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                                  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, 2004

                         Commission File Number: 0-13086

                       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 |_|

      At October 31, 2004, 5,502,735 shares of the registrant's common stock,
$1.00 par value, were outstanding.

        This Form 10-Q has 36 pages. The Exhibit Index begins on page 18.

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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, 2004 and December 31, 2003                             3

         Consolidated Statements of Income and Comprehensive Income Three
         Months and Nine Months Ended September 30, 2004 and 2003             4

         Consolidated Statements of Changes in Shareholders' Equity for the
         Nine Months Ended September 30, 2004 and 2003                        5

         Consolidated Statements of Cash Flows for the
         Nine months ended September 30, 2004 and 2003                        6

         Notes to Consolidated Financial Statements                           7

         Management's Discussion and Analysis of Financial Condition and
Item 2   Results of Operations                                               10

Item 3   Quantitative and Qualitative Disclosures About Market Risk          17

Item 4   Controls and Procedures                                             17

PART II  OTHER INFORMATION

Item 1   Legal Proceedings                                                   17

Item 2   Unregistered Sales of Equity Securities and Use of Proceeds         17

Item 3   Defaults Upon Senior Securities                                     18

Item 4   Submission of Matters to a Vote of Security Holders                 18

Item 5   Other Information                                                   18

Item 6   Exhibits                                                            18


                                       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,
                                                                    2004       December 31,
                                                                (Unaudited)       2003 *
                                                               -------------   ------------
<S>                                                             <C>             <C>
ASSETS

Cash and due from banks                                         $   22,304      $   29,319
Investment securities:
   Securities available for sale                                   147,119         139,799
   Federal Home Loan Bank and Federal Reserve Bank Stock             2,660           3,882
Loans, net of allowance for credit losses of $7,341 at
   September 30, 2004 and $7,124 at December 31, 2003              633,716         574,260
Premises and equipment, net                                         14,093          13,031
Accrued income and other assets                                     24,754          20,635
                                                                ----------      ----------
        Total assets                                            $  844,646      $  780,926
                                                                ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
   Noninterest bearing                                          $   75,614      $   69,982
   Interest bearing                                                648,281         571,925
                                                                ----------      ----------
        Total deposits                                             723,895         641,907

Federal funds purchased and retail repurchase agreements            12,798          15,363
Other borrowings                                                    35,000          55,500
Accrued expenses and other liabilities                               3,680           2,406
                                                                ----------      ----------
        Total liabilities                                          775,373         715,176
                                                                ----------      ----------

Shareholders' Equity:
Preferred stock no par value; authorized 10,000,000 shares;
        none issued                                                     --              --
Common stock, $1.00 par value; authorized 40,000,000 shares;
        outstanding 5,475,626 at September 30, 2004 and
        5,478,664 at December 31, 2003                               5,476           5,479
Paid-in capital                                                     20,936          22,025
Retained earnings                                                   43,019          38,395
Accumulated other comprehensive loss                                  (158)           (149)
                                                                ----------      ----------
        Total shareholders' equity                                  69,273          65,750
                                                                ----------      ----------
        Total liabilities and shareholders' equity              $  844,646      $  780,926
                                                                ==========      ==========
</TABLE>

            See notes to unaudited consolidated financial statements.

            * Derived from audited 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,
                                                         ---------------------------     ---------------------------
                                                             2004            2003            2004            2003
                                                         -----------     -----------     -----------     -----------
<S>                                                      <C>             <C>             <C>             <C>
Interest income
   Loans                                                 $    10,030     $     9,054     $    28,528     $    27,153
   Federal funds sold and overnight deposits                      92              27             138              68
   Investment securities
         Taxable                                                 763             879           2,331           3,148
         Tax exempt                                              347             329           1,019             759
         Other                                                    43              34             139             129
                                                         -----------     -----------     -----------     -----------
         Total interest income                                11,275          10,323          32,155          31,257
                                                         -----------     -----------     -----------     -----------
Interest expense
   Deposits                                                    3,545           3,770           9,679          11,866
   Federal funds purchased and other borrowings                  345             348           1,197           1,166
                                                         -----------     -----------     -----------     -----------
         Total interest expense                                3,890           4,118          10,876          13,032
                                                         -----------     -----------     -----------     -----------
Net interest income                                            7,385           6,205          21,279          18,225
Provision for credit losses                                      285             303             945           1,080
                                                         -----------     -----------     -----------     -----------
Net interest income after provision for credit losses          7,100           5,902          20,334          17,145

Other income
   Service charges on deposit accounts                           906             959           2,877           2,590
   Net gain (loss) on sale of securities                          (3)             --             108             562
   Income from investment services                               133             179             446             422
   Mortgage banking fees                                         549             719           1,436           1,664
   Other income                                                  110             154           1,273             334
                                                         -----------     -----------     -----------     -----------
         Total noninterest income                              1,695           2,011           6,140           5,572

