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, 2008

FNB BANCORP

(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of incorporation)
000-49693	92-2115369
(Commission File Number)	(IRS Employer Identification No.)
975 El Camino Real, South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code: (650) 588-6800

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock as of November 3, 2008: 2,885,108 shares.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(Dollar amounts in thousands)	September 30, 2008		December 31, 2007
ASSETS
Cash and due from banks	$	15,993	$	15,750
Federal funds sold		1,880		—
Cash and equivalents		17,873		15,750
Securities available-for-sale		104,489		94,432
Loans, net of allowance for loan losses of $6,031 and $5,638 on September 30, 2008 and December 31, 2007		489,644		489,574
Bank premises, equipment, and leasehold improvements		13,378		13,686
Other real estate owned		3,819		440
Goodwill		1,841		1,841
Accrued interest receivable and other assets		29,252		28,742
Total assets	$	660,296	$	644,465
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand, noninterest bearing		127,317		120,423
Demand, interest bearing		56,697		61,215
Savings and money market		181,426		181,276
Time		155,030		136,341
Total deposits		520,470		499,255
Federal Home Loan Bank advances		66,000		66,000
Federal funds purchased		—		5,595
Accrued expenses and other liabilities		7,275		7,070
Total liabilities		593,745		577,920
Stockholders’ equity
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 2,885,000 shares at September 30, 2008 and 2,965,000 shares at December 31, 2007		41,922		43,089
Retained earnings		24,284		23,039
Accumulated other comprehensive income		345		417
Total stockholders’ equity		66,551		66,545
Total liabilities and stockholders’ equity	$	660,296	$	644,465

See accompanying notes to consolidated financial statements.

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FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in thousands, except per share amounts)

	Three months ended September 30,					Nine months ended September 30,
	2008			2007		2008			2007
Interest income:
Interest and fees on loans	$	8,757		$	9,856	$	26,879		$	28,202
Interest on taxable securities		618			472		1,640			1,241
Interest on tax-exempt securities		378			501		1,193			1,549
Federal funds sold		34			52		103			447
Total interest income		9,787			10,881		29,815			31,439
Interest expense:
Deposits		2,011			3,060		6,522			8,676
Federal Home Loan Bank advances		713			443		2,347			1,339
Federal funds purchased		1			28		19			31
Total interest expense		2,725			3,531		8,888			10,046
Net interest income		7,062			7,350		20,927			21,393
Provision for loan losses		300			180		1,590			510
Net interest income after provision for loan losses		6,762			7,170		19,337			20,883
Noninterest income:
(Loss) or gain on sale or impairment of securities AFS		(433	)		4		(294	)		4
Service charges		749			667		2,160			1,926
Credit card fees		211			203		566			609
Other income		242			219		735			700
Total noninterest income		769			1,093		3,167			3,239
Noninterest expense:
Salaries and employee benefits		3,642			3,258		10,770			9,589
Occupancy expense		510			504		1,533			1,455
Equipment expense		484			385		1,442			1,163
Professional fees		295			322		840			1,024
Telephone, postage and supplies		266			231		747			786
Bankcard expenses		195			183		528			551
Other expense		1,089			878		3,084			2,759
Total noninterest expense		6,481			5,761		18,944			17,327
Earnings before income tax expense		1,050			2,502		3,560			6,795
Income tax expense		3			707		536			1,814
NET EARNINGS		1,047			1,795		3,024			4,981
Earnings per share data:
Basic	$	0.36		$	0.60	$	1.03		$	1.66
Diluted	$	0.36		$	0.59	$	1.02		$	1.64
Weighted average shares outstanding:
Basic		2,909,000			3,002,000		2,947,000			3,000,000
Diluted		2,919,000			3,022,000		2,973,000			3,035,000

See accompanying notes to consolidated financial statements.

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FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollar amounts in thousands)

	Three months ended September 30,				Nine months ended September 30,
	2008		2007		2008			2007
Net earnings	$	1,047	$	1,795	$	3,024		$	4,981
Unrealized gain (loss) on AFS securities		195		581		(72	)		9
Total comprehensive income	$	1,242	$	2,376	$	2,952		$	4,990

See accompanying notes to consolidated financial statements.

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands)

