# UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington, D. C. 20549

# FORM 10-Q

(Mark One)

# [ X ]      
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 2003

or

# [      ]
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number:33-14252

# FIRST
NATIONAL BANKSHARES CORPORATION(Exact name of registrant as specified in its charter)

|West Virginia
      (State or other jurisdiction
        of incorporation)           | 62-1306172
               (I.R.S. Employer
               Identification No.)
|------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------
|                                                                                    
|                                                                                    
|                                                                                    
|One Cedar Street, Ronceverte, West Virginia
(Address of principal executive offices) | 24970
               (Zip Code)                                              
|                                                                                    
|                                                                                    
|                                                                                    
|(304) 647-4500
       (Registrant's telephone number, including area code)          

N/A

                          (Former name, former address and former fiscal year, if changed since last report)

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.

YesXNo

Indicate by check mark whether the registrant an accelerated filer (as defined in Rule 12b-2 of the
 Exchange Act).

Yes NoX

The number of shares
outstanding of the issuers classes of common stock as of August 1, 2003:

# Common Stock,
$1 par value -- 983,780 shares

# THIS REPORT
CONTAINS 24 PAGES

---

# FIRST
NATIONAL BANKSHARES CORPORATION

# FORM 10-Q

For the
Quarterly Period Ended June 30, 2003

# INDEX

|PART I.
FINANCIAL INFORMATION                                                                                                                                                                                 | PAGE   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Item 1.    Financial Statements (Unaudited)                                                                                                                                                                   |        
|Consolidated Balance Sheets - 
            
            
 June 30, 2003 (Unauditied) and December 31, 2002                                                                                                    | 3      
|Consolidated Statements of Income (Unaudited)- 
            
            
   Three Months Ended June 30, 2003 and 2002 and 
            
            
Six Months ended June 30, 2003 and 2002                 | 4      
|Consolidated Statements of Shareholders' Equity (Unaudited) - 
            
            
     Three Months Ended June 30, 2003 and 2002 and
            
            
Six Months Ended June 30, 2003 and 2002 | 5      
|Consolidated Statements of Cash Flows (Unaudited) -
            
            
  Six Months Ended June 30, 2003 and 2002                                                                                       | 6      
|Notes to Consolidated Financial Statements                                                                                                                                                                    | 7-11   
|Item 2.     Management's Discussion and Analysis of Financial Condition
                 
  and Results of Operations                                                                                         | 11 - 18
|Item 3.     Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                        | 18     
|Item 4.     Controls and Procedures                                                                                                                                                                           | 19     
|PART II.    OTHER INFORMATION                                                                                                                                                                                
|Item 1.    Legal Proceedings                                                                                                                                                                                  | 20     
|Item 2.     Changes in Securities                                                                                                                                                                             | none   
|Item 3.     Defaults upon Senior Securities                                                                                                                                                                   | none   
|Item 4.     Submission of Matters to a Vote of Security Holders                                                                                                                                               | 20     
|Item 5.     Other Information                                                                                                                                                                                 | 20     
|Item 6.     Exhibits and Reports on Form 8-K                                                                                                                                                                  | 20     
|SIGNATURES                                                                                                                                                                                                    | 21     

---

`PART I. FINANCIAL INFORMATION
                                   ITEM 1. FINANCIAL STATEMENTS

                      FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS
                                     (in thousands of dollars)


                                                              Unaudited
                                                                  June 30,       Dec. 31,
                                                                   2003          2002 (1)
                                                            --------------- ---------------
                            ASSETS

Cash and due from banks                                      $        3,755  $        3,037
Interest-bearing deposits with other banks                               73             225
Federal funds sold                                                    6,515           2,325
Securities available for sale                                        19,934          23,125
Securities held to maturity (estimated fair value
   of $10,101 and $9,716, respectively)                               9,855           9,552
Loans, less allowance for loan losses of $1,106 and
   $1,036, respectively                                             118,872         109,516
Premises and equipment, net                                           2,639           2,730
Accrued interest receivable                                             688             720
Other real estate owned and foreclosed assets                             8              30
Other assets                                                            546             548
                                                            --------------- ---------------
      Total assets                                          $       162,885  $      151,808
                                                            =============== ===============

              LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
   Noninterest-bearing                                       $       17,081  $       15,610
   Interest-bearing                                                 124,225         118,643
                                                            --------------- ---------------
      Total deposits                                                141,306         134,253
Short-term borrowings                                                 5,810           2,536
Other liabilities                                                     1,103           1,090
Long-term borrowings                                                  1,625           1,350
                                                            --------------- ---------------
      Total liabilities                                             149,844         139,229
                                                            --------------- ---------------
Shareholders' equity
Common stock, $1.00 par value, authorized
   10,000,000 shares, issued 983,780 shares, respectively               984             984
Capital surplus                                                       1,208           1,208
Retained earnings                                                    10,711          10,331
Accumulated other comprehensive income                                  138              56
                                                            --------------- ---------------
      Total shareholders' equity                                     13,041          12,579
                                                            --------------- ---------------
      Total liabilities and shareholders' equity             $      162,885  $      151,808
                                                            =============== ===============`

(1) Extracted from December 31, 2002 audited financial statements.

