2007                              |        | 2006 |  | 2005   |  
|                                                 |  |                                   |        |      |  |        |  
|Net earnings                                     |  | $                                 | 6,679  |      |  | 7,582  |   |  | 5,728  |  
|Income tax receivable from subsidiary            |  |                                   | 66     |      |  | (83    | ) |  |       |  
|Change in other assets                           |  |                                   | (8     | )    |  | (1     | ) |  |       |  
|Change in other liabilities                      |  |                                   | 10     |      |  | (10    | ) |  | (309   | )
|Undistributed earnings of subsidiary             |  |                                   | (4,111 | )    |  | (6,438 | ) |  | (3,476 | )
|Stock-based compensation expense                 |  |                                   | 68     |      |  | 122    |   |  | 10     |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Cash flows from operating activities             |  |                                   | 2,704  |      |  | 1,172  |   |  | 1,953  |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Increase in investment in subsidiary             |  |                                   |       |      |  |       |   |  |       |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Cash flows used in investing activities          |  |                                   |       |      |  |       |   |  |       |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Proceeds from exercise of common stock
  options |  |                                   | 368    |      |  | 425    |   |  | 150    |  
|Dividends paid                                   |  |                                   | (1,720 | )    |  | (1,633 | ) |  | (1,542 | )
|Repurchases of common stock                      |  |                                   | (1,334 | )    |  | (73    | ) |  | (765   | )
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Cash flows provided by financing
  activities    |  |                                   | (2,686 | )    |  | (1,281 | ) |  | (2,157 | )
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Net (increase) decrease in cash                  |  |                                   | 18     |      |  | (109   | ) |  | (204   | )
|Cash, beginning of year                          |  |                                   | 37     |      |  | 146    |   |  | 350    |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  
|Cash, end of year                                |  | $                                 | 55     |      |  | 37     |   |  | 146    |  
|                                                 |  |                                   |        |      |  |        |   |  |        |  

86

---



ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM
9A. CONTROLS AND PROCEDURES

Disclosure
Controls and Procedures. Disclosure controls and procedures are designed
with the objective of ensuring that information required to be disclosed in
reports filed by the Company under the Exchange Act, such as this Annual
Report, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures are also designed with the objective of
ensuring that such information is accumulated and communicated to management,
including the Chief Executive Officer and the Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.

Evaluation
of Disclosure Controls and Procedures and Internal Control over Financial
Reporting. The
Companys management, including the Chief Executive Officer and the Chief
Financial Officer, evaluated the Companys disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2007.
Based on this evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the Companys disclosure controls and procedures are
effective. There was no change in the Companys internal control over financial
reporting that occurred during the quarter ended December 31, 2007 that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

Managements
Report on Internal Control over Financial Reporting
Management of the Company is
responsible for establishing and maintaining adequate internal control over
financial reporting. As defined in Rule 13a-15(f) under the Exchange Act,
internal control over financial reporting is a process designed by, or under
the supervision of, a companys principal executive and principal financial
officers and effected by a companys board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. It
includes those policies and procedures that:

| |    |                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Pertain to the maintenance
  of records that in reasonable detail accurately and fairly reflect the  transactions and dispositions of the assets
  of a company;                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                 
| | b) | Provide reasonable
  assurance that transactions are recorded as necessary to permit preparation
  of financial statements in accordance with generally accepted accounting
  principles, and that receipts and expenditures of a company are being made
  only in accordance with authorizations of management and the board of
  directors of the company, and
| |    |                                                                                                                                                                                                                                                                                                                                                                 
| | c) | Provide reasonable
  assurance regarding prevention or timely detection of unauthorized
  acquisition, use or disposition of a companys assets that could have a
  material effect on its financial statements.                                                                                                                                                

87

---



Because of the inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.

The Companys management has
used the criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) to evaluate the effectiveness of the Companys internal control over
financial reporting. Management has selected the COSO framework for its
evaluation as it is a control framework recognized by the SEC and the Public
Company Accounting Oversight Board, that is free from bias, permits reasonably
consistent qualitative and quantitative measurement of the Companys internal
controls, is sufficiently complete so that relevant controls are not omitted
and is relevant to an evaluation of internal controls over financial reporting.

Based on our assessment,
management has concluded that our internal control over financial reporting,
based on criteria established in Internal Control-Integrated Framework issued
by COSO was effective as of December 31, 2007.

Moss Adams LLP, the
registered public accounting firm that audited the consolidated financial statements
included in this Annual Report under Item 8, Financial Statements and
Supplementary Data, has issued a report with respect to the effectiveness of
the Companys internal control over financial reporting. This report appears as
part of the Report of Independent Registered Public Accounting Firm under said
Item 8 of this Annual Report and is incorporated here by reference.