	Nine months ended September 30,
	2008			2007
Cash flow from operating activities
Net earnings	$	3,024		$	4,981
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain (loss) on sale or impairment of securities available-for-sale		294			(4	)
Depreciation, accretion and amortization		1,380			875
Write-down of real estate owned		136			—
Stock-based compensation expense		82			45
Provision for loan losses		1,590			510
Increase in interest receivable and other assets		(510	)		(1,935	)
(Decrease) increase in accrued expenses and other liabilities		(190	)		783
Net cash provided by operating activities		5,806			5,255
Cash flows from investing activities
Purchase of securities available-for-sale		(56,762	)		(28,642	)
Proceeds from matured/called securities available-for-sale		46,095			30,423
Net increase in loans		(5,175	)		(67,200	)
Proceeds from sale of bank equipment		15			—
Purchases of bank premises, equipment and leasehold improvements		(893	)		(1,028	)
Net cash used by investing activities		(16,720	)		(66,447	)
Cash flows from financing activities
Net increase in demand and savings deposits		2,527			21,682
Net increase in time deposits		18,689			3,764
Net (decrease) increase in federal funds purchased		(5,595	)		12,620
Net increase in Federal Home Loan Bank advances		—			15,000
Dividends paid		(1,336	)		(1,287	)
Repurchase of common stock		(1,463	)		(631	)
Issuance of common stock		215			286
Net cash provided by financing activities		13,037			51,434
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,123			(9,758	)
Cash and cash equivalents at beginning of period		15,750			27,022
Cash and cash equivalents at end of period	$	17,873		$	17,264
Additional cash flow information
Interest paid	$	9,259		$	9,433
Income taxes paid	$	1,530		$	1,409
Non-cash financial activity
Accrued dividends	$	444		$	430
Change in unrealized gain (loss) in securities available-for-sale		(72	)		9
Loans transferred to Other real estate owned		3,515			—

See accompanying notes to consolidated financial statements.

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FNB BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

NOTE A – BASIS OF PRESENTATION

          FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo and San Francisco counties.

          All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods, as required by Regulation S-X, Rule 10-01.

          The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2007.

          Results of operations for interim periods are not necessarily indicative of results for the full year.

          Additional paid-in capital has been reclassified to Common Stock in the current and prior periods, as further described below.

NOTE B – STOCK OPTION PLANS

          Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.

          The Company previously accounted for stock option equity entries as Additional Paid-In Capital. The stock of the Company has no par value; accordingly, the Additional Paid-In Capital entries have been reclassified into Common Stock.

          The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant. A total of 60,225 options were granted in September 2008 with a weighted average fair value of $4.21 per share.

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The following assumptions were used for options granted during 2008:

Weighted-average volatility	50.92	%
Expected dividends	4.86	%
Expected term (in years)	8.75
Risk-free rate	3.51	%

          The amount of compensation expense for options recorded in the quarters ended September 30, 2008 and September 30, 2007 was $32,000 and $23,000, respectively. The income tax benefit recognized in the income statements for these amounts was under $1,000 for the same two periods. The amount of compensation expense for options recorded in the nine months ended September 30, 2008 and September 30, 2007 was $82,000 and $45,000, respectively. The income tax benefit recognized in the income statements for these amounts was $11,000 and $2,000 for the nine months ended September 2008 and 2007, respectively.

          The total intrinsic value of options exercised during the quarter ended September 30, 2008 was $0. The total intrinsic value of options exercised during the nine months ended September 30, 2008 was $0 under the 2008 Plan, $0 under the 2002 Plan and $37,000 under the 1997 Plan.

          The amount of total unrecognized compensation expense related to non-vested options at September 30, 2008 was $450,000, and the weighted average period it will be amortized over is 2.7 years.

NOTE C – EARNINGS PER SHARE CALCULATION

          Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Average shares outstanding and earnings per share for 2007 have been adjusted to reflect the 5% stock dividend effected on December 15, 2007.

          Earnings per share have been computed based on the following (dollar amounts in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2008		2007		2008		2007
Net earnings	$	1,047	$	1,795	$	3,024	$	4,981
Average number of shares outstanding		2,909,000		3,002,000		2,947,000		3,000,000
Effect of dilutive options		10,000		20,000		26,000		35,000
Average number of shares outstanding used to calculate diluted earnings per share		2,919,000		3,022,000		2,973,000		3,035,000
Anti-dilutive options not included		234,000		52,000		239,000		—

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NOTE D – COMPREHENSIVE INCOME

          Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income consists of net unrealized gains and losses on investment securities available-for-sale. Comprehensive income for the three months ended September 30, 2008 was $1,242,000 compared to $2,376,000 for the three months ended September 30, 2007. Comprehensive income for the nine months ended September 30, 2008 was $2,952,000 compared to $4,990,000 for the nine months ended September 30, 2007.

NOTE E – FAIR VALUE

          Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” which requires enhanced disclosures about financial instruments carried at fair value. SFAS No. 157 establishes a disclosure framework that quantifies fair value estimates by the level of pricing precision. The degree of judgment utilized in measuring the fair value of assets generally correlates to the level of pricing precision. Financial instruments rarely traded or not quoted will generally have a higher degree of judgment utilized in measuring fair value. Pricing precision is impacted by a number of factors including the type of asset, the availability of the asset, the market demand for the asset, and other conditions that were considered at the time of the valuation. See “Fair Value Measurements” for additional information about the level of pricing transparency associated with the financial instruments carried at fair value.

