================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

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

                         For the quarterly period ended:

                               September 30, 2005

                        Commission File Number: 000-13086

                       FNB FINANCIAL SERVICES CORPORATION
             (Exact name of Registrant as specified in its Charter)

             North Carolina                             56-1382275
        (State of Incorporation)           (I.R.S. Employer Identification No.)

   1501 Highwoods Boulevard, Suite 400
       Greensboro, North Carolina                          27410
(Address of principal executive offices)                (Zip Code)

                                 (336) 369-0900
              (Registrant's telephone number, including area code)

                                   ----------

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

   Indicate by check mark whether the Registrant is an accelerated filer (as
              defined in Rule 12b-2 of the Act). Yes |X|  No |_|

Indicate by check mark whether the Registrant is a shell company (as defined in
                   Rule 12b-2 of the Act). Yes |_| No |X|

 At October 31, 2005, 7,034,348 shares of the registrant's common stock, $1.00
                        stated value, were outstanding.

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<PAGE>

                       FNB FINANCIAL SERVICES CORPORATION

                                    FORM 10-Q

                                      INDEX

                                                                            Page
                                                                            ----

PART  I  FINANCIAL INFORMATION

Item  1  Financial Statements

         Consolidated Balance Sheets
         September 30, 2005 and December 31, 2004                              3

         Consolidated Statements of Income and Comprehensive Income Three
         Months and Nine Months Ended September 30, 2005 and 2004              4

         Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 2005 and 2004                         5

         Notes to Consolidated Financial Statements                            6

Item  2  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                11

Item  3  Quantitative and Qualitative Disclosures About Market Risk           20

Item  4  Controls and Procedures                                              20

PART  II OTHER INFORMATION

Item  1  Legal Proceedings                                                    21

Item  2  Unregistered Sales of Equity Securities and Use of Proceeds          21

Item  3  Defaults Upon Senior Securities                                      21

Item  4  Submission of Matters to a Vote of Security Holders                  21

Item  5  Other Information                                                    21

Item  6  Exhibits                                                             22


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

FNB Financial Services Corporation and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                              September 30,
                                                                                  2005           December 31,
                                                                               (Unaudited)          2004 *
                                                                              ------------       ------------
<S>                                                                           <C>                <C>
ASSETS

Cash and due from banks                                                       $     32,455       $     24,246
Investment securities:
     Securities available for sale                                                 172,908            137,161
     Federal Home Loan Bank and Federal Reserve Bank Stock, at cost                  5,514              4,442
Loans, net of allowance for credit losses of $9,333 at
      September 30, 2005 and $7,353 at December 31, 2004                           762,026            656,073
Premises and equipment, net                                                         13,071             13,144
Other assets                                                                        25,804             30,269
                                                                              ------------       ------------

               Total assets                                                   $  1,011,778       $    865,335
                                                                              ============       ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
     Noninterest bearing                                                      $     88,809       $     78,810
     Interest bearing                                                              741,021            645,475
                                                                              ------------       ------------
               Total deposits                                                      829,830            724,285

Short-term borrowings                                                                7,236             21,534
Long-term debt                                                                      90,774             45,000
Other liabilities                                                                    9,333              4,086
                                                                              ------------       ------------

               Total liabilities                                                   937,173            794,905
                                                                              ------------       ------------

Shareholders' Equity:
Preferred stock no par value; authorized 10,000,000 shares;
               none issued                                                              --                 --
Common stock, $1.00 stated value; authorized 75,000,000 shares;
               outstanding 7,036,148 at September 30, 2005 and 5,550,326
               at December 31, 2004                                                  7,036              5,550
Paid-in capital                                                                     21,964             21,367
Retained earnings                                                                   46,933             43,986
Accumulated other comprehensive loss                                                (1,328)              (473)
                                                                              ------------       ------------

               Total shareholders' equity                                           74,605             70,430
                                                                              ------------       ------------

               Total liabilities and shareholders' equity                     $  1,011,778       $    865,335
                                                                              ============       ============
</TABLE>

* Derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements.


                                       3
<PAGE>

FNB Financial Services Corporation and Subsidiary
Consolidated Statements of Income and Comprehensive Income
(Unaudited; dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                Three Months Ended                   Nine Months Ended
                                                                   September 30,                       September 30,
                                                           -----------------------------       -----------------------------
                                                               2005              2004              2005              2004
                                                           -----------       -----------       -----------       -----------
<S>                                                        <C>               <C>               <C>               <C>
Interest income
  Loans                                                    $    14,917       $    10,030       $    40,649       $    28,528
  Federal funds sold and overnight deposits                         95                92               222               138
  Investment securities
    Taxable                                                      1,099               763             2,898             2,331
    Tax exempt                                                     319               347               957             1,019
    Other                                                           62                43               205               139
                                                           -----------       -----------       -----------       -----------

    Total interest income                                       16,492            11,275            44,931            32,155
                                                           -----------       -----------       -----------       -----------

Interest expense
  Deposits                                                       5,841             3,545            15,378             9,679
  Short-term borrowings                                             92                21               332               126
  Long-term debt                                                   757               324             1,819             1,071
                                                           -----------       -----------       -----------       -----------

    Total interest expense                                       6,690             3,890            17,529            10,876
                                                           -----------       -----------       -----------       -----------

Net interest income                                              9,802             7,385            27,402            21,279
Provision for credit losses                                      1,187               285             2,505               945
                                                           -----------       -----------       -----------       -----------

Net interest income after provision for credit losses            8,615             7,100            24,897            20,334

Noninterest income
  Service charges on deposit accounts                            1,035               906             2,823             2,877
  Net gain (loss) on sale of securities                              5                (3)               --               108
  Income from investment services                                   83               133               316               446
  Mortgage banking fees                                            552               549             2,175              1436
  Net gain on disposition of branch                                 --                --                --               825
  Other noninterest income                                          59               110               373               448
                                                           -----------       -----------       -----------       -----------

    Total noninterest income                                     1,734             1,695             5,687             6,140

Noninterest expense
  Salaries and employee benefits                                 3,844             3,124            10,740             8,906
  Occupancy expense                                                427               384             1,223             1,020
  Furniture and equipment expense                                  727               716             2,274             2,086
  Telecommunications expense                                       169               157               480               443
  Marketing expense                                                304               276               787               643
  Printing and supply expense                                      136               131               483               396
  Other noninterest expense                                      1,386             1,181             4,943             3,512
                                                           -----------       -----------       -----------       -----------

    Total noninterest expense                                    6,993             5,969            20,930            17,006

Income before provision for income taxes                         3,356             2,825             9,654             9,468
Provision for income taxes                                       1,138               913             3,257             3,148
                                                           -----------       -----------       -----------       -----------

Net income                                                       2,218             1,912             6,397             6,320
Other comprehensive income (loss)                                 (486)            1,975              (855)               (9)
                                                           -----------       -----------       -----------       -----------

Comprehensive income                                       $     1,732       $     3,887       $     5,542       $     6,311
                                                           ===========       ===========       ===========       ===========
Per share data
  Net income, basic                                        $      0.32       $      0.28       $      0.92       $      0.92
  Net income, diluted                                      $      0.31       $      0.27       $      0.89       $      0.89
  Cash dividends                                           $      0.11       $      0.10       $      0.33       $      0.30
Weighted average shares outstanding, basic                   7,003,950         6,850,968         6,984,342         6,858,733
Weighted average shares outstanding, diluted                 7,200,423         7,031,148         7,210,542         7,086,476
</TABLE>

            See notes to unaudited consolidated financial statements.


                                       4
<PAGE>

FNB Financial Services Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited; dollars in thousands)

<TABLE>
<CAPTION>
                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                      -----------------------------
                                                                                          2005              2004
                                                                                      ------------     ------------
<S>                                                                                   <C>              <C>
Cash flows from operating activities:
   Net income                                                                         $      6,396     $      6,320
   Adjustments to reconcile net income to net cash provided by
      operating activities:
          Depreciation, accretion, and amortization                                            915               60
          Provision for credit losses                                                        2,505              945
          (Gain) on sale of securities available for sale                                       --             (108)
          (Gain) loss on disposal of premises, equipment and other real estate                 504             (106)
          Net change in loans held for sale                                                  9,082           (4,221)
          Changes in assets and liabilities:
               Increase in other assets                                                     (9,237)            (190)
               Increase in other liabilities                                                 5,700            1,550
                                                                                      ------------     ------------
               Net cash provided by operating activities                                    15,865            4,250
                                                                                      ------------     ------------

Cash flows from investing activities:
      Proceeds from sales, maturities, or calls of securities available for sale            19,797           27,294
      Purchase of securities available for sale                                            (57,374)         (32,688)
      Purchase of premises and equipment                                                    (1,546)          (2,547)
      Proceeds from disposal of premises and equipment                                         110              292
      Proceeds from disposal of other real estate owned                                      2,163              226
      Net increase in loans                                                               (106,007)         (59,700)
                                                                                      ------------     ------------

               Net cash used in investing activities                                      (142,857)         (67,123)
                                                                                      ------------     ------------

Cash flows from financing activities:
      Net increase in deposits                                                             105,544           81,988
      Net increase (decrease) in long-term debt                                             45,774          (20,500)
      Net decrease in short-term borrowings                                                (14,298)          (2,566)
      Repurchase of common stock                                                              (803)          (2,504)
      Proceeds from issuance of common stock                                                 1,312            1,411
      Cash dividends paid                                                                   (2,328)          (1,971)
                                                                                      ------------     ------------

               Net cash provided by financing activities                                   135,201           55,858
                                                                                      ------------     ------------

Net increase (decrease) in cash and cash equivalents                                         8,209           (7,015)
Cash and cash equivalents, January 1                                                        24,246           29,319
                                                                                      ------------     ------------

Cash and cash equivalents, September 30                                               $     32,455     $     22,304
                                                                                      ============     ============
</TABLE>

            See notes to unaudited consolidated financial statements.