See Notes to Consolidated Financial Statements

---

FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                         THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(In thousands of dollars, except per share data)

`Three Months Ended     Six Months Ended
                                                        June 30,              June 30,
                                                     2003      2002        2003      2002
                                                   --------  ---------   --------  ---------
Interest income
   Interest and fees on loans                      $ 1,880   $  1,910    $ 3,711   $  3,846
   Interest and dividends on securities:
      Taxable                                          178        205        376        355
      Tax-exempt                                        59         44        118         88
   Interest on Federal funds sold and
      interest-bearing deposits                          7         26         11         45
                                                   --------  ---------   --------  ---------
         Total interest income                       2,124      2,185      4,216      4,334
                                                   --------  ---------   --------  ---------
Interest expense
   Deposits                                            541        738      1,117      1,480
   Short-term borrowings                                13         14         20         31
   Long-term borrowings                                 16          7         30         13
                                                   --------  ---------   --------  ---------
         Total interest expense                        570        759      1,167      1,524
                                                   --------  ---------   --------  ---------
         Net interest income                         1,554      1,426      3,049      2,810
Provision for loan losses                               85        104        175        209
         Net interest income after
         provision for loan losses                   1,469      1,322      2,874      2,601
                                                   --------  ---------  ---------  ---------
Noninterest income
   Service fees                                        119        118        238        225
   Loan origination fees - secondary market loans       90         91        185        154
   Securities gains, net                                 8          3         10          3
   Other income                                         63         32        132         52
                                                   --------  ---------  ---------  ---------
         Total noninterest income                      280        244        565        434
                                                   --------  ---------  ---------  ---------
Noninterest expense
   Salaries and employee benefits                      595        559      1,225      1,119
   Net occupancy expense                                85         83        171        167
   Equipment rental, depreciation and maintenance       96        107        199        210
   Data processing                                     118         90        231        185
   Advertising                                          32         25         68         63
   Professional and legal                               66         32        116         65
   Postage and courier                                  33         29         67         57
   Directors' fees and shareholder expenses             30         30         63         68
   Stationery and supplies                              31         34         60         75
   Loss on foreclosed real estate                       -         262         -         262
   Other operating expenses                            129        121        265        241
                                                    -------  ---------  ---------   --------
       Total noninterest expense                     1,215      1,372      2,465      2,512
                                                    -------  ---------  ---------   --------
Income before income taxes                             534        194        974        523
Income tax expense                                     181         50        328        154
                                                    -------  ---------  ---------   --------
Net income                                          $  353   $    144   $    646    $   369
                                                    =======  =========  =========   ========
Net income per common share:
   Basic earnings per common share                  $ 0.36   $   0.15   $   0.66    $  0.38
                                                    =======  =========  =========   ========
   Diluted earnings per common share                $ 0.36   $   0.15   $   0.66    $  0.37
                                                    =======  =========  =========   ========
Cash dividends declared per common share            $ 0.13   $   0.12   $   0.27    $  0.25
                                                    =======  =========  =========   ========`

See Notes to Consolidated Financial Statements

---

FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
                                       THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
 (In thousands of dollars)

`Three Months Ended    Six Months Ended
                                                            June 30,             June 30,
                                                         2003      2002       2003      2002
                                                      ---------  ---------  --------  --------
Balance, beginning of period                          $ 12,733   $ 11,884   $ 12,579  $ 11,822
Comprehensive income
   Net income                                              353        144        646       369
   Other comprehensive income, net of deferred
      income taxes of $52 and $65 for the
      three months ended June 30, 2003 and
      2002, respectively and $52 and $43 for the
      six months ended June 30, 2003 and 2002,
      respectively
         Unrealized gains on securities                     83        102         82        67
                                                       ---------  ---------  --------  --------
      Total comprehensive income                           436        246        728       436

Cash dividends declared                                   (128)      (118)      (266)     (246)
                                                       ---------  --------- ---------  --------
Balance, end of period                                $ 13,041   $ 12,012   $ 13,041   $12,012
                                                      ========== ========== =========  ========`

See Notes to Consolidated Financial Statements

---

FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                                SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(In thousands of dollars)