          Fair Value Measurement. The following tables present information about the Company’s assets and liabilities measured at fair value as of September 30, 2008, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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The following table presents the recorded amounts of assets measured at fair value on a recurring basis:

(Dollar amounts in thousands)			Fair Value Measurements at September 30, 2008, Using
Description	Fair Value September 30, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities	$	104,489	$	—	$	104,489	$	—
Total assets measured at fair value	$	104,489	$	—	$	104,489	$	—

The following methods were used to estimate the fair value of each class of financial instrument above:

          Available-for-sale-securities. Fair values established for available-for-sale investment securities are based on estimates of fair values quoted for similar types of securities with similar maturities, risk and yield characteristics.

          Loans. Loans where there is no indication of impairment are valued at the principal amount outstanding, net of deferred loan fees and the allowance for loan losses. Management reviews the loan portfolio on a regular basis and utilizes the service of an outside review firm to evaluate management’s assessment of the quality of the loan portfolio. For any loans where there is an indication of a problem, further research is performed in order to gain a better understanding of our borrower’s willingness and ability to pay, the value of any collateral that has been pledged to support the loan, and the likelihood of potential future problems. When warranted, management will meet with our customers to develop plans and strategies designed to enhace expected cash flows or develop exit strategies.

          Impaired loans. The Bank does not record loans at fair value. However, if a loan is considered impaired, a specific allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as impaired, management measures impairment in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” In accordance with SFAS No. 157, impaired loans where a specific valuation allowance is established based on the fair value of collateral require classification in the fair value hierarchy. If the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired loans as nonrecurring Level 3. Specific reserves of $699,000 have been established for impaired loans as of September 30, 2008. A specific reserve of $75,000 has been established for a letter of credit with a zero balance at September 30, 2008.

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The following table presents the recorded amount of assets measured at fair value on a non-recurring basis:

(Dollar amounts in thousands)			Fair Value Measurements at September 30, 2008, Using
Description	Fair Value September 30, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (losses)
Impaired loans	$	2,088	$	—	$	—	$	2,088	$	699
Total impaired loans measured at fair value	$	2,088	$	—	$	—	$	2,088	$	699

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

          Forward-Looking Information and Uncertainties Regarding Future Financial Performance.

          This report, including management’s discussion below, concerning earnings and financial condition, contains “forward-looking statements”. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Company’s future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:

          Increased competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins.

          Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Company’s reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.

          Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies, such as increases in inflation or declines in economic output often prompt changes in Federal Reserve Board monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings.

          Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, could adversely affect earnings by reducing yields on earning assets or increasing operating costs.

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          Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.

          Critical Accounting Policies And Estimates

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

          Allowance for Loan Losses

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

          Goodwill

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

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          Provision for Income Taxes

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

          Recent Accounting Pronouncements

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

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

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

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

          In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement No. 161 “Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” Statement No. 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect this Standard to have a material impact on the Company’s financial statements.

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          In May, 2008 the Financial Accounting Standards Board (“FASB”) issued Statement No. 162 “The Hierarchy of Generally Accepted Accounting Principles.” This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U. S. generally accepted accounting principles (GAAP) for nongovernmental entities. This Statement becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect this Standard to have a material impact on the Company’s financial statements.

          Earnings Analysis

          Net earnings for the quarter ended September 30, 2008 were $1,047,000, compared to net earnings of $1,795,000 for the quarter ended September 30, 2007, a decrease of $748,000, or 42%. Net earnings for the nine months ended September 30, 2008 were $3,024,000 compared to $4,981,000 for the nine months ended September 30, 2007, a decrease of $1,957,000, or 39%. Earnings before income tax expense for the quarter ended September 30, 2008 were $1,050,000, compared to $2,502,000 for the quarter ended September 30, 2007, a decrease of $1,452,000, or 58%. Earnings before income tax were $3,560,000 for the nine months ended September 30, 2008 compared to $6,795,000 for the nine months ended September 30, 2007, a decrease of $3,235,000, or 48%.

          Net interest income for the quarter ended September 30, 2008 was $7,062,000, compared to $7,350,000 for the quarter ended September 30, 2007, a decrease of $288,000, or 4%. Net interest income for the nine months ended September 30, 2008 was $20,927,000 compared to $21,393,000 for the nine months ended September 30, 2007, a decrease of $466,000, or 2%. The Federal Open Market Committee made a series of significant reductions in the intended federal funds rate in 2008, starting with a 4.25% rate on January 1, 2008, with four decreases to 2.00% on April 30, 2008. The rate of decrease in the rates earned on interest earning assets exceeded the rate of decrease in the rates paid for interest bearing liabilities in the quarter and nine-month periods ended September 30, 2008, effectively causing a rate related drop in net interest income compared to the same periods in 2007. Also contributing to the drop in our net interest income is the increase in nonaccrual loan volumes in 2008 compared to 2007.

          Basic earnings per share were $0.36 for the third quarter of 2008 compared to $0.60 for the third quarter of 2007. Diluted earnings per share were $0.36 for the third quarter of 2008 compared to $0.59 for the third quarter of 2007. Basic earnings per share were $1.03 for the nine months ended September 30, 2008 compared to $1.66 for the nine months ended September 30, 2007. Diluted earnings per share were $1.02 for the nine months ended September 30, 2008 compared to $1.64 for the nine months ended September 30, 2007.