                                       5
<PAGE>

FNB Financial Services Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

1.    Basis of presentation

            The accompanying  unaudited consolidated financial statements of FNB
      Financial Services Corporation (the "Company" or "FNB") have been prepared
      in accordance with accounting  principles generally accepted in the United
      States of America and with the instructions to Form 10-Q and Rule 10-01 of
      Regulation S-X.  Accordingly,  these  statements do not include all of the
      information  and  footnotes  required by accounting  principles  generally
      accepted  in  the  United   States  of  America  for  complete   financial
      statements.  In the opinion of management,  all adjustments (consisting of
      normal recurring  accruals)  considered  necessary for a fair presentation
      have been  included.  Operating  results for the  nine-month  period ended
      September 30, 2005 are not necessarily  indicative of the results that may
      be expected for the year ending December 31, 2005. For further information
      refer to the  consolidated  financial  statements  and  footnotes  thereto
      included   in  FNB's   2004   Annual   Report   on  Form   10-K.   Certain
      reclassifications   have  been  made  to  the  prior  period  consolidated
      financial  statements to place them on a comparable basis with the current
      period consolidated financial statements.  These reclassifications have no
      effect on net income or shareholders' equity as previously reported.

2.    Per share data

            Basic and diluted net income per share  amounts  have been  computed
      based upon net  income as  presented  in the  accompanying  statements  of
      income divided by the weighted average number of common shares outstanding
      or assumed to be outstanding as summarized.

<TABLE>
<CAPTION>
                                                           Three Months Ended                Nine Months Ended
                                                               September 30,                    September 30,
                                                        --------------------------      --------------------------
                                                           2005            2004            2005            2004
                                                        ----------      ----------      ----------      ----------
<S>                                                      <C>             <C>             <C>             <C>
      Weighted average number of shares
              used in basic EPS                          7,003,950       6,850,968       6,984,342       6,858,733
      Effect of dilutive stock options                     196,473         180,180         226,200         227,743
                                                        ----------      ----------      ----------      ----------

      Weighted average number of common
              shares and dilutive potential common
              shares used in dilutive EPS                7,200,423       7,031,148       7,210,542       7,086,476
                                                        ==========      ==========      ==========      ==========
</TABLE>

            For the three months ended  September 30, 2005 and 2004,  there were
      125,625 and 275,541 options,  respectively,  that were antidilutive  since
      the exercise  price  exceeded the average  market price for the period and
      were omitted from the calculation of diluted  earnings per share for their
      respective periods. For the nine months ended September 30, 2005 and 2004,
      there  were  125,625  and  271,375   options,   respectively,   that  were
      antidilutive  since the exercise  price  exceeded the average market price
      for the period and were omitted from the  calculation of diluted  earnings
      per share for their respective periods.

            On April 21, 2005, the Board of Directors  approved a  five-for-four
      (5:4)  stock  split of its common  stock,  to be  effected  as a 25% stock
      dividend.  Shareholders of record at the close of business on May 12, 2005
      received one additional  share of the Company's common stock for each four
      shares owned.  Certificates  for the new shares and any cash to be paid to
      shareholders in lieu of fractional shares were issued on May 31, 2005. All
      relevant per share data has been restated to reflect this stock split.

            At  the  Annual  Meeting  of  Shareholders  held  on May  19,  2005,
      proposals to increase the number of authorized shares of common stock from
      40,000,000 to 75,000,000  with no par value were approved.  For accounting
      purposes, the common stock will have a stated value of $1.00 per share.


                                       6
<PAGE>

3.    Stock based compensation

            The Company  follows  Statement  of Financial  Accounting  Standards
      ("SFAS") No. 123,  "Accounting for Stock-Based  Compensation."  Under SFAS
      No.  123,  the  Company  has  elected to  continue  using the  measurement
      prescribed in  Accounting  Principles  Board  ("APB")  Opinion No. 25, and
      accordingly,  SFAS  No.  123  had no  effect  on the  Company's  financial
      position or results of operations. The Company has issued stock under both
      incentive and non-qualified stock option plans. The proforma impact on net
      income  and net  income  per  share  as if the fair  value of  stock-based
      compensation  plans  had been  recorded  as a  component  of  compensation
      expense in the consolidated  financial  statements as of the date of grant
      of awards  related to such plans,  pursuant to the  provisions of SFAS No.
      148, "Accounting for Stock-Based  Compensation-Transition and Disclosure,"
      which amends SFAS No. 123, is disclosed in the accompanying table.

            These plans  provide  that shares  granted  come from the  Company's
      authorized,  but unissued, common stock. The exercise price of the options
      granted  pursuant  to these plans will not be less than 100 percent of the
      fair market value of the shares on the date of grant.  The options granted
      in 1996 and  thereafter  vest ratably over a four-year  period.  No option
      will be exercisable after ten years from the date granted.

<TABLE>
<CAPTION>
                                                    For the three months ended           For the nine months ended
                                                    --------------------------           -------------------------
                                                            September 30,                       September 30,
                                                            -------------                       -------------
(Dollars in thousands, except per share data)          2005              2004              2005              2004
---------------------------------------------          ----              ----              ----              ----
<S>                                                <C>               <C>               <C>               <C>
Net income, as reported                            $     2,218       $     1,912       $     6,396       $     6,320
Less: Stock based compensation as
calculated per fair value method, net of
tax effect                                                 (92)              (94)             (275)             (281)
                                                   -----------       -----------       -----------       -----------

Proforma net income                                $     2,126       $     1,818       $     6,121       $     6,039
                                                   ===========       ===========       ===========       ===========

Basic earnings per share:
  As reported                                      $      0.32       $      0.28       $      0.92       $      0.92
  Proforma                                         $      0.30       $      0.27       $      0.88       $      0.88

Diluted earnings per share:
  As reported                                      $      0.31       $      0.27       $      0.89       $      0.89
  Proforma                                         $      0.30       $      0.26       $      0.85       $      0.85
</TABLE>

            In December 2004, the Financial  Accounting Standards Board ("FASB")
      issued SFAS No. 123(R),  "Accounting for Stock-Based  Compensation."  This
      Statement  focuses  primarily on accounting for  transactions  in which an
      entity obtains employee services in share-based payment transactions. SFAS
      No.  123(R)  requires  that the fair value of such equity  instruments  be
      recognized  as an expense in the  financial  statements  as  services  are
      performed.  The  provisions of this  Statement are effective for the first
      interim  reporting  period of fiscal years  beginning after June 15, 2005.
      Accordingly,  the Company will adopt SFAS No. 123(R)  commencing  with the
      quarter ending March 31, 2006.


                                       7
<PAGE>

4.    Loans

Loan Category:

<TABLE>
<CAPTION>
                                                                                September 30,    December 31,
       (Dollars in thousands)                                                        2005            2004
                                                                                -------------    ------------

<S>                                                                              <C>             <C>
Real estate - commercial                                                         $   181,697     $   166,491
Real estate - residential                                                            149,595         124,436
Real estate - construction                                                           202,982         162,143
Commercial, financial and agricultural                                                91,490          83,332
Consumer                                                                             149,605         137,332
                                                                                 -----------     -----------

       Subtotal loans                                                                775,369         673,734

   Less: Loans held for sale                                                           4,010          10,308
                                                                                 -----------     -----------

       Gross loans                                                               $   771,359     $   663,426
                                                                                 ===========     ===========
</TABLE>

Allowance for credit losses:

<TABLE>
<CAPTION>
                                                   September 30, 2005                 December 31, 2004
                                             ----------------------------       ----------------------------
                                                              % of Loans                         % of Loans
                                                              in Each                            in Each
                                                              Category to                        Category to
(Dollars in thousands)                        Allowance       Total Loans        Allowance       Total Loans
                                             -----------      -----------       -----------      -----------
<S>                                          <C>                      <C>       <C>                      <C>
Balance at end of period applicable to:

     Real estate - construction                        3               26       $         1               24
     Real estate - mortgage                           73               43                43               42
     Commercial                                    6,657               12             5,166               13
     Consumer                                      2,600               19             2,143               21
                                             -----------      -----------       -----------      -----------

          Total                              $     9,333              100%      $     7,353              100%
                                             ===========      ===========       ===========      ===========
</TABLE>

Rollforward - allowance for credit losses:

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended
                                                                                       September 30,
                                                                              ------------------------------
(Dollars in thousands)                                                            2005               2004
                                                                              -----------        -----------
<S>                                                                           <C>                <C>
Balance, beginning of period                                                  $     7,353        $     7,124
Charge-offs                                                                           771                792
Recoveries                                                                           (246)               (64)
                                                                              -----------        -----------
Net charge-offs                                                                       525                728
                                                                              -----------        -----------
Provision for credit losses                                                         2,505                945
                                                                              -----------        -----------
Balance, end of period                                                        $     9,333        $     7,341
                                                                              ===========        ===========

Annualized net charge-offs during the period to
    average loans outstanding during the period                                      0.10%              0.16%
                                                                              ===========        ===========
Allowance for credit losses as a percent of
    period end loans                                                                 1.21%              1.15%
                                                                              ===========        ===========
</TABLE>


