FNB Financial Services Corporation Update on Investigation of Improper Loans

FNB Financial Services Corporation (NASDAQ: FNBF)
("FNB"), parent of FNB Southeast (the "Bank"), announced today that
FNB is continuing its investigation of improper loans and other
transactions and activities in violation of certain policies and
procedures of the Bank undertaken by a former loan officer in the
Bank's Harrisonburg Region. Upon discovering these loans,
transactions, and activities in the quarter ended June 30, 2005, FNB
recorded a fraud loss of $250,000. During July and August of 2005, FNB
engaged in reviews of the loan portfolio of the former loan officer
through both the Bank's internal audit function and an independent
consulting firm. Based on these reviews, the Bank reclassified the
risk grades of certain loans in that portfolio with the result that
the Bank made special provisions to its allowance for credit losses of
approximately $900,000 during the first two months of the third
quarter. The Bank will continue to scrutinize the loan portfolio of
the former loan officer in order to determine if additional special
provisions are warranted in the future.
   FNB has asserted a claim under its fidelity bond for potential
losses of approximately $1.2 million resulting from the conduct of the
former loan officer. In addition, with the consent of the issuer of
the fidelity bond, the Bank anticipates entering into a repayment
arrangement with the former loan officer under which the former loan
officer will agree to pay to the Bank an agreed upon amount and to
guarantee repayment of loans made by him to affiliated parties, and
will further agree to collateralize a portion of his repayment and
guarantee obligations. At this time, FNB is unable to predict with
certainty the amounts to be recovered or the timing of recovery from
its claim on the fidelity bond and/or under the anticipated repayment
agreement with the former loan officer.
   FNB Financial Services Corporation is a financial holding company
headquartered in Greensboro, NC with one subsidiary, FNB Southeast, a
North Carolina chartered commercial bank. FNB Southeast currently
operates 17 banking offices located in North Carolina and Virginia.
FNB Southeast Mortgage Corporation and FNB Southeast Investment
Services, Inc. are operating subsidiaries of FNB Southeast.
   Additional information regarding FNB Financial Services
Corporation can be accessed online at www.fnbsoutheast.com.
   Information in this press release may contain "forward-looking
statements." These statements involve risks and uncertainties that
could cause actual results to differ materially, including without
limitation, the effects of future economic conditions, governmental
fiscal and monetary policies, legislative and regulatory changes, the
risks of changes in interest rates and the effects of competition.
Additional factors that could cause actual results to differ
materially are discussed in the Company's recent filings with the
Securities and Exchange Commission, including, but not limited to, its
Annual Report on Form 10-K and its other periodic reports.