Other expenses
   Salaries and employee benefits                              3,124           2,625           8,906           7,751
   Occupancy expense                                             384             298           1,020             856
   Furniture and equipment expense                               716             638           2,086           1,746
   Insurance expense, including FDIC assessment                   48              38             145             134
   Marketing expense                                             276             194             643             376
   Printing and supply expense                                   131             118             396             328
   Other expenses                                              1,290           1,101           3,810           3,191
                                                         -----------     -----------     -----------     -----------
         Total noninterest expense                             5,969           5,012          17,006          14,382

Income before income taxes                                     2,825           2,901           9,468           8,335
Provision for income taxes                                       913             965           3,148           2,875
                                                         -----------     -----------     -----------     -----------
Net income                                                     1,912           1,936           6,320           5,460
Other comprehensive income (loss)                              1,975          (2,187)             (9)         (2,045)
                                                         -----------     -----------     -----------     -----------
Comprehensive income (loss)                              $     3,887     $      (249)    $     6,311     $     3,415
                                                         ===========     ===========     ===========     ===========
Per share data
   Net income, basic                                     $      0.35     $      0.35     $      1.15     $      0.98
   Net income, diluted                                   $      0.34     $      0.34     $      1.11     $      0.95
   Cash dividends                                        $      0.12     $      0.11     $      0.36     $      0.33
Weighted average shares outstanding, basic                 5,480,774       5,499,899       5,486,986       5,546,186
Weighted average shares outstanding, diluted               5,660,954       5,713,315       5,714,729       5,721,896
</TABLE>

            See notes to unaudited consolidated financial statements.


                                       4
<PAGE>

FNB Financial Services Corporation and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
 (Unaudited; dollars in thousands, except share and per share data)

                                                            Nine Months Ended
                                                              September 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------
Common stock
    Balance at beginning of period                        $  5,479     $  4,467
    Stock repurchase                                          (140)        (108)
    Exercise of stock options                                  137           35
                                                          --------     --------
    Balance at end of period                                 5,476        4,394
                                                          --------     --------

Paid-in capital
    Balance at beginning of period                          22,025       23,833
    Stock repurchase                                        (2,364)      (1,802)
    Exercise of stock options                                1,275          376
    Employee stock awards                                       --            4
                                                          --------     --------
    Balance at end of period                                20,936       22,411
                                                          --------     --------

Retained earnings
    Balance at beginning of period                          38,395       34,549
    Net income                                               6,320        5,460
    Cash dividends declared                                 (1,972)      (1,853)
    Tax benefit relating to stock purchase                     276           --
                                                          --------     --------
    Balance at end of period                                43,019       38,156
                                                          --------     --------

Accumulated other comprehensive income (loss)
    Balance at beginning of period                            (149)       1,484
    Other comprehensive income (loss)                           (9)      (2,045)
                                                          --------     --------
    Balance at end of period                                  (158)        (561)
                                                          --------     --------
Total shareholders' equity                                $ 69,273     $ 64,400
                                                          ========     ========

            See notes to unaudited consolidated financial statements.


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Nine Months Ended
                                                                                         September 30,
                                                                                    -----------------------
                                                                                       2004          2003
                                                                                    ---------     ---------
<S>                                                                                 <C>           <C>
Cash flows from operating activities:
   Net income                                                                       $   6,320     $   5,460
   Adjustments to reconcile net income to net cash provided by
      operating activities:
          Depreciation, accretion, and amortization                                        60         1,745
          Provision for credit losses                                                     945         1,080
          Gain on sale of securities available for sale                                  (108)         (562)
          Gain on disposal of premises and equipment                                     (106)           (4)
          Net change in loans held for sale                                            (4,221)         (557)
          Changes in assets and liabilities:
               Increase in other assets                                                  (190)       (1,185)
               Increase (decrease) in other liabilities                                 1,550          (301)
                                                                                    ---------     ---------
               Net cash provided by operating activities                                4,250         5,676
                                                                                    ---------     ---------

Cash flows from investing activities:
      Proceeds from sales, maturities, or calls of securities available for sale       27,294        97,673
      Purchase of securities available for sale                                       (32,688)     (120,618)
      Purchase of premises and equipment                                               (2,547)       (3,022)
      Proceeds from disposal of premises and equipment                                    292            --
      (Increase) decrease in other real estate owned                                      226        (2,498)
      Net (increase) decrease in loans                                                (59,700)        1,886
                                                                                    ---------     ---------

               Net cash used in investing activities                                  (67,123)      (26,579)
                                                                                    ---------     ---------

Cash flows from financing activities:
      Net increase in deposits                                                         81,988        28,546
      Net decrease in other borrowings                                                (20,500)       (5,000)
      Net decrease in federal funds purchased and repurchase agreements                (2,566)       (1,542)
      Repurchase of common stock                                                       (2,504)       (1,910)
      Proceeds from issuance of common stock                                            1,411           415
      Cash dividends paid                                                              (1,971)       (1,853)
                                                                                    ---------     ---------

               Net cash provided by financing activities                               55,858        18,656
                                                                                    ---------     ---------

Net decrease in cash and cash equivalents                                              (7,015)       (2,247)
Cash and cash equivalents, January 1                                                   29,319        24,524
                                                                                    ---------     ---------

Cash and cash equivalents, September 30                                             $  22,304     $  22,277
                                                                                    =========     =========
</TABLE>

            See notes to unaudited consolidated financial statements.