                                       8
<PAGE>

4.    Loans (continued)

Nonperforming assets:

<TABLE>
<CAPTION>
                                                         September 30,     December 31,
(Dollars in thousands)                                       2005              2004
                                                         -------------     ------------
<S>                                                       <C>              <C>
Nonaccrual                                                $     4,083      $     3,450
Past due 90 days or more and still accruing interest               25               65
Other real estate                                               1,485            5,559
Renegotiated troubled debt                                         --               --
</TABLE>

5.    Employee benefit plans

            The  accompanying  table details the  components of pension  expense
      recognized in FNB's  Consolidated  Statements of Income and  Comprehensive
      Income:

<TABLE>
<CAPTION>
                                           For the three months                 For the nine months
                                           --------------------                 -------------------
                                            ended September 30,                 ended September 30,
                                            -------------------                 -------------------
(Dollars in thousands)                      2005              2004              2005             2004
                                            ----              ----              ----             ----
<S>                                     <C>               <C>               <C>               <C>
Service cost                            $       174       $       127       $       521       $       381
Interest cost                                   109                90               326               270
Expected return on plan assets                 (131)             (121)             (393)             (363)
Amortization of prior service cost                5                 5                15                15
                                        -----------       -----------       -----------       -----------
Net periodic pension cost               $       157       $       101       $       469       $       303
                                        ===========       ===========       ===========       ===========
</TABLE>

            For the 2005 Plan Year, no tax-deductible contributions are required
      or allowed.

6.    Trust preferred securities

            The Company and FNB Financial  Services  Capital Trust I, a Delaware
      statutory  trust (the "Trust,"  wholly owned by the  Company),  issued and
      sold on August 26, 2005 $25,000,000 of the Trust's Floating Rate Preferred
      Securities,  with a liquidation  amount of $1,000 per preferred  security,
      bearing a variable rate of interest per annum,  reset quarterly,  equal to
      LIBOR plus  1.46%  (the  "Preferred  Securities")  and a maturity  date of
      September  30, 2035.  The  Preferred  Securities  are callable in 5 years.
      Interest  payment dates are March 30, June 30,  September 30, and December
      30 of each year. The Preferred  Securities  are fully and  unconditionally
      guaranteed  on a  subordinated  basis  by  the  Company  with  respect  to
      distributions  and  amounts  payable  upon   liquidation,   redemption  or
      repayment.  The entire  proceeds from the sale by the Trust to the holders
      of the Preferred Securities was combined with the entire proceeds from the
      sale by the Trust to the  Company of its common  securities  (the  "Common
      Securities"),  and was  used  by the  Trust  to  purchase  $25,774,000  in
      principal  amount of the  Floating  Rate  Junior  Subordinated  Notes (the
      "Junior  Subordinated  Notes") of the  Company.  The Company  adopted FASB
      Interpretation  No.  ("FIN")  46,   "Consolidation  of  Variable  Interest
      Entities,"  upon the  establishment  of the Trust and has not included the
      Trust in the consolidated financial statements.

            The Company contributed $24,000,000 of the proceeds from the sale of
      the Junior Subordinated Notes to the Bank as Tier I Capital to support the
      Bank's growth.  Currently,  regulatory capital rules allow trust preferred
      securities to be included as a component of regulatory capital.

7.    Loss contingency

            On June 20, 2005, the Company  discovered that a loan officer in the
      Bank's  Harrisonburg,  VA  Region  made  improper  loans  and  engaged  in
      transactions in violation of certain  policies and procedures of the Bank.
      The Company  terminated  the  employment of the loan officer and commenced
      investigations, including reviews of the loan portfolio of the former loan
      officer,   through  both  the


                                       9
<PAGE>

      Bank's  internal audit function and an  independent  consulting  firm. The
      Company  has  recorded  a fraud  loss of  $50,000  with  respect  to these
      matters.

            As a result of these  investigations  and reviews  and  management's
      analyses of the relevant  loans,  during the quarter  ended  September 30,
      2005, the Bank changed the risk grades of certain loans in the former loan
      officer's  portfolio  and made special  provisions  to its  allowance  for
      credit losses of approximately $900,000. These provisions were in addition
      to provisions to the allowance  made in the ordinary  course of the Bank's
      continuing  reviews and analyses of its loan portfolio.  FNB is continuing
      to scrutinize the loan portfolio of the former loan officer.  Based on its
      analyses  of that  portfolio  and the  results of the  investigations  and
      reviews  discussed  above,  management has concluded that,  other than the
      approximately  $900,000  in  special  provisions  recorded  in  the  third
      quarter,  additional special provisions to the Bank's allowance for credit
      losses  were not  warranted.  It is  possible,  however,  that  additional
      provisions  to the allowance  for credit  losses  resulting  from the loan
      portfolio of the former loan officer would be required in the future based
      on changes in circumstances relating to credits in that portfolio.

            During the quarter ended September 30, 2005, the Company  asserted a
      claim under its fidelity  bond for  potential  losses  resulting  from the
      activities  of the former loan officer.  In addition,  with the consent of
      the  issuer  of the  fidelity  bond,  the Bank  entered  into a  repayment
      arrangement with the former loan officer on September 29, 2005. Under this
      arrangement,  the former loan officer agreed to pay the Bank approximately
      $809,000,  to  guarantee  repayment  of  loans  made by him to  affiliated
      parties and to  collateralize  a portion of his  repayment  and  guarantee
      obligations.  At the time of the  execution  of the  relevant  agreements,
      approximately  $140,500 of the loans to affiliated  parties were repaid. A
      sale of a portion of the collateral  pledged by the former loan officer is
      expected to occur during the quarter  ending  December 31, 2005,  with the
      net  proceeds of such sale being  payable to the Bank.  At this time,  the
      Company  is  unable  to  predict  with  certainty  the  amount of such net
      proceeds,  the  amount  the  Bank  will  be  able to  recover  from  other
      collateral pledged by the former loan officer, the amount the loan officer
      will pay on his obligation from other sources,  or the amount or timing of
      recovery the Company will obtain from its claim on its fidelity  bond and,
      accordingly,  the Company has recorded a $200,000 valuation allowance with
      respect to this receivable.

8.    Shareholders' equity

            The  balances  in  FNB's   shareholders'   equity  accounts  totaled
      $74,605,000 at September 30, 2005, compared to $70,430,000 at December 31,
      2005,  an  increase of  $4,175,000.  During the first nine months of 2005,
      FNB's common stock split  five-for-four  (5:4),  resulting in a $1,398,000
      transfer from retained earnings to common stock.  Reductions of $38,000 in
      common  stock and  $770,000 in paid-in  capital  were  generated  from the
      continued  activity in the share  repurchase  program  established  by the
      Board of Directors.  Concurrently,  the exercise of stock options produced
      additions of $125,000 and  $1,192,000,  respectively,  in common stock and
      paid-in  capital.  The income tax benefit related to the exercise of stock
      options   increased   paid-in  capital  by  $452,000.   Retained  earnings
      experienced a net increase of  $2,671,000  during the first nine months of
      2005.  In addition to the impact of the stock split on retained  earnings,
      other items include net income year to date through  September 30, 2005 of
      $6,397,000,  as well as an  outflow of  $2,328,000  in  dividends  paid to
      shareholders.   Accumulated   other   comprehensive   losses  amounted  to
      $1,329,000,  after experiencing $855,000 in other comprehensive losses for
      the first nine months of 2005.


                                       10
<PAGE>

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

Information  set forth  below may  contain  various  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which statements represent the Company's
judgment  concerning the future and are subject to risks and uncertainties  that
could cause the Company's actual operating  results to differ  materially.  Such
forward-looking  statements  can be  identified  by the  use of  forward-looking
terminology,  such  as  "may",  "will",  "expect",   "anticipate",   "estimate",
"believe", or "continue", or the negative thereof or other variations thereof or
comparable   terminology.   The  Company  cautions  that  such   forward-looking
statements  are further  qualified  by  important  factors  that could cause the
Company's  actual  operating  results  to differ  materially  from  those in the
forward-looking statements.

Application of Critical Accounting Policies

      The  Company's   accounting  policies  are  fundamental  to  understanding
management's  discussion  and analysis of results of  operations  and  financial
condition. The Company's significant accounting policies are discussed in detail
in Note 1 of the  consolidated  financial  statements  included in the Company's
2004 Annual Report on Form 10-K. The following is a summary of the allowance for
credit losses, one of the most complex and judgmental accounting policies of the
Company.

      The allowance for credit losses, which is utilized to absorb actual losses
in the loan portfolio,  is maintained at a level  consistent  with  management's
best estimate of probable  credit losses  incurred as of the balance sheet date.
The  Company's  allowance  for  credit  losses  is also  analyzed  quarterly  by
management.  This analysis  includes a methodology that separates the total loan
portfolio into homogeneous loan classifications for purposes of evaluating risk,
as well as analysis  of certain  individually  identified  loans.  The  required
allowance is calculated by applying a risk adjusted  reserve  requirement to the
dollar volume of loans within a homogenous group. Major loan portfolio subgroups
include: risk graded commercial loans, mortgage loans, home equity loans, retail
loans and retail credit lines. Management also analyzes the loan portfolio on an
ongoing  basis to evaluate  current  risk  levels,  and risk grades are adjusted
accordingly.  While  management  believes  that it  uses  the  best  information
available to make evaluations,  future  adjustments may be necessary if economic
or other conditions differ substantially from the assumptions used.