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          The following table presents an analysis of net interest income and average earning assets and liabilities for the three-and nine-month periods ended September 30, 2008 compared to the three-and nine-month periods ended September 30, 2007.

TABLE 1	NET INTEREST INCOME AND AVERAGE BALANCES FNB BANCORP AND SUBSIDIARY
	Three months ended September 30,
	2008							2007
(Dollar amounts in thousands)	Average Balance		Interest		Annualized Average Yield			Average balance		Interest		Annualized Average Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)	$	489,112	$	8,757		7.12	%	$	477,460	$	9,856		8.19	%
Taxable securities (3)	$	64,517		618		3.81	%		36,006		472		5.20	%
Nontaxable securities (3)		40,860		495		4.82	%		53,934		651		4.79	%
Federal funds sold		6,871		34		1.97	%		3,928		52		5.25	%
Total interest earning assets	$	601,360	$	9,904		6.55	%	$	571,328	$	11,031		7.66	%
NONINTEREST EARNING ASSETS:
Cash and due from banks	$	17,052						$	17,243
Premises and equipment		13,581							13,716
Other assets		29,335							25,233
Total noninterest earning assets	$	59,968						$	56,192
TOTAL ASSETS	$	661,328						$	627,520
INTEREST BEARING LIABILITIES:
Demand, interest bearing	$	59,928	$	78		0.52	%	$	58,063	$	110		0.75	%
Money market		142,569		765		2.13	%		145,305		1,320		3.60	%
Savings		48,256		32		0.26	%		47,732		62		0.52	%
Time Deposits		151,459		1,136		2.98	%		140,728		1,568		4.42	%
Federal Home Loan Bank advances		63,541		713		4.46	%		33,435		443		5.26	%
Federal funds purchased		155		1		2.57	%		1,984		28		5.60	%
Total interest bearing liabilities	$	465,908	$	2,725		2.33	%	$	427,247	$	3,531		3.28	%
NONINTEREST BEARING LIABILITIES:
Demand deposits	$	120,112						$	126,344
Other liabilities		8,119							8,989
Total noninterest bearing liabilities	$	128,231						$	135,333
TOTAL LIABILITIES	$	594,139						$	562,580
Stockholders’ equity	$	67,189						$	64,940
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	661,328						$	627,520
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)			$	7,179		4.75	%			$	7,500		5.21	%

(1) Interest on non-accrual loans is recognized into income on a cash received basis.

(2) Amounts of interest earned included loan fees of $377,000 and $409,000 for the quarters ended September 30, 2008 and 2007, respectively.

(3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $117,000 and $150,000 for the quarters ended September 30, 2008 and 2007, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income.

(4) Net interest margin is computed by dividing net interest income by total average interest earning assets.

13

TABLE 2	NET INTEREST INCOME AND AVERAGE BALANCES FNB BANCORP AND SUBSIDIARY
	Nine months ended September 30,
	2008							2007
(Dollar amounts in thousands)	Average Balance		Interest		Annualized Average Yield			Average balance		Interest		Annualized Average Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)	$	495,573	$	26,879		7.24	%	$	457,711	$	28,202		8.24	%
Taxable securities (3)		50,322		1,645		4.37	%		32,886		1,241		5.05	%
Nontaxable securities (3)		43,802		1,558		4.75	%		57,096		2,012		4.71	%
Fed funds sold		5,868		103		2.34	%		11,427		447		5.23	%
Tot interest earning assets	$	595,565	$	30,185		6.77	%	$	559,120	$	31,902		7.63	%
NONINTEREST EARNING ASSETS:
Cash and due from banks	$	17,053						$	17,547
Premises and equipment		13,792							13,727
Other assets		28,768							24,791
Total noninterest earning assets	$	59,613						$	56,065
TOTAL ASSETS	$	655,178						$	615,185
INTEREST BEARING LIABILITIES:
Deposits:
Demand, int bearing	$	60,652	$	260		0.57	%	$	59,917	$	316		0.71	%
Money market		140,660		2,501		2.38	%		134,380		3,455		3.44	%
Savings		47,095		94		0.27	%		49,345		191		0.52	%
Time deposits		139,999		3,667		3.50	%		142,497		4,714		4.42	%
FHLB advances		72,370		2,347		4.33	%		33,062		1,339		5.41	%
Fed funds purchased		705		19		3.60	%		748		31		5.54	%
Tot interest bearing liabilities	$	461,481	$	8,888		2.57	%	$	419,949	$	10,046		3.20	%
NONINTEREST BEARING LIABILITIES:
Demand deposits	$	117,718						$	122,841
Other liabilities		8,417							8,650
Total noninterest bearing liabilities	$	126,135						$	131,491
TOTAL LIABILITIES	$	587,616						$	551,440
Stockholders’ equity	$	67,562						$	63,745
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	655,178						$	615,185
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)			$	21,297		4.78	%			$	21,856		5.23	%

(1) Interest on non-accrual loans is recognized into income on a cash received basis.