                                       6
<PAGE>

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

1.    Basis of presentation

            The accompanying  unaudited  consolidated  financial statements 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, 2004 are not necessarily  indicative of the results that may
      be expected for the year ending December 31, 2004. For further information
      refer to the  consolidated  financial  statements  and  footnotes  thereto
      included in FNB  Financial  Services  Corporation's  2003 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,
                                                      ------------------------    ------------------------
                                                         2004          2003          2004          2003
                                                      ----------    ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>           <C>
      Weighted average number of shares
          used in basic EPS                            5,480,774     5,499,899     5,486,986     5,546,186
      Effect of dilutive stock options                   180,180       213,416       227,743       175,710
                                                      ----------    ----------    ----------    ----------

      Weighted average number of common
          shares and dilutive potential common
          shares used in dilutive EPS                  5,660,954     5,713,315     5,714,729     5,721,896
                                                      ==========    ==========    ==========    ==========
</TABLE>

            For the three months ended  September 30, 2004 and 2003,  there were
      275,541, and 143,541 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, 2004 and 2003,
      there  were  271,375,  and  143,541  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.

3.    Stock compensation 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,
      "Accounting   for  Stock  Based   Compensation,"   is   disclosed  in  the
      accompanying table.


                                       7
<PAGE>

3.    Stock compensation plans (cont.)

<TABLE>
<CAPTION>
                                                 For the three months ended    For the nine months ended
                                                 --------------------------    -------------------------
                                                       September 30,                 September 30,
                                                       -------------                 -------------
(Dollars in thousands, except per share data)       2004           2003           2004           2003
---------------------------------------------       ----           ----           ----           ----
<S>                                               <C>            <C>            <C>            <C>
Net income, as reported                           $  1,912       $  1,936       $  6,320       $  5,460
Less: Stock based compensation as
calculated per fair value method, net of
tax effect                                             (91)           (64)          (273)          (191)
                                                  --------       --------       --------       --------
Proforma net income                               $  1,821       $  1,873       $  6,046       $  5,269
                                                  ========       ========       ========       ========

Earnings per share:
Basic - as reported                               $   0.35       $   0.35       $   1.15       $   0.98
Basic - proforma                                  $   0.33       $   0.34       $   1.11       $   0.94
Diluted - as reported                             $   0.34       $   0.34       $   1.11       $   0.95
Diluted - proforma                                $   0.32       $   0.34       $   1.07       $   0.92
</TABLE>

4.    Loans

Loan Category:
   (Dollars in thousands)                           September 30,   December 31,
                                                        2004            2003
                                                    -------------   ------------

Real estate - commercial                             $  150,009      $  159,953
Real estate - residential                               111,708          95,939
Real estate - construction                              161,497         117,786
Commercial, financial and agricultural                   90,067          90,224
Consumer                                                133,072         118,557
                                                     ----------      ----------
       Subtotal loans                                   646,353         582,459

   Loans held for sale                                    5,296           1,075
                                                     ----------      ----------
       Gross loans                                   $  641,057      $  581,384
                                                     ==========      ==========

Allowance for credit losses:

                                 September 30, 2004         December 31, 2003
                               -----------------------   -----------------------
                                           % of Loans                % of Loans
                                           in Each                   in Each
                                           Category to               Category to
(Dollars in thousands)         Allowance   Total Loans   Allowance   Total Loans
                               ---------   -----------   ---------   -----------
Balance at end of period
applicable to:

  Real estate - construction          1           23     $      5           20
  Real estate - mortgage             42           41           49           44
  Commercial                      5,141           15        5,116           16
  Consumer                        2,157           21        1,954           20
                               --------     --------     --------     --------
       Total                   $  7,341          100%    $  7,124          100%
                               ========     ========     ========     ========


                                       8
<PAGE>

4.    Loans (cont.)

Rollforward - allowance for credit losses:
                                                         Nine Months Ended
                                                           September 30,
                                                       ----------------------
(Dollars in thousands)                                   2004          2003
                                                       --------      --------

Balance, beginning of period                           $  7,124      $  7,059

Charge-offs                                                 792         1,237
Recoveries                                                  (64)         (167)
                                                       --------      --------
Net charge-offs                                             728         1,068
                                                       --------      --------
Provision for credit losses                                 945         1,080
                                                       --------      --------
Balance, end of period                                 $  7,341      $  7,071
                                                       ========      ========

Ratio of annualized net charge-offs during the
          period to average loans outstanding
          during the period                                0.16%         0.25%
                                                       ========      ========
Ratio of allowance for credit losses to
          period end loans                                 1.15%         1.26%
                                                       ========      ========

Nonperforming assets:
                                                     September 30,  December 31,
       (Dollars in thousands)                            2004           2003
                                                     -------------  ------------