`CASH FLOWS FROM OPERATING ACTIVITIES                                       2003         2002
                                                                        ----------   --------
Net income                                                              $    646     $   369
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation and amortization                                                156         161
Loss on disposals of premises and equipment                                    1           3
Gains on sale of foreclosed assets, net                                      (11)          -
Securities gains, net                                                        (10)         (3)
Provision for loan losses                                                    175         209
Increase in valuation allowance for other real estate owned                    -         262
Deferred income tax benefit                                                  (50)       (152)
Net amortization of security premiums                                         86          20
Decrease (increase) in accrued interest receivable                            32         (58)
Increase in other assets                                                      (1)       (127)
Increase (decrease) in other liabilities                                      23          (5)
                                                                        ----------   ---------
   Net cash provided by operating activities                               1,047         679
                                                                        ----------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities available for sale       13,666       6,263
Proceeds from maturities and calls of securities held to maturity            485       3,043
Purchases of securities available for sale                               (10,412)    (16,623)
Purchases of securities held to maturity                                    (793)       (881)
Net increase in loans                                                     (9,542)     (4,417)
Purchases of premises and equipment                                          (65)       (580)
Proceeds from sale of foreclosed assets                                       44          -
                                                                        ----------   ---------
   Net cash used in investing activities                                  (6,617)    (13,195)
                                                                        ----------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW and savings accounts                  9,444      10,901
Net (decrease) increase in time deposits                                  (2,391)        861
Net increase (decrease) increase in short-term borrowings                  3,274        (514)
Principal advances on long-term borrowings                                   310           -
Principal payments on long-term borrowings                                   (35)         (8)
Dividends paid                                                              (276)       (393)
                                                                        ----------   ---------
   Net cash provided by financing activities                              10,326      10,847
                                                                        ----------   ---------

Increase (decrease) in cash and cash equivalents                           4,756      (1,669)

Cash and cash equivalents:
Beginning                                                                  5,587       5,722
                                                                        ----------   ---------

Ending                                                                  $ 10,343     $ 4,053
                                                                        ==========   =========`

See Notes to Consolidated Financial Statements

---

# FIRST
NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

## Note 1.  Basis
of Presentation

The accounting and
reporting policies of First National Bankshares Corporation, (the
Company or First National), and its wholly owned
subsidiaries, First National Bank and FNB Insurance, LLC, conform to accounting
principles generally accepted in the United States and to general policies
within the financial services industry. The preparation of such financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

The consolidated statements
include the accounts of the Company and its wholly owned subsidiaries, First
National Bank and FNB Insurance, LLC. All significant intercompany balances and
transactions have been eliminated. The information contained in the consolidated
financial statements is unaudited. In the opinion of management, all adjustments
for a fair presentation of the results of the interim periods have been made.
All such adjustments were of a normal, recurring nature. The results of
operations for the three months ended June 30, 2003 are not necessarily
indicative of the results to be expected for the full year. The consolidated
financial statements and notes included herein should be read in conjunction
with the Companys 2002 audited financial statements and Form 10-K.

Earnings per
share: Basic earnings per common share are computed based upon the
weighted average shares outstanding. Diluted per share amounts assume the
conversion, exercise or issuance of all stock options. The computations of basic
and diluted earnings per share amounts for the three months and six months ended
June 30, 2003 and 2002 are based upon the following outstanding shares:

`Three Months Ended   Six Months Ended
                                                           June 30,            June 30,
                                                       2003       2002      2003     2002
                                                     --------  ---------  -------  --------
Weighted average shares outstanding
   for basic earnings per share calculation           983,780   981,780   983,780   981,780
Dilutive effect of stock options                        3,393     3,121     2,772     3,121
                                                     --------  ---------  -------  --------
Weighted average shares outstanding
   for dilutive earnings per share calculation        987,173   984,901   986,552   984,901
                                                     ========  =========  =======  ========`

Stock
options: The Company has an incentive stock option plan covering certain
key employees. Grants under the plan are accounted for under the intrinsic value
method. Accordingly, no compensation cost has been recognized for grants under
the plan. Had compensation for the plan been determined based on the fair value
method, reported net income and earnings per share would have been reduced to
the pro forma amounts shown below for the three months and six months ended June
30, 2003 and 2002:

`Three Months Ended     Six Months Ended
                                                June 30,             June 30,
                                           2003       2002        2003      2002
                                        ---------  ----------  ---------  --------
Net income:
   As reported                          $   353    $   144     $    646   $   369
   Proforma                             $   353    $   144     $    646   $   367
Basic earnings per share:
   As reported                          $  0.36    $  0.15     $   0.66   $  0.38
   Proforma                             $  0.36    $  0.15     $   0.66   $  0.37
         Diluted earnings per share:
   As reported                          $  0.36    $  0.15     $   0.65   $  0.37
   Proforma                             $  0.36    $  0.15     $   0.65   $  0.37`

Note 2.    Securities
The amortized  cost,  unrealized  gains,  unrealized  losses and estimated  fair values of securities at June 30, 2003 and December 31,
2002 are summarized as follows (in thousands):

`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                 June 30, 2003
                                              ---------------------------------------------
                                                                                  Estimated
                                               Amortized  Unrealized  Unrealized    Fair
                                                 Cost       Gains      Losses      Value
                                              ----------  ----------  ----------  ---------
Available for Sale
  Taxable:
   U.S. Government agencies and corporations   $ 17,627   $   227     $     -     $ 17,854
   Federal Reserve Bank stock                        57         -           -           57
   Federal Home Loan Bank stock                     520         -           -          520
   Other equities                                    22         -           -           22
                                              ----------  ----------  ----------  ---------
         Total taxable                           18,226       227           -       18,453
   Tax-exempt:
   State and political subdivisions               1,480         -           1        1,479
   Federal Reserve Bank stock                         2         -           -            2
                                              ----------  ----------  ----------  ---------
         Total tax-exempt                         1,482         -           1        1,481
     Total securities available for sale       $ 19,708   $   227     $     1     $ 19,934
                                              ==========  ==========  ==========  =========