Executive Summary

      FNB Financial  Services  Corporation  (the  "Company" or "FNB") is a North
Carolina financial holding company headquartered in Greensboro,  North Carolina.
The Company's wholly owned  subsidiary,  FNB Southeast (the "Bank"),  is a North
Carolina chartered  commercial bank. As of September 30, 2005, the Bank operated
thirteen banking offices in North Carolina and four banking offices in Virginia.
The Bank has two wholly owned subsidiaries:  FNB Southeast  Investment Services,
Inc. and FNB Southeast Mortgage Corporation.

      Assets at  September  30, 2005 were $1.01  billion,  an increase of $146.4
million,  or 16.9%,  since December 31, 2004. A $107.9  million  increase in net
loans, combined with a $36.8 million increase in investment securities, were the
principal  factors  impacting this overall increase during the first nine months
of 2005. Over the past nine months, noninterest bearing deposits increased $10.0
million and interest bearing  deposits rose $95.5 million,  resulting in a 14.6%
increase in total deposits for the period.

      FNB's third quarter earnings were $2.2 million in 2005 and $1.9 million in
2004.  Earnings  per  diluted  share were  $0.31 for the third  quarter of 2005,
compared  to $0.27 for the same  period in 2004.  For the first  nine  months of
2005, earnings were $6.4 million,  or $0.89 per diluted share,  compared to $6.3
million,  or $0.89  per  diluted  share,  for the  first  nine  months  of 2004.
Excluding  after-tax  gains of $548,000 from the sale of a banking  operation in
the second quarter of 2004, year to date earnings for 2005 increased 10.8%.


                                       11
<PAGE>

      In July  2005,  two loan  production  offices  of FNB  Southeast  Mortgage
Corporation,  located in Charlotte, NC and Cornelius, NC were closed. Management
determined  that  these  locations  have been  unable to  produce  market  share
significant enough to warrant FNB's continued  commitment to that market and the
decision was made to redirect the resources  required to fund the  operations at
these offices into other areas of the Company.

Financial Condition

      Since  December 31,  2004,  the  Company's  assets have  increased  $146.4
million,  rising  from  $865.3  million  at  yearend  2004 to $1.01  billion  at
September 30, 2005. The principal factors impacting this overall increase during
the first  nine  months of 2005 were a $107.9  million  increase  in net  loans,
combined  with a $36.8  million  increase  in  investment  securities.  Loans at
September 30, 2005 totaled $771.4 million, compared to $663.4 million at yearend
2004, an increase of 16.3%.  The  acceleration  in loan growth was spread across
all major loan  categories  and was led by real  estate  loans  which were 17.9%
higher at September 30, 2005, compared to yearend 2004. In addition,  commercial
loans and consumer loans grew 9.8% and 8.9%, respectively. Investment securities
of $178.4  million at  September  30,  2005 were $36.8  million  higher than the
$141.6 million balance at December 31, 2004.

      Deposits  generated  through the FNB branch network are the largest source
of funds  used to support  asset  growth.  Deposits  totaled  $829.8  million at
September 30, 2005, compared to $724.3 million at December 31, 2004. While there
has  been  positive  growth  in  deposits,  resulting  from  several  successful
marketing  campaigns,  the overall deposit mix has remained relatively the same.
At  September  30,  2005,  borrowings  at the Federal  Home Loan Bank of Atlanta
(FHLB) totaled $65.0 million, an increase of 44.4%, compared to $45.0 million at
December 31, 2004.  The proceeds  from this  increase were utilized as a funding
source for the growth in the loan portfolio.  Federal funds purchased and retail
repurchase  agreements totaled $7.2 million at September 30, 2005, a decrease of
$14.3 million from December 31, 2004.

      Shareholders'  equity remains strong,  with all of our regulatory  capital
ratios at levels  that enable the Company to be  considered  "well  capitalized"
under bank regulatory  capital  guidelines.  Shareholders'  equity  increased to
$74.6 million at the end of the third quarter 2005, compared to $70.4 million at
December 31, 2004. The Company paid cash dividends of $0.11 per share during the
quarter  ended  September  30, 2005, a 10.0%  increase  over the $0.10 per share
dividend  rate for the third  quarter of 2004.  As discussed in the Notes to the
Consolidated  Financial  Statements,  a  five-for-four  (5:4)  stock  split  was
effected  on May 31,  2005 with the  issuance  of shares  and cash  payment  for
fractional shares to shareholders of record on May 12, 2005. On August 26, 2005,
FNB  completed  a  Trust  Preferred  Securities  transaction  in the  amount  of
$25,000,000.  FNB contributed  $24,000,000 of the proceeds to the Bank as Tier I
capital  to  support  the  Bank's  growth.  See the  Notes  to the  Consolidated
Financial  Statements  for a  discussion  of FNB's  issuance of trust  preferred
securities.

      On June 20, 2005, the Company discovered that a loan officer in the Bank's
Harrisonburg,  VA Region  made  improper  loans and engaged in  transactions  in
violation of certain policies and procedures of the Bank. The Company terminated
the  employment  of the loan  officer and  commenced  investigations,  including
reviews of the loan  portfolio  of the former  loan  officer,  through  both the
Bank's internal audit function and an independent  consulting  firm. The Company
recorded a fraud loss of $50,000 with respect to these matters.

      As a result of these investigations and reviews and management's  analyses
of the relevant  loans,  during the quarter ended  September 30, 2005,  the Bank
changed the risk grades of certain loans in the former loan officer's  portfolio
and made special  provisions to its allowance for credit losses of approximately
$900,000.  These provisions were in addition to provisions to the allowance made
in the ordinary course of the Bank's continuing reviews and analyses of its loan
portfolio.

      During the quarter ended September 30, 2005, the Company  asserted a claim
under its fidelity bond for potential  losses  resulting  from the activities of
the former  loan  officer.  In  addition,  with the consent of the issuer of the
fidelity  bond,  the Bank entered into a repayment  arrangement  with the former


                                       12
<PAGE>

loan officer on  September  29, 2005.  Under this  arrangement,  the former loan
officer agreed to pay the Bank approximately $809,000, to guarantee repayment of
loans made by him to affiliated  parties and to  collateralize  a portion of his
repayment  and  guarantee  obligations.  At the  time  of the  execution  of the
relevant agreements,  approximately  $140,500 of the loans to affiliated parties
were repaid.  A sale of a portion of the  collateral  pledged by the former loan
officer is expected to occur during the quarter ending  December 31, 2005,  with
the net  proceeds  of such sale  being  payable to the Bank.  At this time,  the
Company is unable to predict with certainty the amount of such net proceeds, the
amount the Bank will be able to recover  from  other  collateral  pledged by the
former loan officer, the amount the loan officer will pay on his obligation from
other sources,  or the amount or timing of recovery the Company will obtain from
its claim on its  fidelity  bond and,  accordingly,  the Company has  recorded a
$200,000 valuation allowance with respect to this receivable.

      FNB is  continuing  to  scrutinize  the loan  portfolio of the former loan
officer.  Based  on its  analyses  of  that  portfolio  and the  results  of the
investigations and reviews discussed above, management has concluded that, other
than the  approximately  $900,000  in special  provisions  recorded in the third
quarter, additional special provisions to the Bank's allowance for credit losses
were not warranted  during the quarter ended September 30, 2005. It is possible,
however, that additional provisions to the allowance for credit losses resulting
from the loan  portfolio  of the former  loan  officer  would be required in the
future based on changes in circumstances relating to credits in that portfolio.

      In July 2004,  FNB's Board of Directors  approved the  continuation of its
stock  repurchase  program  by  authorizing  the  repurchase  of up to 5% of the
Company's  outstanding  common stock.  This program  succeeds a stock repurchase
program  authorized  in  November  2002 and became  effective  immediately  upon
completion of the 2002 program.  The new authorization  allows the repurchase of
up to 343,905  additional  shares of common  stock.  This program is intended to
help  the  Company  achieve  its  goal  of  building   shareholder  value  while
maintaining  appropriate capital levels.  During the quarter ended September 30,
2005, a total of 10,000 shares were  purchased at an average price of $17.50 per
share through the stock repurchase  program authorized by the Company's Board of
Directors in July 2004. In  accordance  with state law,  repurchased  shares are
cancelled and are no longer considered issued.

Asset Quality

      The  Company's  allowance  for  credit  losses is  analyzed  quarterly  by
management.  This  analysis  includes  a  methodology  that  segments  the  loan
portfolio into homogeneous loan classifications and considers the current status
of  the  portfolio,   historical  charge-off   experience,   current  levels  of
delinquent,  impaired and  non-performing  loans,  as well as economic and other
risk factors.  It is also subject to regulatory  examinations and determinations
as to adequacy,  which may take into  account  such  factors as the  methodology
employed and other  analytical  measures in comparison to a group of peer banks.
Management  believes the  allowance  for credit  losses is  sufficient to absorb
known risk in the  portfolio.  No assurances  can be given that future  economic
conditions will not adversely affect borrowers and result in increased losses.