Nonaccrual                                             $  3,965      $  5,174
Past due 90 days or more and still accruing interest        389            53
Other real estate                                         4,966         5,191
Renegotiated troubled debt                                   --            --

5.    Employee benefit plans

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

                                    For the three months    For the nine months
                                    --------------------    -------------------
                                     ended September 30,    ended September 30,
                                     -------------------    -------------------
(Dollars in thousands)               2004         2003       2004         2003
----------------------               ----         ----       ----         ----
Service cost                        $  127       $   93     $  381       $  279
Interest cost                           90           75        270          225
Expected return on plan assets        (121)        (200)      (363)        (600)
Amortization of prior service cost       5          132         15          396
                                    ------       ------     ------       ------
Net periodic pension cost           $  101       $  100     $  303       $  300
                                    ======       ======     ======       ======

            For the 2004 Plan Year, no tax-deductible contributions are required
      or allowed.


                                       9
<PAGE>

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

Information set forth below contains 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
2003 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 uses the best  information 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") is a North Carolina
financial holding company. The Company's wholly owned subsidiary,  FNB Southeast
(the "Bank"), is a North Carolina chartered commercial bank. As of September 30,
2004,  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.,  which operated  three offices,  and FNB
Southeast  Mortgage  Corporation,  which  operated  seven  offices.  The Company
relocated its headquarters from Reidsville,  North Carolina to Greensboro, North
Carolina in April 2004.

      Effective April 16, 2004, The Bank of Tazewell purchased loans and assumed
the deposits of the Bank's  Richlands,  Virginia  branch.  The Bank  transferred
$15.0  million in deposit  accounts  and $7.3  million in loan  accounts  in the
transaction.  The  Company  recognized  $700,000  in net gain on the sale.  Also
during  April,  an  approximate  $125,000 gain was realized from the sale of the
fixed assets associated with the Bank's Richlands, Virginia branch.

      Assets at  September  30, 2004 were $844.6  million,  an increase of $63.7
million,  or 8.2%,  since  December 31, 2003.  A $59.5  million  increase in net
loans, combined with a $2.1 million increase in investment securities,  were the
principal  factors  impacting this overall increase during the first nine months
of 2004. Over the past nine months,  noninterest bearing deposits increased $5.6
million and interest bearing  deposits rose $76.4 million,  resulting in a 12.8%
increase in total deposits for the period.


                                       10
<PAGE>

      The Company's third quarter  earnings were $1.91 million in 2004 and $1.94
million in 2003. Earnings per diluted share were $0.34 for the third quarters of
2004 and 2003. For the first nine months of 2004,  earnings of $6.3 million were
$860,000, or 15.8%, higher than the same period a year ago. Diluted earnings per
share for the first nine months of 2004 were $1.11, a 16.8% increase compared to
the 2003 earnings of $0.95 per diluted share. Excluding one-time after-tax gains
of $548,000 from the sale of a banking operation discussed earlier, year to date
earnings increased 5.7%.

Financial Condition

      Since  December  31,  2003,  the  Company's  assets have  increased  $63.7
million,  rising  from  $780.9  million  at  yearend  2003 to $844.6  million at
September 30, 2004. The principal factors impacting this overall increase during
the first  nine  months  of 2004 were a $59.5  million  increase  in net  loans,
combined  with a $2.1  million  increase  in  investment  securities.  Loans  at
September 30, 2004 totaled $641.1 million, compared to $581.4 million at yearend
2003, an increase of 10.3%. Investment securities of $145.8 million at September
30, 2004 were 1.5% higher than the $143.7 million balance at December 31, 2003.

      Deposits totaled $723.9 million at September 30, 2004,  compared to $641.9
million at December 31, 2003. At the end of the third quarter 2004,  noninterest
bearing deposits were $75.6 million,  or 10.5%, of total deposits.  At September
30, 2004,  borrowings  at the Federal Home Loan Bank of Atlanta  (FHLB)  totaled
$35.0  million,  a decrease of 36.9%  compared to $55.5  million at December 31,
2003.  Federal funds purchased and retail  repurchase  agreements  totaled $12.8
million at September  30,  2004,  a decrease of $2.6  million from  December 31,
2003.

      Our capital  position remains strong,  with all of our regulatory  capital
ratios at levels that make the Company "well  capitalized" under bank regulatory
capital guidelines.  Shareholders'  equity increased to $69.3 million at the end
of the third quarter 2004,  compared to $65.8 million at December 31, 2003.  The
Company paid dividends of $0.12 per share during the quarter ended September 30,
2004,  a 9.1%  increase  over the $0.11 per  share  dividend  rate for the third
quarter of 2003. Year to date dividends per share for 2004 were $0.36,  compared
to $0.33 in 2003.