Held to maturity
  Taxable:
   U.S. Government agencies and corporations   $  1,000   $    21     $     -     $  1,021
   Certificates of deposit with other banks       2,848         -           -        2,848
   State and political subdivisions                 440        10           -          450
                                              ----------  ----------  ----------  ---------
         Total taxable                            4,288        31           -        4,319
   Tax-exempt:
   State and political subdivisions               5,567       215           -        5,782
                                              ----------  ----------  ----------  ----------
         Total securities held to maturity    $   9,855   $   246     $     -     $ 10,101
                                              ==========  ==========  ==========  ==========

                                                            December 31, 2002
                                              ----------------------------------------------
                                                                                  Estimated
                                               Amortized  Unrealized  Unrealized    Fair
                                                 Cost       Gains      Losses       Value
                                              ----------  ----------  ----------  ----------
Available for Sale
Taxable:
   U.S. Government agencies and corporations  $  22,671   $    93     $      1    $ 22,763
   Federal Reserve Bank Stock                        57         -            -          57
   Federal Home Loan Bank stock                     281         -            -         281
   Other equities                                    22         -            -          22
                                              ----------  ----------  ----------  ----------
      Total taxable                              23,031        93            1      23,123
Tax-exempt:
   Federal Reserve Bank stock                         2         -            -           2
                                              ----------  ----------  ----------  ----------
      Total securities available for sale     $  23,033   $    93     $      1    $ 23,125
                                              ==========  ==========  ==========  ==========`

`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                              December 31, 2002
                                               ----------------------------------------------
                                                                                   Estimated
                                                Amortized  Unrealized  Unrealized    Fair
                                                  Cost       Gains      Losses      Value
                                               ----------  ----------  ----------  ----------
Held to maturity:
Taxable:
   U.S. Government agencies and corporations    $  1,000   $     38     $      -   $  1,038
   Certificates of deposit with other banks        2,156          -            -      2,156
   State and political subdivisions                  455         18            -        473
                                               ----------  ----------  ----------  ----------
      Total taxable                                3,611         56            -      3,667
Tax-exempt:
   State and political subdivisions                5,941        116            8      6,049
                                               ----------  ----------  ----------  ----------
      Total securities held to maturity         $  9,552   $    172    $       8   $  9,716
                                               ==========  ==========  ==========  ==========`

`The  maturities,  amortized cost and estimated  fair values of the Company's  securities at
June 30, 2003 are summarized as follows (in thousands):

                                              Held To Maturity         Available For Sale
                                            ---------------------  -------------------------
                                                        Estimated                Estimated
                                            Amortized     Fair      Amortized        Fair
                                              Cost       Value        Cost          Value
                                            ---------- ----------  -----------  ------------
Due within 1 year                           $   3,722  $   3,765   $   1,504    $   1,510
Due after 1 but within 5 years                  3,294      3,367      17,343       17,563
Due after 5 but within 10 years                 2,149      2,245         260          260
Due after 10 years                                690        724           -            -
Equity securities                                   -          -         601          601
                                            ---------- ----------  -----------  ------------
                                            $   9,855  $  10,101   $  19,708    $  19,934
                                            ========== ==========  ===========  ============`

The Companys Federal
Reserve Bank stock and Federal Home Loan Bank stock are equity securities that
are included in securities available for sale in the accompanying consolidated
financial statements. Such securities do not have a stated maturity date, and
are carried at cost, since they may only be sold back to the respective issuer
or another member at par value.

`Note 3.  Loans
Loans are summarized as follows (in thousands):
                                                            June 30,        Dec. 31,
                                                             2003            2002
                                                        --------------- ---------------
Commercial, financial and agricultural                   $   52,303      $   47,268
Real estate - construction                                    1,763           1,340
Real estate - mortgage                                       51,096          45,775
Installment loans to individuals                             13,432          13,805
Other                                                         1,493           2,399
                                                        --------------- ---------------
   Gross loans                                              120,087         110,587
Net deferred loan origination fees                             (109)            (35)
                                                        --------------- ---------------
   Total loans net of deferred loan origination fees        119,978         110,552
Less allowance for loan losses                                1,106           1,036
                                                        --------------- ---------------
   Loans, net                                            $  118,872      $  109,516
                                                        =============== ===============`

`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4.   Allowance for Credit Losses
An analysis of the allowance for loan losses is presented below (in thousands):

                                            Six Months Ended June 30,    Dec. 31,
                                            -------------------------
                                               2003          2002          2002
                                            -----------  ------------   ----------
Balance, beginning of period                $  1,036     $    837        $   837
   Loans charged off                             116           54            121
   Recoveries                                     11           11             16
                                            -----------  ------------   ----------
      Net (recoveries) losses                    105           43            105
                                            -----------  ------------   ----------
   Provision for loan losses                     175          209            304
                                            -----------  ------------   ----------
Balance, end of period                      $  1,106     $  1,003       $  1,036
                                            ===========  ============   ==========`