Date: March 12, 2008

|                        |                        
|----------------------- | -----------------------
|/s/ Thomas C. McGraw    | /s/ David A. Curtis    
|                        |                        
|Thomas C. McGraw        | David A. Curtis        
|Chief Executive Officer | Chief Financial Officer

Inherent
Limitations on Effectiveness of Controls

The Companys management,
including the Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls or our internal control over financial
reporting will prevent or detect all error and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives will be met. The
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.

88

---



ITEM 9B. OTHER INFORMATION

Not
applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS  AND CORPORATE GOVERNANCE

The
information required by Item 10 of Form 10-K is incorporated by reference to
the applicable information contained in the Companys Proxy Statement for the
2008 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.

ITEM 11. EXECUTIVE COMPENSATION

The
information required by Item 11 of Form 10-K is incorporated by reference to
the applicable information contained in the Companys Proxy Statement for the
2008 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The
information required by Item 12 of Form 10-K is incorporated by reference to
the applicable information contained in the Companys Proxy Statement for the
2008 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The
information required by Item 13 of Form 10-K is incorporated by reference to
the applicable information contained in the Companys Proxy Statement for the
2008 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES

The
information required by Item 14 of Form 10-K is incorporated by reference to
the applicable information contained in the Companys Proxy Statement for the
2008 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14

89

---



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS,  SCHEDULES

|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)(1) | Financial
Statements. Listed and included in Part II, Item 8.                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                       
|(2)    | Financial
Statement Schedules. All schedules have been omitted since the required
information is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the Financial
Statements or notes thereto.
|       |                                                                                                                                                                                                                                                                       
|(3)    | Exhibits.                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | Exhibit
  Number                                                                                                                                                                                                                                                       |  | Document Description                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | **2.1                                                                                                                                                                                                                                                                  |  | (deleted)                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | 2.2                                                                                                                                                                                                                                                                    |  | Acquisition
  Agreement dated November 5, 2004, signed among First National Bank of
  Northern California, Sequoia National Bank and Hemisphere National Bank
  (incorporated by reference from Exhibit 2.2 to the Companys Current Report
  on Form 8-K filed with the Commission on November 9, 2004)                                               
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | 2.3                                                                                                                                                                                                                                                                    |  | First
  Addendum to Acquisition Agreement, dated December 13, 2004, signed among
  First National Bank of Northern California, Sequoia National Bank, Hemisphere
  National Bank and Privee Financial, Inc. (incorporated by reference from
  Exhibit 2.5 to the Companys Current Report on Form 8-K filed with the
  Commission on December 17, 2004)
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | 2.4                                                                                                                                                                                                                                                                    |  | Second
  Addendum to Acquisition Agreement, dated as of April 15, 2005, signed among
  First National Bank of Northern California, Sequoia National Bank, Hemisphere
  National Bank and Privee Financial, Inc. (incorporated by Reference from
  Exhibit 2.4 to the Companys Current Report on Form 8-K Filed with the
  Commission on May 2, 2005)  
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | **3.1                                                                                                                                                                                                                                                                  |  | Articles of
  Incorporation of FNB Bancorp.                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | **3.2                                                                                                                                                                                                                                                                  |  | Bylaws of
  FNB Bancorp.                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | **4.1                                                                                                                                                                                                                                                                  |  | Specimen of
  the Registrants common stock certificate.                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | **10.1                                                                                                                                                                                                                                                                 |  | Lease
  agreement dated April 24, 1995, as amended, for Eureka Square Branch Office
  of First National Bank of Northern California at Eureka Square Shopping
  Center, Pacifica, California.                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                        
|       | **10.2                                                                                                                                                                                                                                                                 |  | Lease
  agreement dated June 8, 1999, as amended, for Linda Mar Branch Office of
  First National Bank of Nortern California at Linda Mar Shopping Center,
  Pacifica, California.                                                                                                                                                                     