(2) Amounts of interest earned included loan fees of $1,129,000 and $1,222,000 for the nine months ended September 30, 2008 and 2007, respectively.

(3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $365,000 and $463,000 for the nine months ended September 30, 2008 and 2007, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income. Tax equivalent adjustments recorded at the statutory rate of 34% that are included in taxable securities portfolio were created by a dividends received deduction of $5,000 and $0 in the nine months ended September 30, 2008 and 2007, respectively.

(4) Net interest margin is computed by dividing net interest income by total average interest earning assets.

14

          Tables 1 and 2, above, show the various components that contributed to changes in net interest income for the three and nine months ended September 30, 2008 and 2007. The principal interest earning assets are loans, from a volume as well as from an earnings perspective. For the quarter ended September 30, 2008, average loans outstanding represented 81.3% of average earning assets. For the quarter ended September 30, 2007, they represented 83.6% of average earning assets. For the nine months ended September 30, 2008 and 2007, average loans outstanding represented 83.2% and 81.9%, respectively, of average earning assets.

          The yield on total interest earning assets for the quarter ended September 30, 2008 compared to the quarter ended September 30, 2007 decreased from 7.66% to 6.55%, or 111 basis points. Although average loans increased by $11,652,000, quarter to quarter, yield decreased from 8.19% to 7.12%, or 107 basis points, or 13.1%. Interest income on total interest earning assets decreased $1,127,000 or 10.2%. The decrease in yield resulted from lower prevailing market rates on loans and increased nonaccrual loan volumes.

          For the three months ended September 30, 2008 compared to the three months ended September 30, 2007, the cost on total interest bearing liabilities decreased from 3.28% to 2.33%, a decrease of 95 basis points. The most expensive source of interest bearing liabilities comes from Federal Home Loan Bank advances. Their average cost decreased to 4.46% from 5.26%, while their average balances outstanding increased $30,106,000 and the expense on these advances increased $270,000 for the three months ended September 30, 2008 compared to 2007. Time deposit interest cost decreased from 4.42% to 2.98%. Their average balance outstanding increased by $10,731,000, or 7.6%, while their expense decreased $432,000. Money market deposits average volume decreased $2,736,000, or 1.9%, while their cost decreased 147 basis points, or 40.8%, which resulted in a $555,000 decrease in their interest expense.

          For the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, interest income on interest earning assets decreased $1,717,000 or 5.38%, while average earning assets increased $36,445,000, or 6.5%. Average loans increased by $37,862,000, or 8.3%. Interest on loans decreased $1,323,000 or 4.7%, while yield decreased 100 basis points, or 12.1%. The cost on total interest bearing liabilities decreased from 3.20% to 2.57%. Average Federal Home Loan Bank advances increased $39,308,000 or 118.9%. Their yield decreased from 5.41% to 4.33%, and their cost increased $1,008,000. Time deposit averages decreased $2,498,000 or 1.8%. Their yield decreased 92 basis points, or 20.8%. Money market deposit average balances increased $6,280,000, or 4.7%, but their cost decreased $954,000, or 27.6%.

          For the three and nine month periods ended September 30, 2008 and September 30, 2007, respectively, the following tables show the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and b) changes in rate (changes in rate times the prior year’s volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.

15

Table 3	FNB BANCORP AND SUBSIDIARY RATE/VOLUME VARIANCE ANALYSIS
(Dollar amounts in thousands)	Three Months Ended September 30, 2008 Compared to 2007
	Interest Income/Expense			Variance Attributable to
				Rate			Volume
INTEREST EARNING ASSETS
Loans		(1,099	)		(1,307	)		208
Taxable securities		146			(127	)		273
Nontaxable securities		(156	)		2			(158	)
Federal funds sold		(18	)		(57	)		39
Total		(1,127	)		(1,489	)		362
INTEREST BEARING LIABILITIES
Demand deposits		(32	)		(36	)		4
Money market		(555	)		(540	)		(15	)
Savings deposits		(30	)		(30	)		—
Time deposits		(432	)		(553	)		121
Federal Home Loan Bank advances		270			(129	)		399
Federal funds purchased		(27	)		(15	)		(12	)
Total		(806	)		(1,303	)		497
NET INTEREST INCOME		(321	)		(186	)		(135	)

Table 4	FNB BANCORP AND SUBSIDIARY RATE/VOLUME VARIANCE ANALYSIS
(Dollar amounts in thousands)	Nine Months Ended September 30, 2008 Compared to 2007
	Interest Income/Expense			Variance Attributable to
				Rate			Volume
INTEREST EARNING ASSETS
Loans		(1,323	)		(3,656	)		2,333
Taxable securities		404			(254	)		658
Nontaxable securities		(454	)		19			(473	)
Federal funds sold		(344	)		(127	)		(217	)
Total		(1,717	)		(4,018	)		2,301
INTEREST BEARING LIABILITIES
Demand deposits		(56	)		(60	)		4
Money market		(954	)		(1,116	)		162
Savings deposits		(97	)		(92	)		(5	)
Time deposits		(1,047	)		(964	)		(83	)
Federal Home Loan Bank advances		1,008			(584	)		1,592
Federal funds purchased		(12	)		(11	)		(1	)
Total		(1,158	)		(2,827	)		1,669
NET INTEREST INCOME		(559	)		(1,191	)		632

16

Noninterest income

          The following table shows the principal components of noninterest income for the periods indicated.