The Companys total recorded  investment in impaired loans at June 30, 2003 and December 31, 2002  approximated  $827,000 and $433,000,
respectively,  for which the  related  allowance  for credit  losses  determined  in  accordance  with  generally  accepted  accounting
principles  approximated  $205,000 and  $82,000,  respectively.  All impaired  loans at June 30, 2003 were  collateral  dependent,  and
accordingly, the fair value of the loans collateral was used to measure the impairment of each loan.
Note 5. 
Commitments and Contingencies

In the ordinary course of
business, the Companys subsidiary bank is a party to financial instruments
with off-balance sheet risk. These financial instruments include standby letters
of credit and commitments to extend credit. The unused portions of existing
lines of credit at June 30, 2003 and December 31, 2002, and the contractual
amount of commitments to lend are as follows, in thousands of dollars:

`June 30,      Dec. 31,
                                                 2003          2002
                                             ------------- --------------
Total loan commitments                       $     20,087  $      15,648
                                             ============= ==============`

Management is not aware of
any commitments or contingencies that may reasonably be expected to have a
material impact on operating results, liquidity or capital resources. The
Company continues to be involved in various legal actions and contractual
matters arising in the normal course of business. Note 6. 
Short-term Borrowings

Included in short-term
borrowings at June 30, 2003 is an advance from the Federal Home Loan Bank of
$3,000,000. The advance, which bears a fixed interest rate of 1.32%, matures on
August 21, 2003. The advance is secured by certain mortgage loans and investment
securities not already pledged. Note 7.  New
Accounting Policies

Financial Accounting
Standards Interpretation No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, is applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. This interpretation requires the
guarantor to recognize a liability for the fair value of an obligation assumed
under a guarantee. FIN 45 clarifies the requirements of Financial Accounting
Standards No. 5, Accounting for Contingencies, relating to guarantees. In
general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying variable (a specified interest rate, security
price, commodity price, foreign exchange rate, index of prices or rates, or
other variable) that is related to an asset, liability, or equity security of
the guaranteed party. Certain guarantee contracts are excluded from both the
disclosure and recognition requirements of this interpretation, including, among
others, guarantees relating to employee compensation, residual value guarantees
under capital lease arrangements, commercial letters of credit, loan
commitments, subordinated interests in an special purpose entity and guarantees
of a companys own future performance. Other guarantees are subject to the
disclosure requirements of FIN 45 but not to the recognition provisions and
include, among others, a guarantee accounted for as a derivative instrument
under Financial Accounting Standards Statement No. 133, a parents
guarantee of debt owed to a third party by its subsidiary or vice versa, and a
guarantee which is based on performance not price. Significant guarantees that
have been entered into by the Company are disclosed in the notes to the
financial statements. The adoption of FIN 45 did not have a material impact on
results of operations, financial position or liquidity. 

In January  2003,  the FASB  issued  Interpretation  No. 46 (FIN 46),  Consolidation  of  Variable  Interest  Entities  (VIEs),  an
interpretation of Accounting Research Bulletin No. 51, Consolidated  Financial Statements,  to improve financial reporting of special
purpose  and other  entities.  A VIE is a  partnership,  limited  liability  company,  trust or other  legal  entity that does not have
sufficient equity to permit it to finance its activities  without  additional  subordinated  financial  support from other parties,  or
whose investors lack certain  characteristics  associated  with owning a controlling  financial  interest.  Business  enterprises  that
represent the primary  beneficiary of a VIE must consolidate the entity in its financial  statements.  Prior to the issuance of FIN 46,
consolidation  generally occurred when an enterprise controlled another entity through voting interests.  The consolidation  provisions
of FIN 46 apply to VIEs entered into after  January 31, 2003,  and for  preexisting  VIEs in the first interim  reporting  period after
June 15, 2003.  Based upon  managements  evaluation of FIN 46, the Company does not expect its current  reporting  structure to change.

# ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following is a
discussion and analysis focused on significant changes in the financial
condition and results of operations of First National Bankshares Corporation
(the Company), and its wholly owned subsidiaries, First National
Bank and FNB Insurance, LLC, for the periods indicated. This discussion and
analysis should be read in conjunction with the Companys 2002 consolidated
financial statements and notes included in its Annual Report to Shareholders and
Form 10-K. FORWARD-LOOKING
STATEMENTS

The following discussion
contains statements that refer to future expectations, contains projections of
the results of operations or of financial condition, or states other information
that is forward-looking. Forward-looking statements are
easily identified by the use of words such as could,
anticipate, estimate, believe, and similar
words that refer to a future outlook. There is always a degree of uncertainty
associated with forward-looking statements. The Companys
management believes the expectations reflected in such statements are based upon
reasonable assumptions and on the facts and circumstances existing at the time
of these disclosures. Actual results could differ significantly from those
anticipated. Some factors that could significantly affect the results include:
changes in economic conditions, either nationally or within the Companys
markets; changes in market interest rates; changes in competitive pressures;
changes in legal or accounting regulations; and changes in the securities and
investments markets. APPLICATION OF
CRITICAL ACCOUNTING POLICIES

The Companys
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States and follow general practices
within the industries in which it operates. Application of these principles
requires management to make estimates, assumptions, and judgments that affect
the amounts reported in the financial statements and accompanying notes. These
estimates, assumptions, and judgments are based on information available as of
the date of the financial statements; accordingly, as this information changes,
the financial statements could reflect different estimates, assumptions, and
judgments. 