      In July 2004, the Company'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 will be  effective  immediately  upon
completion  of the  current  program.  The  new  authorization  will  allow  the
repurchase of up to 275,124  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.  A total of 279,813 shares have
been purchased through August 17, 2004 at an average price of $16.211,  when the
November 2002 program was  completed.  During the remainder of the quarter ended
September 30, 2004, a total of 30,403 shares were  purchased at an average price
of $17.505  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 loan 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 ratio was 1.15% at September 30, 2004,  1.23% at
December 31, 2003,  and 1.26% at September  30, 2003.  For the third  quarter of
2004, provision charges against earnings


                                       11
<PAGE>

totaled  $285,000,  compared  to  $303,000  in the third  quarter  of 2003.  Net
charge-offs  for  the  third  quarter  of  2004  totaled  $127,000,  or a  0.08%
annualized  loss ratio based on average  loans  outstanding.  This is a decrease
from the net  charge-offs  for the third quarter of 2003 totaling  $324,000,  or
0.23%  annualized  loss ratio.  Annualized  net  charge-offs  for the first nine
months of 2004 and 2003 were  0.16% and  0.25%,  respectively,  based on average
loans outstanding.

      Nonaccrual  loans totaled $4.0 million at September 30, 2004,  compared to
$5.2 million at yearend 2003 and $7.5 million at September 30, 2003.  Other real
estate owned  ("OREO") was $5.0 million at September  30, 2004,  $5.2 million at
December 31, 2003,  and $2.6 million at September 30, 2003.  Approximately  $1.8
million has been transferred from loans into OREO and approximately $2.0 million
of such assets were disposed of during the first nine months of 2004. A net loss
of $140,000 has been recorded on disposition of OREO in the current year.

      Total  nonperforming  assets  (comprised  of  nonaccrual  loans  and OREO)
decreased to $8.9 million,  or 1.11% of total assets at September 30, 2004, from
$10.4 million,  or 1.34% of total assets at December 31, 2003 and $10.1 million,
or 1.33% of total assets a year ago.  Management believes these changes indicate
a trend of improving asset quality.

Results of Operations for the Three Months Ended September 30, 2004 and 2003

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

      Total  interest  income was $11.3  million for the third  quarter of 2004,
compared to $10.3 million for the same period a year ago. Average earning assets
for the current quarter were $776.5 million,  an increase of 7.2% over the third
quarter  average of $724.2  million a year ago.  Interest  income from loans was
$10.0  million,  up 10.8% from $9.1  million in the third  quarter of 2003.  The
increase in interest income was driven primarily by an increase in average loans
outstanding.  Average  loans of $619.2  million were 8.3% higher than the $571.8
million last year.  Interest income on investments  totaled $1.2 million for the
three months ended  September  30, 2004,  compared to $1.3 million for the third
quarter of 2003.  The average  balance of the  investment  portfolio  was $138.6
million for the quarter  ended  September  30,  2004,  a 4.2%  decline  from the
average balance of $144.6 million for the prior year third quarter.

      Third quarter total  interest  expense was $3.9 million,  compared to $4.1
million from the third quarter of last year, a 5.5% decrease.  Interest  expense
on deposits for the third quarter  decreased 6.0%, to $3.5 million for 2004 from
$3.8 million in 2003.  Average  interest  bearing  deposits  increased  7.4%, to
$621.2 million,  from $578.2 for the third quarter of 2003.  Interest expense on
federal funds  purchased and other  borrowings was $346,000 and $348,000 for the
quarters ended September 30, 2004 and 2003, respectively. The average balance of
federal funds purchased and other borrowings was $54.5 million in 2004 and $50.3
million in 2003.  The Company  utilized the growth in deposits and the increased
levels of borrowings as funding sources to support balance sheet growth.

      Comparable net interest margins are as follows:

                                  Three months ended September 30,
                                      2004                2003
                                    --------            --------

Asset Yield                            5.85%               5.75%
Liability Rate                         2.28%               2.60%
                                     ------              ------

Interest Rate Spread                   3.57%               3.15%
                                     ======              ======

      During the three months ended  September  30,  2004,  net interest  income
increased $1.2 million,  or 19.0%, over the same period a year ago. Net interest
income benefited from strong growth in average


                                       12
<PAGE>

earning  assets which rose from $724.2  million for the third quarter of 2003 to
$776.5  million  for the third  quarter of 2004,  a 7.2%  increase.  The average
yields on total interest earning assets for the same periods  increased 10 basis
points from 5.75% to 5.85%.  Average interest bearing  liabilities for the third
quarter of 2004  increased  7.5%, to $675.7  million from $628.5 million for the
third quarter of 2003. The average cost of interest bearing  liabilities for the
same periods  decreased 32 basis points from 2.60% to 2.28%.  The net result was
an improvement in the interest rate spread from 3.15% for the three months ended
September 30, 2003 to 3.57% for the same period in 2004.

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 reflects  management's
evaluation of the incurred losses  inherent in the portfolio.  The amount of the
provision is based on continuing  assessments of nonperforming  and "watch list"
loans,  analytical  reviews of loan loss  experience in relation to  outstanding
loans, loan charge-offs,  nonperforming  asset trends and management's  judgment
with respect to current and expected economic conditions and their impact on the
existing credit portfolio.