      The credit loss allowance,  as a percentage of period end loans, was 1.21%
at September  30, 2005,  1.11% at December 31, 2004,  and 1.15% at September 30,
2004. For the third quarter of 2005,  provision charges against earnings totaled
$1.2  million,  compared to $285,000  in the third  quarter of 2004.  During the
quarter ended  September 30, 2005,  the Bank changed the risks grades of certain
loans in the loan  portfolio  of a former  loan  officer  whose  employment  was
terminated  in June of 2005 and who made  certain  loans and  engaged in certain
transactions  in violation of policies and  procedures of the Bank.  The Company
conducted  investigations  and  reviews  of these  matters,  including  the loan
portfolio of the former loan officer,  through both its internal  audit function
and an  independent  consulting  firm. As a result of these  investigations  and
reviews and  management's  analyses of the relevant loans,  the Bank changed the
risk grades of certain  loans and made special  provisions  to its allowance for
credit  losses  of  approximately  $900,000  during  the  third  quarter.  These
provisions  were in addition to provisions to the allowance made in the ordinary
course of the Bank's continuing reviews and analyses of its loan portfolio.  Net
charge-offs  for  the  third  quarter  of  2005  totaled  $422,000,  or a  0.22%
annualized loss percentage based on average loans  outstanding,  compared to net
charge-offs for the third quarter of 2004 totaling $127,000, or 0.08%


                                       13
<PAGE>

annualized  loss  percentage.  Annualized  net credit  losses for the first nine
months of 2005 and 2004 were  0.13% and  0.16%,  respectively,  based on average
loans outstanding.

      Nonperforming  loans totaled $4.1 million at September 30, 2005,  compared
to $3.5 million at yearend 2004 and $4.4  million at September  30, 2004.  Other
real estate owned ("OREO") was $1.5 million at September 30, 2005,  $5.6 million
at December 31, 2004,  and $5.0  million at  September  30, 2004.  Approximately
$576,000  has been  transferred  from  loans  into OREO and  approximately  $4.7
million of such assets were  disposed of during the first nine months of 2005. A
net loss of $477,000 has been  recorded on  disposition  or writedown of OREO in
the current year.

      Total  nonperforming  assets  (comprised of nonperforming  loans and OREO)
decreased to $5.6 million,  or 0.55% of total assets at September 30, 2005, from
$9.1 million,  or 1.05% of total assets at December 31, 2004,  and $9.3 million,
or 1.10% of total assets a year ago.

Results of Operations for the Three Months Ended September 30, 2005 and 2004

Interest Income and Interest Expense
------------------------------------

      Total  interest  income was $16.5  million for the third  quarter of 2005,
compared to $11.3 million for the same period a year ago. Average earning assets
for the current quarter were $939.5 million, an increase of 21.0% over the third
quarter  average of $776.5  million a year ago.  Interest  income from loans was
$14.9  million,  up 48.7%  from  $10.0  million  in the third  quarter  of 2004.
Interest income from loans increased to $14.9 million, from $10.0 million in the
third quarter of 2004,  with $2.2 million due to rate increases and $2.7 million
resulting  from an increase in volume.  The average  rate on loans  increased to
7.77% in 2005, a 129 basis point  increase  over 2004.  The increase in interest
income was driven primarily by an increase in average loans outstanding combined
with increases in the prime lending rate during the past year.  Average loans of
$767.5  million  were 24.0% higher than the $619.2  million last year.  Interest
income on investments  totaled $1.6 million for the three months ended September
30, 2005,  compared to $1.2 million for the third quarter of 2004. This increase
was  primarily due to the change in volume of $173,000 and the change in rate of
$120,000. The average balance of the investment portfolio was $162.8 million for
the quarter ended  September 30, 2005, a 17.5% increase from the average balance
of $138.6 million for the prior year third quarter.

      Third quarter total  interest  expense was $6.7 million,  compared to $3.9
million from the third quarter of last year, a 72.0% increase.  Average interest
bearing deposits  increased 17.5%, to $729.7 million,  from $621.2 for the third
quarter of 2004.  Interest expense on interest  bearing deposits  increased $2.3
million  from the same  period  in  2004,  with  $751,000  of  interest  expense
resulting  from an  increase  in volume  and change in rates  accounting  for an
increase of $1.5 million.  Interest expense on federal funds purchased and other
borrowings was $680,000 and $331,000 for the quarters  ended  September 30, 2005
and 2004, respectively. The average balance of federal funds purchased and other
borrowings  was $70.6  million in 2005 and $44.3  million in 2004.  The  Company
utilized  the growth in  deposits  and the  increased  levels of  borrowings  as
funding sources to support the growth in earning assets.

      During the three months ended  September  30,  2005,  net interest  income
increased $2.4 million,  or 32.7%, over the same period a year ago. Net interest
income  benefited  from strong growth in average  earning assets which rose from
$776.5  million  for the third  quarter of 2004 to $939.5  million for the third
quarter of 2005, a 21.0%  increase.  Net interest income on total earning assets
increased by $5.2  million,  from $11.4  million for the third  quarter 2004, to
$16.7  million for the same  quarter  2005,  with $2.4 million  attributable  to
change in rate and $2.8  million  resulting  from change in volume.  The average
yields on total interest earning assets for the same periods increased 119 basis
points, from 5.90% to 7.09%.  Average interest bearing liabilities for the third
quarter of 2005 increased  21.6%,  to $821.4 million from $675.7 million for the
third quarter of 2004. Total interest  expense on interest  bearing  liabilities
increased by $2.8 million from the same three month period a year ago with $ 1.7
million of the increase resulting from changes in rate and a $1.1 million due to
increased volume. The average cost of interest bearing  liabilities for the same
periods  increased  96 basis  points from 2.30% to 3.26%.  The net result was an
improvement  in


                                       14
<PAGE>

the interest  rate spread from 3.60% for the three months  ended  September  30,
2004 to 3.83% for the same period in 2005.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income and Rate / Volume Analysis
------------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended September 30, 2005 and 2004
                                                                                                               2005 v 2004
                                                                                                    --------------------------------
                                            Average Balance      Yield / Rate    Income / Expense    Increase      Change due to
------------------------------------------------------------------------------------------------------------------------------------
Fully Taxable Equivalent -
(Dollars in thousands)                       2005       2004      2005   2004     2005       2004   (Decrease)    Rate      Volume
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>        <C>         <C>    <C>    <C>        <C>        <C>       <C>        <C>
Assets
Securities(1):
  Taxable investment securities            $122,976   $ 99,897    3.57%  3.05%  $  1,099   $    763   $   336   $    143   $    193
  Tax-exempt investment securities           32,941     34,344    5.87   6.15        483        526       (43)       (22)       (21)
  Other securities                            6,843      4,313    3.62   3.99         62         43        19         (4)        23
------------------------------------------------------------------------------------------------------------------------------------
      Total securities                      162,760    138,554    4.04   3.85      1,644      1,332       312        117        195
Other earning assets(2)                       9,174     18,749    4.14   1.96         95         92         3         66        (63)

Loans, net(3)(4)                            767,524    619,178    7.77   6.48     14,917     10,030     4,887      2,214      2,673
------------------------------------------------------------------------------------------------------------------------------------
  Total earning assets                      939,458    776,481    7.09   5.90     16,656     11,454     5,202      2,397      2,805
------------------------------------------------------------------------------------------------------------------------------------
  Non-earning assets                         56,816     54,251
------------------------------------------------------------------------------------------------------------------------------------
      Total assets                         $996,274   $830,732
====================================================================================================================================

Liabilities and Shareholders' Equity
Interest-bearing deposits:
  Savings deposits                         $ 50,860   $ 51,432    0.25   0.12         32         16        16         16         --
  Money market deposits                     170,607    116,484    3.06   2.29      1,307        667       640        268        372
  Time deposits                             508,273    453,255    3.54   2.52      4,502      2,862     1,640      1,261        379
------------------------------------------------------------------------------------------------------------------------------------
      Total interest-bearing deposits       729,740    621,171    3.20   2.28      5,841      3,545     2,296      1,545        751
Short-term borrowings                        16,919     11,797    0.69   0.47         92         21        71         35         36
Long-term debt                               74,710     42,717    4.38   3.12        757        324       433        152        281
------------------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing liabilities        821,369    675,685    3.26   2.30      6,690      3,890     2,800      1,732      1,068
------------------------------------------------------------------------------------------------------------------------------------
  Demand deposits                            87,335     77,690
  Other liabilities                          13,978      9,530
  Shareholders' equity                       73,592     67,827
------------------------------------------------------------------------------------------------------------------------------------
  Total liabilities and
      shareholders' equity                 $996,274   $830,732
====================================================================================================================================
Average interest rate spread                                      3.83%  3.60%
Net yield on earning assets                                       4.21   3.90   $  9,966   $  7,564   $ 2,402   $    665   $  1,737
====================================================================================================================================
Taxable equivalent adjustment                                                   $    164   $    179
====================================================================================================================================
</TABLE>

----------
(1)   The fully tax equivalent basis is computed using a federal tax rate of
      34%.

(2)   Includes federal funds sold and securities purchased under resale
      agreements or similar arrangements.

(3)   Loan fees, which are not material for either of the periods shown, have
      been included for rate calculation purposes.

(4)   Nonaccrual loans have been included in the average balances. Only the
      interest collected on such loans has been included as income.

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

Provision for Credit Losses
---------------------------

      A  provision  for credit  losses is charged  against  earnings in order to
maintain the allowance  for credit losses at a level that is deemed  appropriate
by management. The amount of the provision is based on continuing assessments of
factors that include  growth,  composition and industry  diversification  of the
portfolio,  historical loan loss experience, current delinquency levels, adverse
situations that may affect a borrower's ability to repay, estimated value of any
underlying  collateral,   prevailing  economic  conditions  and  other  relevant
factors.  The  provision for credit losses in the third quarter of 2005 was $1.2
million,  compared to $285,000 in 2004.  The  allowance  for credit  losses as a
percentage of gross loans  outstanding was 1.21% at September 30, 2005, 1.11% at
December  31,  2004,  and 1.15% at September  30,  2004.  Annualized  net credit
losses,  as a percent of  average  loans,  was 0.22% and 0.08% for the  quarters
ended September 30, 2005 and 2004, respectively.