90

---



| |           |  |                                                                                                                                                                                                                                
| | --------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | **10.3    |  | Lease
  agreement dated August 21, 1996, as amended, for the Flower Mart facility of
  First National Bank of Northern California at 640 Brannan Street, Suite 102,
  San Francisco, California.                               
| |           |  |                                                                                                                                                                                                                                
| | **10.4    |  | (deleted)                                                                                                                                                                                                                      
| |           |  |                                                                                                                                                                                                                                
| | **10.5    |  | (deleted)                                                                                                                                                                                                                      
| |           |  |                                                                                                                                                                                                                                
| | **10.6    |  | First
  National Bank of Northern California 1997 Stock Option Plan.*                                                                                                                                                          
| |           |  |                                                                                                                                                                                                                                
| | **10.7    |  | Form of
  Nonstatutory Stock Option Agreement under the First National Bank of Northern
  California 1997 Stock Option Plan.*                                                                                                  
| |           |  |                                                                                                                                                                                                                                
| | **10.8(a) |  | Form of
  Incentive Stock Option Agreement under the First National Bank of Northern
  California 1997 Stock Option Plan.*                                                                                                     
| |           |  |                                                                                                                                                                                                                                
| | **10.8(b) |  | Form of
  Incentive Stock Option Agreement (Standard Provisions under the First
  National Bank of Northern California 1997 Stock Option Plan.*                                                                                
| |           |  |                                                                                                                                                                                                                                
| | **10.9    |  | First
  National Bank Profit Sharing and 401(k) Plan dated August 26, 1969.*                                                                                                                                                   
| |           |  |                                                                                                                                                                                                                                
| | **10.10   |  | First
  National Bank Deferred Compensation Plan dated November 1, 1997.*                                                                                                                                                      
| |           |  |                                                                                                                                                                                                                                
| | **10.11   |  | Salary
  Continuation Agreement between First National Bank of Northern California And
  Michael R. Wyman, dated December 20, 1996.*                                                                                           
| |           |  |                                                                                                                                                                                                                                
| | **10.12   |  | Salary
  Continuation Agreement between First National Bank of Northern California And
  Paul B. Hogan dated December 20, 1996.*                                                                                               
| |           |  |                                                                                                                                                                                                                                
| | **10.13   |  | Salary
  Continuation Agreement between First National Bank of Northern California And
  James B. Ramsey, dated December 23, 1999.*                                                                                            
| |           |  |                                                                                                                                                                                                                                
| | **10.14   |  | Form of
  Management Continuity Agreement signed on July 20, 2000, between First
  National Bank of Northern California and Jim D. Black, Charles R. Key and
  Anthony J. Clifford.*                                           
| |           |  |                                                                                                                                                                                                                                
| | **10.15   |  | (deleted)                                                                                                                                                                                                                      
| |           |  |                                                                                                                                                                                                                                
| | **10.16   |  | Communications
  Site Lease Agreement as amended dated March 30, 1999, between First National
  Bank of Northern California, as Lessor and Nextel of California, Inc., as
  Lessee, with respect to Redwood City Branch Office.
| |           |  |                                                                                                                                                                                                                                
| | **10.17   |  | (deleted)                                                                                                                                                                                                                      
| |           |  |                                                                                                                                                                                                                                
| | **10.18   |  | Separation
  Agreement between First National Bank of Northern California and Paul B.
  Hogan, dated December 5, 2001.*                                                                                                        
| |           |  |                                                                                                                                                                                                                                
| | ***10.19  |  | First
  Amendment to Separation Agreement between First National Bank of Northern
  California and Paul B. Hogan, dated March 22, 2002.*                                                                                       