For a complete discussion
of the Companys significant accounting policies, see Notes to the
Consolidated Financial Statements in the Companys 2002 Annual Report
on pages 25-28. Certain policies are considered critical because they are highly
dependent upon subjective or complex judgments, assumptions and estimates.
Changes in such estimates may have a significant impact on the financial
statements. Management has reviewed the application of these policies with the
Audit Committee of the Companys Board of Directors. For a discussion of
applying critical accounting policies, see Application of Critical
Accounting Policies beginning on page 6 in the Companys 2002 Annual
Report. EARNINGS
SUMMARY

The Company reported net
income of $353,000 for the three months ended June 30, 2003 compared to net
income of $144,000 for the quarter ended June 30, 2002, an increase of $209,000
or 145.1%. For the six-month period ended June 30, 2003, the Companys net
income of $646,000 increased $277,000 from the $369,000 reported for the same
period of 2002, an increase of 75.1%. Asset growth, which has translated to an
improvement in net interest income, and an increase in noninterest income have
aided in the favorable variances in the quarter and year to date net income
figures discussed above. In addition, a charge to earnings in the second quarter
of 2002 due to a write-down of other real estate owned to its estimated net
realizable value further magnified the improvements from 2002. 

Diluted earnings per common
share were $0.36 for the quarter ended June 30, 2003 compared with $0.15 in
2002. For the six-month period ended June 30, 2003, diluted earnings per common
share totaled $0.65 compared with $0.37 for the same period of 2002. The
Companys annualized return on average assets (ROA) for the second quarter
of 2003 was 0.90% compared to 0.41% for the second quarter of 2002. This
compares with an ROA of 0.84% and 0.53% for the six-month periods ended June 30,
2003 and 2002, respectively. Annualized return on average shareholders
equity (ROE) was 10.9% for the second quarter of 2003 compared to 4.8% in the
second quarter of 2002, while year to date ROE was 10.1% and 6.2% as of June 30,
2003 and 2002, respectively. NET INTEREST
INCOME

The most significant
component of the Companys net earnings is net interest income, which
represents the excess of interest income earned on earning assets over the
interest expense paid for sources of funds. Net interest income is affected by
changes in volume resulting from growth and alteration of the balance
sheets composition, as well as by fluctuations in market interest rates
and maturities of sources and uses of funds. For purposes of this discussion,
net interest income is presented on a fully tax-equivalent basis to enhance the
comparability of the performance of tax-exempt to fully taxable earning assets.
For the periods ended June 30, 2003 and 2002, the tax-equivalent adjustment was
$61,000 and $45,000, respectively.

For the six months ended June 30, 2003, net interest income on a tax equivalent basis improved by $255,000 or 8.9% compared to 2002.
As reported in Table II, growth in the Companys interest-earning assets and liabilities has translated into a net increase of
$378,000 in net interest income from the prior year.  Mitigating this increase was the impact of the lower interest rate environment,
whereby the decline in the interest rates resulted in a net decline in net interest income of $123,000.  For the six months ended
June 30, 2003, the Companys net yield on interest-earning assets or margin was 4.19%, which represents a decline of 17 basis
points from the margin at June 30, 2002.  Falling interest rates and competition were key contributors to the decline in the
Companys margin for this comparison period.  Notwithstanding the decline from 2002 to 2003, the Company has experienced a positive
trend in its margin since year-end 2002.  During the fourth quarter of 2002, the margin declined to its lowest level in 2002 to
approximately 4.06% and has since improved to 4.17% and 4.21% in the first and second quarters of 2003, respectively.  The
improvement coincides with the current loan growth trend in which outstanding loans have increased $13,003,000 or 12.1% over the past
three quarters. During this time period, the loan to deposit ratio has increased from 82.1% to its current level of 84.9%.   Future
improvements in the margin will likely be dependent upon the Companys ability to continue the loan growth trend.