      During the quarter ended  September  30, 2005,  the Bank changed the risks
grades of certain  loans in the loan  portfolio of a former loan  officer  whose
employment was terminated in June of 2005 and who made certain loans and engaged
in certain transactions in violation of policies and procedures of the Bank. The
Company  conducted  investigations  and reviews of these matters,  including the
loan  portfolio of the former loan  officer,  through  both its  internal  audit
function and an independent consulting firm. As a result of these investigations
and reviews and  management's  analyses of the relevant loans,  the Bank changed
the risk grades of certain  loans and made special  provisions  to its allowance
for credit losses of approximately $900,000 during the third quarter.


                                       15
<PAGE>

Noninterest Income and Expense
------------------------------

      Noninterest income in the third quarter of 2005 was $1.7 million, compared
to $1.7 million in the same period last year.  Deposit service charges were $1.0
million for the third quarter of 2005, compared to $905,000 in the third quarter
of 2004. Sales of securities available for sale during the third quarter of 2005
resulted  in a $4,800 net gain  compared to a $3,000 loss during the same period
in 2004.  Noninterest  income in the third quarter of 2005 included  $552,000 in
mortgage  banking  fees and  $83,000 in  investment  service  fees  compared  to
revenues of $549,000 and $133,000, respectively, for the previous year.

      Noninterest  expense  for the third  quarter of 2005 was $7.0  million,  a
17.2%  increase  over the $6.0  million  expense  in the third  quarter of 2004.
Expense items  significantly  contributing  to this increase  include  personnel
expense,  occupancy  and  equipment  expense,  and other  items  related  to the
continued  growth and expansion of the Company.  Salaries and employee  benefits
increased  $720,000 combined with higher insurance and retirement  costs.  Other
items impacted were occupancy expense,  which increased  $43,000,  and furniture
and equipment expense, which increased $11,000,  compared to third quarter 2004.
Marketing expense  increased  $28,000 in the third quarter of 2005,  compared to
the same period a year ago, primarily because of costs associated with campaigns
designed to increase deposits.  Other noninterest expense for the third quarters
of 2005 and 2004 totaled $1.5 million and $1.3 million, respectively.

Provision for Income Taxes
--------------------------

      The  Company's  provision  for income  taxes  totaled $1.1 million for the
third  quarter of 2005 and $913,000 for the same period in 2004.  The  Company's
effective tax rates for the  three-month  periods  ended  September 30, 2005 and
2004 were 33.9% and 32.3%,  respectively.  Overall,  the  effective  tax rate is
attributable  to the current expense  required to provide an adequate  provision
for income taxes for the quarters ended September 30, 2005 and 2004.

Results of Operations for the Nine Months Ended September 30, 2005 and 2004

Interest Income and Interest Expense
------------------------------------

      Total interest income was $44.9 million for the first nine months of 2005,
compared to $32.1 million for the same period in 2004.  Average  earning  assets
for the nine months ended September 30, 2005 were $895.2 million, an increase of
18.9% over the average of $752.8 million a year ago.  Interest income from loans
was $40.6 million, up 42.5% from $28.5 million in 2004. The increase in interest
income  was  driven  primarily  by  a  continuing   increase  in  average  loans
outstanding.  Average loans of $732.4  million were 21.5% higher than the $602.6
million last year.  The average rate on loans  increased to 7.40% in 2005, a 109
basis point  increase over 2004.  The increase in average loan rate is driven by
increases in the prime  lending  rate over the past year.  The increase in rates
resulted in $5.4 million of the increase interest income from loans,  while $6.7
million of the increase  was  attributable  to the  increased  volume.  Interest
income on investments for the nine-month period totaled $4.3 million in 2005 and
$3.6 million in 2004.

      Total  interest  expense  for the  first  nine  months  of 2005 was  $17.5
million,  a 61.2%  increase  from the $10.9  million  expense for the first nine
months of 2004. Interest expense on deposits for the nine month period increased
58.8%, to $15.4 million for 2005 from $9.7 million in 2004. The average rate for
the nine months on interest  bearing  deposits  increased to 2.95% in 2005, from
2.22% one year earlier while average interest bearing deposits  increased 19.5%,
to $694.9  million,  from  $581.8  for the first nine  months of 2004.  Interest
expense on interest bearing deposits increased $5.7 million from the same period
in 2004.  Approximately  $3.5 million of this increase was a result of increased
rates while $2.1 million of the increase was the result of increased volume.

      Interest  expense on federal funds purchased and other borrowings was $1.9
million for the nine months ended  September  30, 2005 and $1.2 million in 2004.
The average balance of federal funds


                                       16
<PAGE>

purchased  and other  borrowings  increased  from $60.0 million in 2004 to $72.6
million in 2005.  The Company  utilized the growth in deposits and the increased
levels of borrowings as funding sources to support balance sheet growth.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income and Rate / Volume Analysis
------------------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2005 and 2004
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                2005 v 2004
                                                                                                    --------------------------------
                                         Average Balance         Yield / Rate     Income / Expense  Increase        Change due to
------------------------------------------------------------------------------------------------------------------------------------
Fully Taxable Equivalent -
(Dollars in thousands)                      2005       2004      2005    2004     2005      2004    (Decrease)    Rate       Volume
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>         <C>     <C>     <C>       <C>       <C>         <C>        <C>
Assets
Securities(1):
  Taxable investment securities          $113,821    $100,874    3.39%   3.07%   $ 2,898   $ 2,331   $    567    $   256    $   311
  Tax-exempt investment securities         32,470      33,709    5.95    6.13      1,450     1,550       (100)       (44)       (56)
  Other securities                          6,487       4,568    4.21    4.06        205       139         66         --         66
------------------------------------------------------------------------------------------------------------------------------------
      Total securities                    152,778     139,151    3.97    3.85      4,553     4,020        533        212        321
Other earning assets(2)                     9,963      11,110    2.97    1.66        222       139         83         99        (16)

Loans, net (3)(4)                         732,426     602,591    7.40    6.31     40,649    28,528     12,121      5,398      6,723
------------------------------------------------------------------------------------------------------------------------------------
  Total earning assets                    895,167     752,852    6.77    5.79     45,424    32,687     12,737      5,709      7,028
------------------------------------------------------------------------------------------------------------------------------------
  Non-earning assets                       55,239      50,603
------------------------------------------------------------------------------------------------------------------------------------
      Total assets                       $950,406    $803,455
====================================================================================================================================

Liabilities and Shareholders' Equity
Interest-bearing deposits:
  Savings deposits                       $ 52,142    $ 51,949    0.21    0.13         83        50         33         33         --
  Money market deposits                   140,037      82,240    2.66    1.80      2,795     1,108      1,687        681      1,006
  Time deposits                           502,766     447,584    3.31    2.54     12,500     8,521      3,979      2,836      1,143
------------------------------------------------------------------------------------------------------------------------------------
      Total interest-bearing deposits     694,945     581,773    2.95    2.22     15,378     9,679      5,699      3,550      2,149
Short-term borrowings                      20,143      18,668    2.72    0.89        332       126        206        198          8
Long-term debt                             64,919      51,483    3.57    2.77      1,819     1,071        748        394        354
------------------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing liabilities      780,007     651,924    3.00    2.22     17,529    10,876      6,653      4,142      2,511
------------------------------------------------------------------------------------------------------------------------------------
  Demand deposits                          84,257      74,856
  Other liabilities                        13,943       9,389
  Shareholders' equity                     72,199      67,288
------------------------------------------------------------------------------------------------------------------------------------
  Total liabilities and
      shareholders' equity               $950,406    $803,457
====================================================================================================================================
Average interest rate spread                                     3.77%   3.57%
Net yield on earning assets                                      4.16    3.86    $27,895   $21,811   $  6,084    $ 1,567    $ 4,517
====================================================================================================================================
Taxable equivalent adjustment                                                    $  493    $   527
====================================================================================================================================
</TABLE>

----------------
(1)   The fully tax equivalent basis is computed using a federal tax rate of
      34%.

(2)   Includes federal funds sold and securities purchased under resale
      agreements or similar arrangements.

(3)   Loan fees, which are not material for either of the periods shown, have
      been included for rate calculation purposes.

(4)   Nonaccrual loans have been included in the average balances. Only the
      interest collected on such loans has been included as income.

      During the nine months  ended  September  30, 2005,  net  interest  income
increased $6.1 million,  or 28.8%, over the same period a year ago. Net interest
income  benefited  from strong growth in average  earning assets which rose from
$752.8 million for the nine months of 2004 to $895.2 million for the same period
in 2005, an 18.9% increase.  The average yields on total interest earning assets
for the same periods increased 98 basis points from 5.79% to 6.77%. Net interest
income on total earning assets increased by $12.7 million from the same period a
year ago.  Increased rates  accounted for $5.7 million of this change,  combined
with $7.0 million attributable to increased volume.

      Average  interest  bearing  liabilities  for the first nine months of 2005
increased  19.6%, to $780.0 million from $651.9 million the first nine months of
2004.  The average  cost of interest  bearing  liabilities  for the same periods
increased 78 basis points from 2.22% to 3.00%. The change in interest expense is
due to $4.2  million in rate change and $2.5  million in volume.  The net result
was an  improvement  in the interest  rate spread from 3.57% for the nine months
ended June 30, 2004 to 3.77% for the same period in 2005.