Table 5	NONINTEREST INCOME
	Three months ended September 30,					Variance
(Dollar amounts in thousands)	2008			2007		Amount			Percent
Service charges		749			667		82			12.3	%
Credit card fees		211			203		8			3.9	%
Gain (loss) on sale or impairment of securities AFS		(433	)		4		(437	)		-10925.0	%
Other income		242			219		23			10.5	%
Total noninterest income	$	769		$	1,093	$	(324	)		-29.6	%
	Nine months ended September 30,					Variance
(Dollar amounts in thousands)	2008			2007		Amount			Percent
Service charges		2,160			1,926		234			12.1	%
Credit card fees		566			609		(43	)		-7.1	%
Gain(loss) on sale or impairment of securities AFS		(294	)		4		(298	)		-7450.0	%
Other income		735			700		35			5.0	%
Total noninterest income	$	3,167		$	3,239	$	(72	)		-2.2	%

          Noninterest income consists mainly of service charges on deposits. For the quarter ended September 30, 2008 compared to September 30, 2007, total noninterest income decreased by $324,000 or 29.6%. For the nine months ended September 30, 2008 and September 30, 2007, total noninterest income decreased by $72,000, or 2.2%. Service charges increased $82,000 for the quarter, and $234,000 for the nine months.

          The increase in service charges is primarily attributable to an increase in non-sufficient-funds fees and ATM surcharge fees. The increased non-sufficient-funds fees are the result of increased liquidity problems that some of our deposit customers are facing. The current economic downturn has affected the volume of our non-sufficient-funds check presentments. The increase in ATM surcharge fees is a function of increased demand for cash from our ATM machines by those who do not have a deposit relationship with the Bank.

          The loss on sale or impairment of securities during the third quarter of 2008 is attributable to a $470,000 other than temporary impairment charge on the Bank’s Freddie Mac preferred stock holdings. During the third quarter of 2008, Freddie Mac and Fannie Mae were placed into a government conservatorship program.

17

Noninterest expense

          The following table shows the principal components of noninterest expense for the periods indicated.

Table 6	NONINTEREST EXPENSE
	Three months ended September 30,				Variance
(Dollar amounts in thousands)	2008		2007		Amount			Percent
Salaries and employee benefits	$	3,642	$	3,258	$	384			11.8	%
Occupancy expense		510		504		6			1.2	%
Equipment expense		484		385		99			25.7	%
Professional fees		295		322		(27	)		-8.4	%
Telephone, postage & supplies		266		231		35			15.2	%
Bankcard expenses		195		183		12			6.6	%
Other expense		1,089		878		211			24.0	%
Total noninterest expense		6,481		5,761	$	720			12.5	%
	Nine months ended September 30,				Variance
(Dollar amounts in thousands)	2008		2007		Amount			Percent
Salaries and employee benefits	$	10,770	$	9,589	$	1,181			12.3	%
Occupancy expense		1,533		1,455		78			5.4	%
Equipment expense		1,442		1,163		279			24.0	%
Professional fees		840		1,024		(184	)		-18.0	%
Telephone, postage & supplies		747		786		(39	)		-5.0	%
Bankcard expenses		528		551		(23	)		-4.2	%
Other expense		3,084		2,759		325			11.8	%
Total noninterest expense	$	18,944	$	17,327	$	1,617			9.3	%

          Noninterest expense consists mainly of salaries and employee benefits. For the three months ended September 30, 2008 compared to three months ended September 30, 2007, it represented 56.2% and 56.6% of total noninterest expenses. For the nine months ended September 30, 2008 and 2007 it was 56.9% and 55.3% respectively of total noninterest expense increases. The primary reason for the increase in salary and employee benefits relates to the establishment of a Call Center in the third quarter of 2008, coupled with staff increases in the Lending area. The expenses excluding Salaries and Benefits increased $336,000 for the quarter, and $436,000 for the nine months. These included new occupancy expenses for furniture and fixtures in the Colma first floor remodeling as well as new equipment expenses related to the purchase of computers, monitors and memory upgrades throughout the system.