 

Further analysis of the
Companys yields on interest earning assets and interest bearing
liabilities and changes in net interest income as a result of changes in average
volume and interest rates are presented in Tables I and II. PROVISION FOR
LOAN LOSSES

The provision for loan
losses represents charges to earnings necessary to maintain the allowance for
loan losses at a level which is considered adequate in relation to the estimated
risk inherent in the loan portfolio. Management considers various factors in
determining the amount of the provision for loan losses including overall loan
quality, changes in the mix and size of the loan portfolio, previous loss
experience and general economic conditions. During the second quarter of 2003,
the Bank made an $85,000 provision for loan losses compared to $104,000 during
the second quarter of 2002. For the six months ended June 30, 2003 and 2002,
respectively, the provision for loan losses was $175,000 and $209,000. See
further discussion of loan quality and the related allowance for loan losses in
the LOAN PORTFOLIO section of this analysis.NONINTEREST
INCOME

Noninterest income includes
revenues from all sources other than interest income and yield related loan
fees. For the second quarter, noninterest income increased $36,000 compared to
the second quarter of 2002, an increase of 14.8%. Similarly, noninterest income
for the six-month period ended June 30, 2003 totaled $565,000, an increase of
$131,000 or 30.2% from the $434,000 recorded during the same period of 2002. As
a percentage of average assets, annualized noninterest income was 0.73% and
0.62% for the six-month periods ended June 31, 2003 and 2002, respectively. 

The improvement in the
quarter-to-quarter earnings described above is predominantly due to an increase
in the Companys other income. Included in this line item for the quarter
ended June 30, 2003 was a $17,000 nonrecurring fee collected from a third party
as a result of a customer referral. In addition, the Companys interchange
fee from its debit card program and fee income derived from its merchant service
program increased from the prior year due to an increase in the volume of
customer transactions processed in the respective programs. 

On a year to date basis,
loan origination fee income from the Companys secondary market loan
program has increased as the low interest rate environment continues to
stimulate fixed rate loans. In 2003, the fee income exceeded the prior year by
$31,000. The Companys other income increased by $80,000. Similar to the
quarter-to-quarter comparison discussed above, the Companys debit card and
merchant service programs experienced a combined favorable variance of $48,000
for the first six months of 2003. Beginning in August 2003, the Companys
fee income from its debit card and merchant service programs will be reduced due
to fee structure changes dictated by VISA/MC and the third-party processor of
the transactions. Prospectively, management has estimated that the reduction may
be as much as one-third (33.3%). NONINTEREST
EXPENSE

Noninterest expense
includes overhead costs that are not related to interest expense or to losses
from loans or securities. As of June 30, 2003, the Companys noninterest
expense totaled $2,465,000, a decrease of $47,000, or 1.9%, over total
noninterest expense incurred for the six months ended June 30, 2002. On a
quarter-to-quarter basis, noninterest expense decreased $157,000, or 11.4%.
Expressed as a percentage of average assets, annualized noninterest expense was
3.2% and 3.6% for the six months ended June 30, 2003 and 2002, respectively.

`TABLE I

                                          AVERAGE BALANCE SHEET AND
                                         NET INTEREST INCOME ANALYSIS
                                           (In thousands of dollars)

                                                  Six Months Ended       Six Months Ended
                                                   June 30, 2003           June 30, 2002
                                             Average Interest Yield/   Average Interest Yield/
                                             Balance   (1)     Rate    Balance   (1)    Rate
                                          ---------- -------- ------  --------- -------- -----
INTEREST EARNING ASSETS
 Loans, net of unearned income            $ 114,924   $ 3,711  6.46%  $ 105,903 $ 3,846  7.26%
 Securities:
   Taxable                                   25,458       376  2.95%     16,962     355  4.19%
   Tax-exempt  (1)                            6,007       179  5.95%      3,745     133  7.10%
                                          ---------- -------- ------  --------- -------- -----
      Total securities                       31,465       555  3.53%     20,707     488  4.71%
                                          ---------- -------- ------  --------- -------- -----
 Federal funds sold and interest-bearing
        deposits                              2,026        11  1.09%      4,435      45  2.03%
                                          ---------- -------- ------  --------- -------- -----
      Total interest earning assets         148,415     4,277  5.76%    131,045   4,379  6.68%
                                          ---------- -------- ------  --------- -------- -----
NONINTEREST EARNING ASSETS
    Cash and due from banks                   3,121                       3,925
    Bank premises and equipment               2,686                       2,771
    Other assets                              1,338                       2,184
    Allowance for loan losses                (1,078)                       (918)
                                          ----------                  ---------
             Total assets                  $154,482                   $ 139,007
                                          ==========                  =========