      The  provision for credit losses in the third quarter of 2004 was $285,000
compared to $303,000 in 2003. The allowance for credit losses as a percentage of
gross loans  outstanding was 1.15% at September 30, 2004,  1.23% at December 31,
2003,  and 1.26% at  September  30, 2003.  Annualized  net credit  losses,  as a
percent of average loans,  was 0.08% and 0.23% for the quarters ended  September
30, 2004 and 2003, respectively.

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

      Noninterest income in the third quarter of 2004 was $1.7 million, compared
to $2.0  million in the same  period last year.  Deposit  service  charges  were
$906,000  for the third  quarter  of 2004,  compared  to  $959,000  in the third
quarter of 2003. Sales of securities available for sale during the third quarter
of 2004  resulted in a $3,000 loss;  however,  there were no sales of securities
during the same period in 2003.  Noninterest income in the third quarter of 2004
included  $549,000 in mortgage  banking fees and $133,000 in investment  service
fees  compared  to  revenues of $719,000  and  $179,000,  respectively,  for the
previous year. The decrease in mortgage  banking fees for 2004 was  attributable
to diminishing  refinance  opportunities as interest rates have experienced some
upward movement.

      Noninterest  expense  for the third  quarter of 2004 was $6.0  million,  a
19.1%  increase  over the $5.0  million  expense  in the third  quarter of 2003.
Salaries and employee benefits  increased $500,000 because of increased staffing
associated  with  the  expansion  of the  mortgage  banking  operations  and the
corporate headquarters relocation, combined with higher insurance and retirement
costs.  Other items impacted by the increased  staffing related to the expansion
of the mortgage  banking  operations and the corporate  headquarters  relocation
were occupancy  expense,  which increased  $86,000,  and furniture and equipment
expense,  which rose $78,000,  compared to third quarter 2003. Marketing expense
increased  $82,000 in the third  quarter of 2004,  compared to the same period a
year ago,  primarily  because of costs  associated  with deposit  campaigns  and
promotional  activity related to the corporate  headquarters  relocation.  Other
expense for the third  quarters of 2004 and 2003  totaled  $1.3 million and $1.1
million, respectively.

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

      The Company's  provision  for income taxes totaled  $913,000 for the third
quarter  of 2004  and  $965,000  for the same  period  in  2003.  The  Company's
effective tax rates for the  three-month  periods  ended  September 30, 2004 and
2003 were 32.3% and 33.2%, respectively.  The decline in the effective rate from
2003 to 2004 reflects the implementation of investment  strategies that resulted
in a reduction in the  consolidated  income tax  provision.  The decrease in the
provision for 2004, compared to the prior year, results primarily from the lower
effective  tax rate.  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, 2004 and 2003.


                                       13
<PAGE>

Results of Operations for the Nine Months Ended September 30, 2004 and 2003

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

      Total interest income was $32.2 million for the first nine months of 2004,
compared to $31.3 million for the same period in 2003.  Average  earning  assets
for the nine months ended September 30, 2004 were $752.9 million, an increase of
5.0% over the average of $716.8 million a year ago.  Interest  income from loans
was $28.5 million,  up 5.1% from $27.2 million in 2003. The increase in interest
income  was  driven  primarily  by  a  continuing   increase  in  average  loans
outstanding.  Average  loans of $602.6  million were 5.4% higher than the $571.9
million last year.  Investment  income for the  nine-month  period  totaled $3.6
million in 2004 and $4.1 million in 2003. The $2.3 million, or 1.7%, increase in
the average  balance of the investment  portfolio was offset by a decline in the
yield from 4.35% in 2003 to 3.82% in 2004.

      Total  interest  expense  for the  first  nine  months  of 2004 was  $10.9
million,  a 16.5%  decrease  from the $13.0  million  expense for the first nine
months of 2003.  Overall cost of funds for the nine months ended  September  30,
2004 and 2003 was 1.99% and 2.55%,  respectively.  Interest  expense on deposits
for the nine-month  period  decreased 18.4%, to $9.7 million for 2004 from $11.9
million  in 2003.  The  average  rate for the nine  months on  interest  bearing
deposits  decreased to 2.22% in 2004;  from 2.84% one year earlier while average
interest bearing deposits increased 4.0%, to $581.8 million, from $559.1 for the
first nine months of 2003. Interest expense on federal funds purchased and other
borrowings  was $1.2  million for the nine months ended  September  30, 2004 and
2003.  The  average  balance of federal  funds  purchased  and other  borrowings
increased  from $59.2 million in 2003 to $70.2 million in 2004. The average rate
paid on purchased funds declined from 2.55% for the first nine months of 2003 to
1.99% for the same period in 2004.  The Company  utilized the growth in deposits
and the increased  levels of borrowings  as funding  sources to support  balance
sheet growth.