91

---



|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|------------ | ---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             | ****10.20  |                                                                                                                                                                                                                                                  | FNB Bancorp
  Stock Option Plan (effective March 15, 2002).*                                                                                                                                                                                       
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | ****10.21  |                                                                                                                                                                                                                                                  | FNB Bancorp
  Stock Option Plan, Form of Incentive Stock Option Agreement.*                                                                                                                                                                        
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | ****10.22  |                                                                                                                                                                                                                                                  | FNB Bancorp
  Stock Option Plan, Form of Nonstatutory Stock Option Agreement.*                                                                                                                                                                     
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | *****10.23 |                                                                                                                                                                                                                                                  | FNB Bancorp
  2002 Stock Option Plan (adopted June 28, 2002).*                                                                                                                                                                                     
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | *****10.24 |                                                                                                                                                                                                                                                  | FNB Bancorp
  2002 Stock Option Plan, Form of Incentive Stock Option Agreement.*                                                                                                                                                                   
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | *****10.25 |                                                                                                                                                                                                                                                  | FNB Bancorp
  2002 Stock Option Plan, Form of Nonstatutory Stock Option Agreement.*                                                                                                                                                                
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|******10.26  |            | Lease
  Agreement dated August 13, 2003, for San Mateo Branch Office of First
  National Bank of Northern California, located at 150 East Third Avenue, San
  Mateo, CA 94401.                                                                  
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | 10.27      |                                                                                                                                                                                                                                                  | Salary
  Continuation Agreement and Split-Dollar Agreement for Jim D. Black
  (incorporated by reference from Exhibit 10.27 to the Companys Current Report
  on Form 8-K filed with the Commission on September 10, 2004)*                        
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | 10.28      |                                                                                                                                                                                                                                                  | Salary
  Continuation Agreement and Split-Dollar Agreement for Anthony J. Clifford
  (incorporated by reference from Exhibit 10.28 to the Companys Current Report
  on Form 8-K filed with the Commission on September 10, 2004)*                 
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | 10.29      |                                                                                                                                                                                                                                                  | Amended and
  Restated Salary Continuation Agreement and Split-Dollar Agreement for James
  B. Ramsey (incorporated by reference from Exhibit 10.29 to the Companys
  Current Report on Form 8-K filed with the Commission on September 10, 2004)*
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|*******10.30 |            | Lease
  Agreement dated May 1, 2003, as amended by Assignment, Assumption and Consent
  Agreement for the Financial District Branch Office of First National Bank of
  Northern California located at 65 Post Street, San Francisco, California.
|             |            |                                                                                                                                                                                                                                                 
|*******10.31 |            | Lease
  Agreement dated July 1, 1999, as amended by Assignment, Assumption and
  Consent Agreement for the Portola Branch Office of First National Bank of Northern
  California located at 699 Portola Drive, San Francisco, California.       
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | 10.32      |                                                                                                                                                                                                                                                  | Amendment to
  Salary Continuation Agreement for Jim D. Black (incorporated by reference
  from Exhibit 99.37 to the Companys Current Report on 10-K filed with the
  Commission on July 26, 2006).                                               
|             |            |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                    
|             | 10.33      |                                                                                                                                                                                                                                                  | Amendment to
  Salary Continuation Agreement for Anthony J. Clifford (incorporated by
  reference from Exhibit 99.38 to the Companys Current Report on Form 8-K
  filed with the Commission on July 26, 2006)
  .                                 

92

---



|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|------------- | ----- | ----------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 10.34 |                                                                                                                   | Amendment to
  Amended and Restated Salary Continuation Agreement for James B. Ramsey
  (incorporated by reference from Exhibit 99.39 to the Companys Current Report
  on Form 8-K filed with the Commission on July 26, 2006)                                                         
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|********10.35 |       | Lease Agreement
  dated February 3, 2006, for warehouse facility of First National Bank of
  Northern California.
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 10.36 |                                                                                                                   | First
  National Bank Deferred Compensation Plan dated December 1, 2007.*                                                                                                                                                                                                               
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 10.37 |                                                                                                                   | Amendment
  No. 5 to the First National Bank Profit Sharing and 401(k) Plan dated
  December 1, 2007.*                                                                                                                                                                                  
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 10.38 |                                                                                                                   | Executive
  Supplemental Compensation Agreement between First National Bank of Northern
  California and David A. Curtis dated March 3, 2008 (incorporated by reference
  from Exhibit 10.38 to the Companys Current Report on Form 8-K filed with the
  Commission on March 6, 2008).*
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 10.39 |                                                                                                                   | Split-Dollar
  Life Insurance Agreement between First National Bank of Northern California
  and David A. Curtis dated March 3, 2008 (incorporated by reference from
  Exhibit 10.39 to the Companys Current Report on Form 8-K filed with the
  Commission on March 6, 2008).*        
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|******14.0    |       | Code of
  Ethics                                                                                                 
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 21.1  |                                                                                                                   | The
  Registrant has one subsidiary, First National Bank of Northern California.                                                                                                                                                                                                        
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 23.1  |                                                                                                                   | Consent of
  Moss Adams LLP                                                                                                                                                                                                                                                             
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 31.1  |                                                                                                                   | Rule
  13a-14(a)/15d-14(a) Certification (principal executive officer)                                                                                                                                                                                                                  
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 31.2  |                                                                                                                   | Rule
  13a-14(a)/15d-14(a) Certification(principal financial officer)                                                                                                                                                                                                                   
|              |       |                                                                                                                   |                                                                                                                                                                                                                                                                                         
|              | 32.0  |                                                                                                                   | Section 1350
  Certifications                                                                                                                                                                                                                                                           
|             
|             

| |       |  |                                                                                                                                                 
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| | *     |  | Denotes management
  contracts, compensatory plans or arrangements.                                                                             
| |       |  |                                                                                                                                                 
| | **    |  | Incorporated by reference to
  registrants Registration Statement on Form S-4 (No. 333-74954) filed with
  the Commission on December 12, 2001.
| |       |  |                                                                                                                                                 
| | ***   |  | Incorporated by reference to
  registrants Annual Report on Form 10-K filed with the Commission on March
  31, 2002.                           
| |       |  |                                                                                                                                                 
| | ****  |  | Incorporated by reference to
  registrants Statement on Form S-8 (No. 333-91596) filed with the Commission
  on July 1, 2002.                  
| |       |  |                                                                                                                                                 
| | ***** |  | Incorporated by reference to
  registrants Registration Statement on Form S-8 (No. 333-98293) filed with
  the Commission on August 16, 2002.  