Income Taxes

          The effective tax rate for the quarter ended September 30, 2008 was 0.3% compared to 28.3% for the quarter ended September 30, 2007. The effective tax rate for the nine months ended September 30, 2008 and September 30, 2007, respectively was 15.1% and 26.7%. Following the filing of the 2007 income tax return and the resulting reconciliation with our financial statements, we were able to record a $200,000 reduction in the third quarter income tax expense. Other items which usually affect the rate are changing amounts invested in tax-free securities, by available Low Income Housing Credits, by amounts of interest income on qualifying loans in Enterprise Zones, and the non-taxable nature of municipal bond interest. Other reasons for the decrease in the effective tax rate provision for the three and nine months of 2008 compared to the same periods in 2007 included changes in the relative proportion of tax advantaged income in comparison to fully taxable income period over period.

18

Asset and Liability Management

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

          In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Company’s ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from Company’s customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Company’s liquidity sources at September 30, 2008 are adequate to meet its operating needs in 2008 and going forward into the foreseeable future.

Financial Condition

          Assets. Total assets increased to $660,296,000 at September 30, 2008 from $644,465,000 at December 31, 2007, an increase of $15,831,000. Most of this increase was in securities available for sale, which increased by $10,057,000, and cash and equivalents, which increased by $2,123,000. This was funded by a $21,215,000 increase in deposits, which also paid off the $5,595,000 in federal funds purchased.

          Loans. Gross loans at September 30, 2008 were $495,589,000, a decrease of $313,000 or 0.06% from December 31, 2007. Gross real estate loans decreased $2,721,000, construction loans increased $6,273,000, commercial loans decreased $2,596,000 and consumer loans decreased by $643,000. The portfolio breakdown was as follows.

Table 7	LOAN PORTFOLIO
(Dollar amounts in thousands)	September 30, 2008			Percent			December 31, 2007			Percent
Real Estate	$	349,329			70.5	%	$	352,050			71.1	%
Construction		63,635			12.8	%		57,362			11.6	%
Commercial		79,632			16.1	%		82,228			16.6	%
Consumer		2,993			0.6	%		3,636			0.7	%
Gross loans	$	495,589			100.0	%	$	495,276			100.0	%
Net deferred loan (fees) costs		86						(64	)
Allowance for loan losses		(6,031	)					(5,638	)
Net loans	$	489,644					$	489,574

19

          Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Bank’s loan portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is determined by internally generating credit quality ratings, reviewing economic conditions in the Company’s market area, and considering the Company’s historical loan loss experience. The Company considers changes in national and local economic conditions, as well as the condition of various market segments. It also reviews any changes in the nature and volume of the portfolio. It watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. The Company also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.

          A summary of activity in the allowance for loan losses for the nine months ended September 30, 2008 and the nine months ended September 30, 2007 is as follows.

TABLE 8	ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)	Nine months ended September 30, 2008			Nine months ended September 30, 2007
Balance, beginning of period	$	5,638		$	5,002
Provision for loan losses		1,590			510
Recoveries		47			17
Amounts charged off		(1,244	)		(27	)
Balance, end of period	$	6,031		$	5,502

          In management’s judgment, the allowance was adequate to absorb losses currently inherent in the loan portfolio at September 30, 2008. However, changes in prevailing economic conditions in the Company’s markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.

          During the first quarter of 2008, the bank experienced a significant increase in loan charge-offs when compared to the same period in 2007. During the third quarter of 2008, an additional provision to the allowance of $300,000 was determined by management to be prudent. This provision level allowed the Bank to achieve an adequate allowance for inherent loan losses at September 30, 2008. The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.

          Nonperforming assets. Nonperforming assets consist of nonaccrual loans, foreclosed assets, and loans that are 90 days or more past due but are still accruing interest and other real estate owned. At September 30, 2008, there was $15,694,000 in nonperforming assets, compared to $11,905,000 at December 31, 2007. Nonaccrual loans were $11,868,000 at September 30, 2008, compared to $11,465,000 at December 31, 2007. There was $3,819,000 in Other Real Estate Owned at September 30, 2008, that consisted of two single family residences and one lot development property. Other Real Estate Owned totaled $440,000 at December 31, 2007, that consisted of one single family residence. There were no loans past due 90 days and still accruing at either date. During the first quarter of 2008, the Bank obtained through foreclosure a lot development property consisting of 20 residential lots located in Martinez, California, that was recorded at the net realizable value of $3,200,000. The Bank also obtained through foreclosure a single family residence in Fairfield valued at $262,000 and a single family residence in San Jose valued at $357,000. Management intends to aggressively market these properties. While management believes these properties will sell at prices that approximate their carrying value, there can be no assurance that these properties will sell in a timely manner given the current real estate market.

20

          Deposits. Total deposits at September 30, 2008 were $520,470,000 compared to $499,255,000 on December 31, 2007. Of these totals, noninterest-bearing demand deposits were $127,317,000 or 24.5% of the total on September 30, 2008 and $120,423,000 or 24.1% on December 31, 2007. Time deposits were $155,030,000 on September 30, 2008 and $136,341,000 on December 31, 2007. During the first nine months of 2008, compared to the same period in 2007, the deposit mix has changed to include a lower proportion of deposits in interest bearing demand, and a higher proportion in time deposits. This change is being driven by an economic downturn and the desire by our depositors to place additional funds into fixed rate, fixed term deposits. During the third quarter of 2008, the Bank also established a $15,000,000 Certificate of Deposit account for the State of California.