      Comparable net interest margins are as follows:

                                 Nine months ended September 30,
                                    2004                 2003
                                  --------             --------

Asset Yield                          5.78%                 5.90%
Liability Rate                       2.22%                 2.82%
                                   ------                ------

Interest Rate Spread                 3.56%                 3.08%
                                   ======                ======

      During the nine months  ended  September  30, 2004,  net  interest  income
increased $3.1 million,  or 16.8%, over the same period a year ago. Net interest
income  benefited  from strong growth in average  earning assets which rose from
$716.8  million for the first nine months of 2003 to $752.9 million for the same
period in 2004, a 5.0% increase.  The average  yields on total interest  earning
assets  for the same  periods  decreased  12 basis  points  from 5.90% to 5.78%.
Average interest bearing liabilities for the first nine months of 2004 increased
5.4%, to $651.9  million from $618.4  million for the first nine months of 2003.
The average cost of interest bearing  liabilities for the same periods decreased
60 basis points from 2.82% to 2.22%.  The net result was an  improvement  in the
interest rate spread from 3.08% for the nine months ended  September 30, 2003 to
3.56% for the same period in 2004.

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 reflects  management's
evaluation of the incurred losses  inherent in the portfolio.  The amount of the
provision is based on continuing  assessments of nonperforming  and "watch list"
loans,  analytical  reviews of loan loss  experience in relation to  outstanding
loans, loan charge-offs,


                                       14
<PAGE>

nonperforming asset trends and management's judgment with respect to current and
expected economic conditions and their impact on the existing credit portfolio.

      The  provision  for credit  losses  for the first nine  months of 2004 was
$945,000  compared to $1.1 million in 2003. The allowance for credit losses as a
percentage of gross loans  outstanding was 1.15% at September 30, 2004, 1.23% at
December 31, 2003, and 1.26% at September 30, 2003.  Year to date annualized net
credit losses declined to 0.16% of average loans in 2004,  compared to 0.25% for
the same period in 2003.

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

      Noninterest  income for the first nine months of this year increased 10.2%
to $6.1  million  from $5.6  million in the same  period  last  year.  Excluding
one-time net gains of $825,000 from the sale of the Company's  banking operation
in  Richlands,  Virginia,  year to date  noninterest  income was $5.3 million in
2004.  For the nine  months,  $108,000  of net gains  from  sales of  investment
securities  were  recognized,  a decrease from $562,000 of net gains in the same
period last year.  Deposit  service  charges of $2.9  million for the first nine
months of 2004 increased 11.1% from the $2.6 million in 2003. Growth in deposits
and  enhancements  to the deposit  service  charge  pricing  structure  were the
principal factors contributing to this increase.  Mortgage banking fees declined
to $1.4 million for the first nine months of 2004,  compared to $1.7 million for
the same period a year ago as refinancing activity continued to slow. Investment
service  fees  increased  5.7% for the first nine  months of 2004,  rising  from
$422,000  in the first nine  months of 2003 to  $446,000  for the same period in
2004.

      Noninterest  expense for the first nine months of 2004 was $17.0  million,
an 18.2% increase over the $14.4 million expense in 2003.  Salaries and employee
benefits   increased  $1.2  million  primarily  because  of  increased  staffing
associated  with  the  expansion  of the  mortgage  banking  operations  and the
corporate headquarters relocation, combined with higher insurance and retirement
costs.  Other items impacted by the increased  staffing related to the expansion
of the mortgage  banking  operations and the corporate  headquarters  relocation
were occupancy expense,  which increased  $165,000,  and furniture and equipment
expense,  which  rose  $340,000,  compared  to the  first  nine  months of 2003.
Marketing expense increased $267,000 in the first nine months of 2004,  compared
to the same  period a year  ago,  primarily  because  of costs  associated  with
deposit campaigns and promotional activity related to the corporate headquarters
relocation.  Other  expense for the first nine  months of 2004 and 2003  totaled
$3.8 million and $3.2 million, respectively.

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

      The  Company's  provision  for income  taxes  totaled $3.1 million for the
first nine months of 2004, compared to $2.9 million for the same period of 2003.
The Company's effective tax rates for the nine-month periods ended September 30,
2004 and 2003 were 33.3% and 34.5%,  respectively.  The decline in the effective
rate from 2003 to 2004 reflects the implementation of investment strategies that
resulted in a reduction in the consolidated  income tax provision.  The increase
in the  provision  for 2004,  compared  to the prior year,  results  from higher
pretax  income,  offset  in part by  lower  effective  tax  rate.  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, 2004
and 2003.

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 FNB Southeast  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.


                                       15
<PAGE>

      As shown in the  accompanying  table,  the  Company  and its wholly  owned
banking  subsidiary  have capital levels  exceeding the minimum levels for "well
capitalized" banks and financial holding companies as of September 30, 2004.