93

---



| |          |  |                                                                                                                                                                                                                                                                                                                                                                        
| | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ******   |  | Incorporated by reference to
  registrants Annual Report on Form 10-K filed with the Commission on March
  30, 2003.                                                                                                                                                                                                                                                  
|
| | *******  |  | Incorporated by reference to
  registrants Annual Report on Form 10-K filed with the Commission on March
  29, 2006.                                                                                                                                                                                                                                                  
| |          |  |                                                                                                                                                                                                                                                                                                                                                                        
| | ******** |  | Incorporated by reference to
  registrants Annual Report on Form 10-K filed with the Commission on March ,
  2008.                                                                                                                                                                                                                                                    
| |          |  |                                                                                                                                                                                                                                                                                                                                                                        
| |          |  | An Annual
  Report for the fiscal year ended December 31, 2007, and Notice of Annual
  Meeting and Proxy Statement for the Companys 2008 Annual Meeting will be
  mailed to security holders subsequent to the date of filing this report.
  Copies of said materials will be furnished to the Commission in accordance
  with the Commissions Rules and Regulations.

94

---



SIGNATURES

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

|                        |     |                                 | 
|----------------------- | --- | ------------------------------- | 
|                        |     | FNB BANCORP                     | 
|                        |     |                                 | 
|Dated: March
  12, 2008 | By: | /s/  Thomas C. McGraw           | 
|                        |     |                                 | 
|                        |     | Thomas C.
  McGraw              | 
|                        |     | Chief
  Executive Officer       | 
|                        |     | (Principal
  Executive Officer) | 

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

|                             |  |                                                                    |  |                 
|---------------------------- |  | ------------------------------------------------------------------ |  | ----------------
|Signature                    |  | Title                                                              |  | Date            
|                             |  |                                                                    |  |                 
|/s/ Michael R. Wyman         |  | Chairman of
  the Board                                            |  | March 12,
  2008
|                             |  | of Directors                                                       |  |                 
|Michael R. Wyman             |  |                                                                    |  |                 
|                             |  |                                                                    |  |                 
|/s/ Thomas C. McGraw         |  | Director,
  Chief Executive                                        |  | March 12,
  2008
|                             |  | Officer and
  Secretary                                            |  |                 
|Thomas C. McGraw             |  |                                                                    |  |                 
|                             |  |                                                                    |  |                 
|/s/ David A. Curtis          |  | Senior Vice
  President                                            |  | March 12,
  2008
|                             |  | and Chief
  Financial Officer                                      |  |                 
|David A. Curtis              |  | (Principal
  Financial Officer
and
  Principal Accounting Officer) |  |                 
|                             |  |                                                                    |  |                 
|/s/ Merrie
  Turner Lightner |  | Director                                                           |  | March 12,
  2008
|                             |  |                                                                    |  |                 
|Merrie
  Turner Lightner     |  |                                                                    |  |                 
|                             |  |                                                                    |  |                 
|/s/ Michael Pacelli          |  | Director                                                           |  | March 12,
  2008
|                             |  |                                                                    |  |                 
|Michael Pacelli              |  |                                                                    |  |                 
|                             |  |                                                                    |  |                 
|/s/ Edward J. Watson         |  | Director                                                           |  | March 12,
  2008
|                             |  |                                                                    |  |                 
|Edward J. Watson             |  |                                                                    |  |                 

95

---



|                        |  |                            |  |                 
|----------------------- |  | -------------------------- |  | ----------------
|/s/ Lisa Angelot        |  | Director                   |  | March 12,
  2008
|                        |  |                            |  |                 
|Lisa Angelot            |  |                            |  |                 
|                        |  |                            |  |                 
|/s/ Jim D. Black        |  | Director and
  President   |  | March 12,
  2008
|                        |  |                            |  |                 
|Jim D. Black            |  |                            |  |                 
|                        |  |                            |  |                 
|/s/ Anthony J. Clifford |  | Director and
  Executive   |  | March 12,
  2008
|                        |  | Vice
  President and Chief |  |                 
|Anthony J. Clifford     |  | Operating
  Officer        |  |                 

96

---