The following table sets forth the maturity schedule of the time certificates of deposit on September 30, 2008:

TABLE 9

(Dollar amounts in thousands) Maturities	Under $100,000		$100,000 or more		Total
Three months or less	$	18,000	$	51,673	$	69,673
Over three through six months		12,205		29,221		41,426
Over six through twelve months		11,750		16,732		28,482
Over twelve months		10,623		4,826		15,449
Total	$	52,578	$	102,452	$	155,030

          The following table shows the risk-based capital ratios and leverage ratios at September 30, 2008 and December 31, 2007 for the Bank:

TABLE 10

Risk-Based Capital Ratios	September 30, 2008		December 31, 2007			Minimum “Well Capitalized” Requirements
Tier 1 Capital	10.63	%	10.47	%	≥	6.00	%
Total Capital	11.65	%	11.42	%	≥	10.00	%
Leverage Ratios	9.68	%	9.84	%	≥	5.00	%

          Liquidity. Liquidity is a measure of the Company’s ability to convert assets into cash with minimal loss. As of September 30, 2008, Liquid Assets were $122,362,000, or 18.5% of total assets. As of December 31, 2007, Liquid Assets were $110,182,000, or 17.1% of total assets. Liquidity consists of cash and due from other banks accounts, federal funds sold, and securities available-for-sale. The Company’s primary uses of funds are loans, and the primary sources of funds are deposits. The relationship between total net loans and total deposits is a useful additional measure of liquidity. The Company also has outstanding Federal Home Loan Bank advances of $66,000,000, a Federal Home Loan Bank line up to 30% of total assets, and a Federal Reserve Bank borrowing facility.

21

          A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On September 30, 2008 net loans were at 94.1% of deposits. On December 31, 2007 net loans were at 98.1% of deposits.

          Off-Balance Sheet Items

          The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of September 30, 2008 and December 31, 2007, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $121,424,000 and $149,161,000 at September 30, 2008 and December 31, 2007, respectively. As a percentage of net loans, these off-balance sheet items represent 24.8% and 30.5% respectively.

Corporate Reform Legislation

          President George W. Bush signed the Sarbanes-Oxley Act of 2002 (the “Act”) on July 30, 2002, in response to corporate accounting scandals. Among other matters, the Act increased the penalties for securities fraud, established new rules for financial analysts to prevent conflicts of interest, created a new independent oversight board for the accounting profession, imposed restrictions on the consulting activities of accounting firms that audit company records and required certification of financial reports by corporate executives. The SEC has adopted a number of rule changes to implement the provisions of the Act. The SEC has also approved new rules proposed and adopted by the New York Stock Exchange and the Nasdaq Stock Market to strengthen corporate governance standards for listed companies. The Company anticipates that it will continue to incur costs to comply with the Act and the rules and regulations promulgated pursuant to the Act by the Securities and Exchange Commission of approximately $150,000 annually.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

          Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest. Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Company’s interest earning assets and deposits (see discussion of comparative changes in the prime lending rate and the Federal Home Loan Bank of San Francisco’s Weighted Monthly Cost of Funds, in the second paragraph under Earnings Analysis on page 12, above).

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Item 4. Controls and Procedures.

          (a)       Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management as of the end of the Company’s fiscal quarter ended September 30, 2008. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

          (b)      Internal Control Over Financial Reporting: An evaluation of any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Company’s fiscal quarter ended September 30, 2008, was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Item 1A. Risk Factors

          There have been no material changes from risk factors previously disclosed by the Company in response to Item 1A, Part 1 of Form 10-K as of December 31, 2007.

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

c) ISSUER PURCHASES OF EQUITY SECURITIES*

Period	(a) Total Number Of Shares (or Units) Purchased		(b) Average Price Paid Per Share (or Unit)		(c) Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1
July 1		78,000	$	14.95		78,000		12,757
through
July 31, 2008
Month #2
August 1		2,300	$	14.80		2,300		10,457
through
August 31, 2008
Month #3
September 1		0				0		10,457
through
September 30, 2008
Total		80,300				80,300

* On August 24, 2007 the Board of Directors of the Company authorized a stock repurchase programs which calls for the repurchase of up to five percent (5%) of the Company’s then outstanding 2,863,635 shares of common stock, or 143,182 shares.

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Item 6. Exhibits

Exhibits
	31:	Rule 13a-14(a)/15d-14(a) Certifications
	32:	Section 1350 Certifications

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 hereunto duly authorized.

	FNB BANCORP
		(Registrant)
Dated: November 6, 2008.
	By:	/s/ Thomas C. McGraw
		Thomas C. McGraw Chief Executive Officer (Authorized Officer)
	By:	/s/ David A. Curtis
		David A. Curtis Senior Vice President Chief Financial Officer (Principal Financial Officer)

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