                           Regulatory Guidelines
                         --------------------------
                            Well        Adequately                        FNB
Ratio                    Capitalized    Capitalized      Company       Southeast
-----                    -----------    -----------      -------       ---------

Total Capital               10.0%           8.0%          11.4%          11.1%
Tier 1 Capital               6.0            4.0           10.3           10.0
Leverage Capital             5.0            4.0            8.2            8.0

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 2004 the Company had net cash  provided by
operating  activities of $4.3 million.  This was a decrease of $1.4 million from
the $5.7 million of net cash provided by operating  activities in the first nine
months of 2003.  The  decrease is  primarily  attributable  to the $4.2  million
change in loans held for sale for the first nine  months of 2004,  compared to a
$557,000  change in loans held for sale and a $1.2  million rise in other assets
for the same period in 2003.

      Net cash used in  investing  activities  in the first nine  months of 2004
totaled $67.1  million.  Purchases of investment  securities in the current year
totaled  $32.7  million  and  proceeds  from  sales,  calls,  or  maturities  of
securities  were $27.3  million.  This compares to the first nine months of 2003
when proceeds  from sales,  calls,  or  maturities  of securities  totaled $97.7
million and purchases of investment  securities totaled $120.6 million,  leading
to net cash used in investment activities of $26.6 million. An increase in loans
outstanding  used $59.7  million in cash during 2004,  compared to a decrease in
outstanding loans in 2003 totaling $1.9 million.  Capital expenditures used $2.5
million in 2004, compared to $3.0 million in 2003.

      During the nine months  ended  September  30, 2004,  financing  activities
provided  $55.9  million.  An increase of $82.0  million in deposits  was offset
primarily by a decrease of $20.5 million in borrowings.  Financing activities in
the nine months ended September 30, 2003 provided $18.7 million, based primarily
on $28.5 million rise in deposits. These cash inflows were partially offset by a
repayment of other borrowings of $5.0 million during the first nine months.

      Overall cash and cash  equivalents  totaled $22.3 million at September 30,
2004  compared  to $29.3  million  at  December  31,  2003 and $22.3  million at
September 30, 2003.

      Liquidity  is  further  enhanced  by  a  line  of  credit  with  the  FHLB
collateralized  by FHLB stock,  investment  securities and qualifying 1-4 family
residential  mortgage loans,  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 available through
four  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


                                       16
<PAGE>

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, 2004.

Item 4. Controls and Procedures

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 Report, that the Company's disclosure controls and procedures 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

      There have been no significant  changes in internal control over financial
reporting  during  the  period  covered  by this  Report  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

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
activity  related to the share  repurchase  programs  approved by the  Company's
Board of Directors in November 2002 and July 2004  authorizing the repurchase of
up to  279,814  shares  and  275,124  shares,  respectively,  of  the  Company's
outstanding  common stock. Both programs were publicly announced in the month of
approval.


                                       17
<PAGE>

                Stock Repurchase Program - Approved November 2002
                -------------------------------------------------

                              (a)          (b)          (c)            (d)
                                                    Cumulative    Maximum Number
                          Total Number   Average     Number of    of Shares that
                           of Shares    Price Paid    Shares        May Yet Be
Period                     Purchased    Per Share    Purchased      Purchased
-----------------------
July 1, 2004 to
July 31, 2004 .........      17,000       $16.91       246,891        32,922

August 1, 2004 to
August 31, 2004 .......      32,922       $16.72       279,813            --

September 1, 2004 to
September 30, 2004 ....          --           --       279,813            --

          Total .......      49,922       $16.78

                  Stock Repurchase Program - Approved July 2004
                  ---------------------------------------------

                              (a)          (b)           (c)           (d)
                                                     Cumulative   Maximum Number
                          Total Number   Average      Number of   of Shares that
                           of Shares    Price Paid     Shares       May Yet Be
Period                     Purchased    Per Share     Purchased     Purchased
-----------------------
July 1, 2004 to
July 31, 2004 .........          --           --            --       275,124

August 1, 2004 to
August 31, 2004 .......      22,878       $17.21        22,878       252,246

September 1, 2004 to
September 30, 2004 ....       7,525       $18.43        30,403       244,721

          Total .......      30,403       $17.50

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.

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 (1)    Specimen Common Stock Certificate.

      10.01 (3)   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 (4)   Omnibus Equity Compensation Plan of the Registrant.

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

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

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


                                       18
<PAGE>

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

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

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

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

      10.10 (8)   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 (9)   Split-Dollar Agreement dated January 27, 1995, between the
                  Registrant and Ernest J. Sewell.

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

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

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

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

      10.16       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       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.

      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  Quarterly
            Report on Form 10-Q for the fiscal  quarter  ended  March 31,  1998,
            filed with the Securities and Exchange Commission.

      (2)   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.

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

      (4)   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.

      (5)   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.

      (6)   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.

      (7)   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.


                                       19
<PAGE>

      (8)   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.

      (9)   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.

      (10)  Incorporated  herein by reference to the Registrant's  Annual Report
            on Form 10-K for the fiscal year ended December 31, 1999, 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, 2003, filed with
            the Securities and Exchange Commission.


                                       20
<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, 2004                            /s/ MICHAEL W. SHELTON
                                            ---------------------------
                                            Michael W. Shelton
                               (Senior Vice President, Chief Financial Officer,
                                         Secretary, and Treasurer)


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