Provision for Credit Losses
---------------------------

      A  provision  for credit  losses is charged  against  earnings in order to
maintain the allowance  for credit losses at a level that is deemed  appropriate
by management. The amount of the provision is based on continuing assessments of
factors that include  growth,  composition and industry  diversification  of the
portfolio,  historical loan loss experience, current delinquency levels, adverse
situations that may affect a borrower's ability to repay, estimated value of any
underlying  collateral,   prevailing  economic  conditions  and  other  relevant
factors.  The  provision for credit losses for the first nine months of 2005 was
$2.5 million, compared to $945,000 in 2004. The allowance for credit losses as a
percentage of gross loans


                                       17
<PAGE>

outstanding  was 1.21% at September  30, 2005,  1.11% at December 31, 2004,  and
1.15% at September  30, 2004.  Year to date  annualized  net credit  losses were
0.13% of average loans in 2005, compared to 0.16% for the same period in 2004.

      During the quarter ended  September  30, 2005,  the Bank changed the risks
grades of certain  loans in the loan  portfolio of a former loan  officer  whose
employment was terminated in June of 2005 and who made certain loans and engaged
in certain transactions in violation of policies and procedures of the Bank. The
Company  conducted  investigations  and reviews of these matters,  including the
loan  portfolio of the former loan  officer,  through  both its  internal  audit
function and an independent consulting firm. As a result of these investigations
and reviews and  management's  analyses of the relevant loans,  the Bank changed
the risk grades of certain  loans and made special  provisions  to its allowance
for credit losses of approximately $900,000 during the third quarter of 2005.

Noninterest Income and Expense
------------------------------

      Noninterest  income for the first nine months of this year  decreased 7.4%
to $5.7 million  from $6.1  million in the same period last year.  For the first
nine  months,  ($261) of net losses  from  sales of  investment  securities  was
recognized  in 2005,  compared  to $108,000 of net gains in the same period last
year.  Deposit service charges of $2.8 million for the first nine months of 2005
decreased 1.9% from the $2.9 million in 2004. Mortgage banking fees increased to
$2.1 million for the first nine months of 2005, compared to $1.4 million for the
same  period a year ago.  The  increase in  mortgage  banking  fees for 2005 was
primarily  attributable to the increased volume generated by the Bank's mortgage
subsidiary. Investment service fees decreased 29.1% for the first nine months of
2005,  from  $446,000 in the first nine months of 2004 to $316,000  for the same
period in 2005.

      Noninterest expense for the first nine months of 2005 was $20.9 million, a
23.1%  increase  over the $17.0 million  expense in 2004.  Salaries and employee
benefits   increased  $1.8  million  primarily  because  of  increased  staffing
associated with the expansion of banking  operations and the continued growth of
the Company,  combined with higher insurance and retirement  costs.  Other items
impacted were occupancy  expense,  which increased  $203,000,  and furniture and
equipment  expense,  which rose  $188,000,  compared to the first nine months of
2004.  Marketing  expense  increased  $144,000 in the first nine months of 2005,
compared to the same period a year ago.  Other expense for the first nine months
of 2005 and 2004 totaled $5.3 million and $3.8 million, respectively.

Provision for Income Taxes
--------------------------

      The  Company's  provision  for income  taxes  totaled $3.3 million for the
first nine months of 2005, compared to $3.1 million for the same period of 2004.
The Company's effective tax rates for the nine-month periods ended September 30,
2005 and 2004 were 33.7% and 33.3%,  respectively.  Overall,  the  effective tax
rate is  attributable  to the  current  expense  required to provide an adequate
provision  for income  taxes for the nine months  ended  September  30, 2005 and
2004.


                                       18
<PAGE>

Capital Resources

      Banks and financial holding  companies,  as regulated  institutions,  must
meet  required  levels of capital.  The Office of the  Commissioner  of Banks in
North Carolina and the Board of Governors of the Federal Reserve,  which are the
primary  regulatory  agencies for the Bank and the Company,  respectively,  have
adopted minimum capital regulations or guidelines that categorize components and
the  level  of  risk  associated   with  various  types  of  assets.   Financial
institutions are required to maintain a level of capital  commensurate  with the
risk profile  assigned to their assets in accordance  with the  guidelines.  See
Footnote 6 "Trust  Preferred  Securities"  for a discussion of FNB's issuance of
trust preferred securities.

      As shown in the accompanying  table, the Company and the Bank have capital
levels exceeding the minimum levels for "well  capitalized"  banks and financial
holding companies as of September 30, 2005.

                                 Regulatory Guidelines
                             ---------------------------
                                 Well         Adequately
      Ratio                  Capitalized     Capitalized     Company     Bank
      -----                  -----------     -----------     -------     ----
      Total Capital             10.0%             8.0%         13.5%     13.2%
      Tier 1 Capital             6.0              4.0          12.3      12.1
      Leverage Capital           5.0              4.0          10.0       9.8

Liquidity Management

      Liquidity  management  refers to the ability to meet  day-to-day cash flow
requirements  based  primarily  on activity in loan and deposit  accounts of the
Company's  customers.  Deposit  withdrawals,  loan funding and general corporate
activity create a need for liquidity for the Company.  Liquidity is derived from
sources  such as  deposit  growth;  maturity,  calls,  or  sales  of  investment
securities;  principal and interest payments on loans;  access to borrowed funds
or lines of credit; and profits.

      During the first nine months of 2005, the Company had net cash provided by
operating  activities  of $15.9  million.  This was an increase of $11.6 million
from the $4.3 million of net cash provided by operating  activities in the first
nine months of 2004. The increase is primarily attributable to the $13.3 million
change in loans held for sale and a $9.0  million  rise in other  assets for the
first  nine  months  of 2005,  combined  with  $4.2  million  increase  in other
liabilities, compared to the same period in 2004.

      Net cash used in  investing  activities  in the first nine  months of 2005
totaled $142.9 million.  Purchases of investment  securities in the current year
totaled  $57.4  million  and  proceeds  from  sales,  calls,  or  maturities  of
securities  were $19.8  million.  This compares to the first nine months of 2004
when proceeds  from sales,  calls,  or  maturities  of securities  totaled $27.3
million and purchases of investment securities totaled $32.7 million, leading to
net cash used in investment  activities of $67.1  million.  An increase in loans
outstanding  used  $106.0  million in cash during the first nine months of 2005,
compared to an increase in outstanding loans in 2004 totaling $59.7 million. Net
purchases of premises and equipment were $1.5 million in 2005,  compared to $2.5
million in 2004 expenditures.

      During the nine months  ended  September  30, 2005,  financing  activities
provided $135.2 million compared to $55.9 million during the same nine months in
2004. This change in financing activities is based primarily on a $105.5 million
rise in deposits and cash inflows from other borrowings of $20.0 million and the
issuance of trust preferred  securities of $25.8 million,  combined with a $14.3
million decrease in federal funds purchased and repurchase agreements during the
first nine months of 2005.

      Overall cash and cash  equivalents  totaled $32.4 million at September 30,
2005  compared  to $24.2  million  at  December  31,  2004 and $22.3  million at
September 30, 2004.

      Liquidity  is further  enhanced by an  approximately  $145 million line of
credit  with the  FHLB  collateralized  by FHLB  stock,  investment  securities,
qualifying 1 to 4 family residential  mortgage loans,


                                       19
<PAGE>

and  qualifying  commercial  real estate  loans.  The Company  provides  various
reports  to the FHLB on a regular  basis  throughout  the year to  maintain  the
availability of the credit line. Each borrowing request to the FHLB is initiated
through an advance  application  that is subject to  approval by the FHLB before
funds are advanced under the credit agreement.

      The Company also has unsecured  overnight borrowing lines of $51.0 million
available through six financial institutions. These lines are used to manage the
day-to-day,  short-term liquidity needs of the Company.  Each federal funds line
has a  requirement  to repay  the line in full on a  frequent  basis,  typically
within five to ten business days. The Company has also established a $15 million
wholesale  repurchase  agreement with a regional brokerage firm. The Company can
access this  additional  source of liquidity by pledging  investment  securities
with the brokerage firm.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      Market risk is the  possible  chance of loss from  unfavorable  changes in
market prices and rates.  These changes may result in a reduction of current and
future period net interest income, which is the favorable spread earned from the
excess of interest income on  interest-earning  assets, over interest expense on
interest-bearing liabilities.

      The Company considers interest rate risk to be its most significant market
risk, which could  potentially  have the greatest impact on operating  earnings.
The Company is asset  sensitive,  which means that falling  interest rates could
result in a reduced  amount of net interest  income.  The monitoring of interest
rate risk is part of the Company's overall  asset/liability  management process.
The primary  oversight of  asset/liability  management  rests with the Company's
Asset and Liability Committee.  The Committee meets on a regular basis to review
asset/liability activities and to monitor compliance with established policies.

      The Company has not experienced any substantive  changes in portfolio risk
during the nine months ended September 30, 2005.

Item 4. Controls and Procedures

      During  the  quarter   ended   September   30,  2005,   the  Company  made
investigations  and reviews of  improper  loans and  certain  transactions  of a
former loan officer  undertaken in violation of certain  policies and procedures
of the Bank. Management analyzed the results of these investigations and reviews
and concluded that certain of the preventive and detective  internal controls of
the Bank were not being  operated as designed and that, as a result,  there were
significant  deficiencies in the Company's  system of internal  controls in this
area.  Management further concluded,  however, that neither any such significant
deficiency  nor the  combination  of such  significant  deficiencies  would have
resulted in more than a remote  likelihood  that a material  misstatement of the
Company's consolidated financial statements would have occurred.

      During the third quarter,  in conjunction  with the Audit Committee of the
Company,  management  corrected these deficiencies by changing and supplementing
the Bank's  personnel  responsible for supervising its credit  underwriting  and
credit  administration  functions,  rescinding  unauthorized  exceptions  to its
lending authority policies implemented by former employees of the Bank, adopting
strengthened  collateral  appraisal policies,  and modifying the data processing
system in its credit underwriting and credit  administration areas to strengthen
the  effectiveness  of its internal  control and  reporting  procedures in those
areas.

Evaluation of disclosure controls and procedures

      The Company's management, under the supervision and with the participation
of the Chief Executive  Officer and the Chief  Financial  Officer of the Company
(its principal executive officer and principal financial officer, respectively),
has concluded  based on its  evaluation  as of the end of the period  covered by
this Quarterly Report on Form 10-Q, that the Company's  disclosure  controls and
procedures


                                       20
<PAGE>

are effective to ensure that information required to be disclosed by the Company
in the reports  filed or  submitted by it under the  Securities  Exchange Act of
1934, as amended,  is recorded,  processed,  summarized and reported  within the
time periods  specified in the applicable  rules and forms, and include controls
and procedures  designed to ensure that information  required to be disclosed by
the Company in such reports is  accumulated  and  communicated  to the Company's
management,  including  the Chief  Executive  Officer  and the  Chief  Financial
Officer of the  Company,  as  appropriate  to allow timely  decisions  regarding
required disclosure.

Changes in internal control over financial reporting

      During the third quarter,  in conjunction  with the Audit Committee of the
Company,  management  corrected these deficiencies by changing and supplementing
the Bank's  personnel  responsible for supervising its credit  underwriting  and
credit  administration  functions,  rescinding  unauthorized  exceptions  to its
lending  authority  policies  implementing  by  former  employees  of the  Bank,
adopting  strengthened  collateral  appraisal  policies,  and modifying the data
processing system in its credit underwriting and credit  administration areas to
strengthen the effectiveness of its internal control and reporting procedures in
those areas.

PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings

            None.

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

      The accompanying table details,  by month, the information  related to the
share  repurchase  program  approved by the Company's Board of Directors in July
2004  authorizing  the  repurchase  of up to  343,905  shares  of the  Company's
outstanding  common  stock.  The program was publicly  announced in the month of
approval.

<TABLE>
<CAPTION>
                                        Stock Repurchase Program - Approved July 2004
                                        ---------------------------------------------
                                      (a)                 (b)                   (c)                          (d)
                                Total Number of                                                         Maximum Number
                                     Shares          Average Price       Cumulative Number of     of Shares that May Yet Be
Period                             Purchased        Paid Per Share         Shares Purchased               Purchased
-----------------------------
<S>                                  <C>               <C>                      <C>                        <C>
July 1, 2005 to
July 31, 2005 ...............            --                 --                       --                    213,468
August 1, 2005 to
August 31, 2005 .............            --                 --                       --                    213,468
September 1, 2005 to
September 30, 2005 ..........        10,000            $ 17.50                  140,437                    203,468
          Total .............        10,000            $ 17.50
</TABLE>

Item 3.     Defaults Upon Senior Securities

            Not Applicable.

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

            None.

Item 5.     Other Information

            None.


                                       21
<PAGE>

Item 6.    Exhibits

                Exhibit No.   Description
                -----------   -----------

                3.01(1)       Amended and Restated Articles of Incorporation.

                3.02(1)       Bylaws of Company, as amended.

                4.01(2)       Specimen Common Stock Certificate.

                4.02          Amended and Restated Declaration of Trust,
                              regarding Trust Preferred Securities, dated August
                              26, 2005.

                4.03          Guarantee Agreement, regarding Trust Preferred
                              Securities, dated August 26, 2005.

                4.04          Indenture, regarding Trust Preferred Securities,
                              dated August 26, 2005.

                10.01(4)      Stock Compensation Plan of the Registrant approved
                              April 11, 1989, by the shareholders of the
                              Registrant, with forms of stock option and stock
                              bonus agreements attached.

                10.02(5)      Omnibus Equity Compensation Plan of the
                              Registrant.

                10.03(6)      Severance Policy for Senior Officers of the
                              Registrant (employed for five years or more).

                10.04(7)      Revised Severance Plan for Senior Officers of the
                              Registrant (employed for five years or more).

                10.05(8)      Severance Policy for Senior Officers of the
                              Registrant (employed for less than five years).

                10.06(9)      Benefit Equivalency Plan of the Registrant
                              effective January 1, 1994.

                10.07(13)     Annual Management Incentive Plan of the
                              Registrant.

                10.08(9)      Long Term Incentive Plan of the Registrant.

                10.09(11)     Long Term Incentive Plan of the Registrant for
                              certain senior management employees.

                10.10(9)      Employment Agreement dated May 18, 1995, between
                              the Registrant, as employer, and Ernest J. Sewell,
                              President and Chief Executive Officer of the
                              Registrant.

                10.11(10)     Split-Dollar Agreement dated January 27, 1995,
                              between the Registrant and Ernest J. Sewell.

                10.12(10)     Split-Dollar Agreement dated January 27, 1995,
                              between the Registrant and C. Melvin Gantt.

                10.13(10)     Split-Dollar Agreement dated December 8, 1995,
                              between the Registrant and Richard L. Powell.

                10.14(3)      Amendment to Benefit Equivalency Plan of the
                              Registrant effective January 1, 1998.

                10.15(10)     Split-Dollar Agreement dated March 20, 1998,
                              between the Registrant and Ernest J. Sewell.

                10.16(13)     Second Amendment, dated May 19, 2004, to the
                              Employment Agreement dated May 18, 1995, between
                              the Registrant, as employer, and Ernest J. Sewell,
                              President and Chief Executive Officer of the
                              Registrant.

                10.17(12)     Employment and Change of Control Agreement dated
                              July 1, 2004, between the Registrant, as employer,
                              and Pressley A. Ridgill, Executive Vice President
                              and Chief Operating Officer of the Registrant.

                10.18(13)     2005 Annual Incentive Bonus Plan

                10.19(13)     Third Amendment to Employment Agreement and First
                              Amendments to Split-Dollar Agreements and
                              Collateral Agreements with Ernest J. Sewell
                              effective January 1, 2004

                10.20         Fourth Amendment to Employment Agreement with
                              Ernest J. Sewell, executed on October 20, 2005 and
                              effective February 1, 2006.


                                       22
<PAGE>

                10.21         Independent Contractor Consulting Agreement with
                              Ernest J. Sewell, executed October 20, 2005 and
                              effective February 1, 2006.

                31.01         Certification of Ernest J. Sewell.

                31.02         Certification of Michael W. Shelton.

                32.01         Certification of Periodic Financial Report
                              Pursuant to 18 U.S.C Section 1350.

      Exhibit references:

                (1)     Incorporated  herein by  reference  to the  Registrant's
                        Current  Report on Form 8-K,  dated May 25, 2005,  filed
                        with the Securities and Exchange Commission.

                (2)     Incorporated  herein by  reference  to the  Registrant's
                        Quarterly  Report  on Form 10-Q for the  fiscal  quarter
                        ended  March 31,  1998,  filed with the  Securities  and
                        Exchange Commission.

                (3)     Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form 10-K for the  fiscal  year  ended
                        December  31,  1998,   filed  with  the  Securities  and
                        Exchange Commission.

                (4)     Incorporated  herein by  reference  to the  Registrant's
                        Statement  on Form S-8 (No.  33-33186),  filed  with the
                        Securities and Exchange Commission.

                (5)     Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form  10-KSB for the fiscal year ended
                        December  31,  1996,   filed  with  the  Securities  and
                        Exchange Commission.

                (6)     Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form 10-K for the  fiscal  year  ended
                        December  31,  1989,   filed  with  the  Securities  and
                        Exchange Commission.

                (7)     Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form  10-KSB for the fiscal year ended
                        December  31,  1994,   filed  with  the  Securities  and
                        Exchange Commission.

                (8)     Incorporated  herein by  reference  to the  Registrant's
                        Quarterly  Report, on Form 10-QSB for the fiscal quarter
                        ended  June 30,  1995,  filed  with the  Securities  and
                        Exchange Commission.

                (9)     Incorporated  herein by  reference  to the  Registrant's
                        Statement  on Form S-2 (File No.  333-47203)  filed with
                        the Securities and Exchange Commission on March 3, 1998.

                (10)    Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form  10-KSB for the fiscal year ended
                        December  31,  1997,   filed  with  the  Securities  and
                        Exchange Commission.

                (11)    Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form 10-K for the  fiscal  year  ended
                        December  31,  2002,   filed  with  the  Securities  and
                        Exchange Commission.

                (12)    Incorporated  herein by  reference  to the  Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        September  30,  2004,  filed  with  the  Securities  and
                        Exchange Commission.

                (13)    Incorporated  herein by  reference  to the  Registrant's
                        Annual  Report on Form 10-K for the  fiscal  year  ended
                        December  31,  2004,   filed  with  the  Securities  and
                        Exchange Commission.


                                       23
<PAGE>

                                   SIGNATURES

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

                                     FNB FINANCIAL SERVICES CORPORATION
                                     (Registrant)


November 9, 2005                               /s/ MICHAEL W. SHELTON
                                               ---------------------------
                                               Michael W. Shelton
                                (Senior Vice President, Chief Financial Officer,
                                            Secretary, and Treasurer)


                                       24