INTEREST-BEARING LIABILITIES
    Demand deposits                          18,439        39  0.42%     17,962      64  0.71%
    Savings deposits                         69,767       645  1.85%     53,937     706  2.62%
    Certificates of deposit                  30,932       433  2.80%     34,427     710  4.12%
                                          ---------- -------- ------  --------- -------- -----
      Total interest-bearing deposits       119,138     1,117  1.88%    106,326   1,480  2.78%
                                          ---------- -------- ------  --------- -------- -----
   Short-term borrowings                      3,520        20  1.14%      3,811      31  1.63%
    Long-term borrowings                      1,387        30  4.33%        437      13  5.95%
                                          ---------- -------- ------  --------- -------- -----
      Total other interest-bearing
                 liabilities                  4,907        50  2.04%      4,248      44  2.07%
                                          ---------- -------- ------  --------- -------- -----
      Total interest-bearing liabilities    124,045     1,167  1.88%    110,574   1,524  2.76%
                                          ---------- -------- ------  --------- -------- -----
NONINTEREST-BEARING LIABILITIES
    AND SHAREHOLDERS' EQUITY 
    Demand deposits                          16,377                      15,503
    Other liabilities                         1,227                         972
    Shareholders' equity                     12,833                      11,958
                                          ----------                   --------
       Total liabilities and
                shareholders' equity      $ 154,482                    $139,007
                                          ==========                   ========
NET INTEREST EARNINGS                                 $ 3,110                   $ 2,855
                                                     ========                   =======
NET YIELD ON INTEREST EARNING ASSETS                           4.19%                     4.36%
                                                              =======                    ======`

(1) -     Calculated on a fully tax-equivalent basis using the rate of 34% for 2003 and 2002.

(2) -     For purposes of this table, nonaccruing loans are included in average loan balances.

`TABLE II

                                      CHANGES IN INTEREST INCOME AND EXPENSE
                                DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
                                             (In thousands of dollars)

                                                                  Six Months Ended
                                                            June 30, 2003 vs. June 30, 2002
                                                                 Increase (Decrease)
                                                                  Due to Change In:
                                                           ----------------------------------
                                                            Volume (1)    Rate (1)   Total
                                                           ------------ ----------- ---------
INTEREST EARNING ASSETS
    Loans                                                    $     312   $  (447)    $ (135)
    Securities:
        Taxable                                                    145      (124)        21
        Tax-exempt (2)                                              70       (24)        46
                                                           ------------ ----------- ---------
              Total securities                                     215      (148)        67
    Federal funds sold and interest-bearing deposits               (18)      (16)       (34)
                                                           ------------ ----------- ---------
              Total interest earning assets                        509      (611)      (102)
                                                           ------------ ----------- ---------

INTEREST-BEARING LIABILITIES
    Demand deposits                                                  2       (27)       (25)
    Savings deposits                                               177      (238)       (61)
    Certificates of deposit                                        (67)     (210)      (277)
    Short-term borrowings                                           (2)       (9)       (11)
    Long-term borrowings                                            21        (4)        17
                                                            ------------ ---------- ---------
            Total interest-bearing liabilities                     131      (488)      (357)
                                                            ------------ ---------- ---------
NET INTEREST EARNINGS                                        $     378   $  (123)    $  255
                                                            ============ ========== =========`

(1) -     The  changes  in  interest  due to both rate and  volume  have been  allocated  between  the  factors  in  proportion  to the
     relationship of the          absolute dollar amounts of the change in each.

(2) -  Tax-exempt securities income has been calculated based upon a fully tax-equivalent basis using the rate of 34%.

Salaries and employee
benefits, the Companys largest noninterest expense, increased $36,000 or
6.4% on a quarter-to-quarter comparison and $106,000 or 9.5% on a year to date
comparison. Factors contributing to this increase include: (1) the employment of
three additional full-time staff in 2003 compared to 2002 and (2) an increase in
the companys employee benefit expense resulting from a change in corporate
policy and the hiring of additional staff. 

Data processing expense was
up $28,000 and $46,000 for the quarter and year to date, respectively, due in
part to the growth in the Companys customer base (and the related increase
in the volume of the transactions processed) and annual fee increases stipulated
by the vendor contracts. In addition, the Company upgraded its ATM/Debit Card
network to a real-time processing platform at the end of the first quarter in
2002, which is more expensive to operate. 

Professional and legal fees
increased $34,000 and $51,000 for the quarter and year to date comparisons,
respectively. Throughout 2003, Company has procured professional services from
various legal and professional firms in order to assist the Board and management
with various technical and long-term strategic issues. Comparable arrangements
were not present in 2002. The Company anticipates ongoing relationships with
these firms; therefore, similar variances in professional and legal fees are
expected in the immediate future.

INCOME TAXES

The Companys income
tax expense, which includes both federal and state income taxes, totaled
$181,000 and $328,000 for the three-month and six-month periods ended June 30,
2003 compared to $50,000 and 154,000 for same periods of 2002, respectively. The
effective tax rates approximated 33.9% and 25.8% for the three-months ended June
30, 2003 and 2002 and 33.7% and 29.4% for the six-months ended June 30, 2003 and
2002. CHANGES IN
FINANCIAL CONDITION

The Companys total
assets were $162,885,000 at June 30, 2003, compared to $151,808,000 at December
31, 2002, representing an increase of $11,077,000 or 7.3%. On average, total
assets were $154,482,000 during the first six months of 2003. Details concerning
changes in the Companys major balance sheet items and changes in financial
condition follow. Securities and
Federal Funds Sold

The Banks security
portfolio, which represents approximately 18.3% and 21.5% of the Companys
total assets at June 30, 2003 and December 31, 2002, respectively, declined
$2,888,000 during the first six months of 2003, as the net decrease in the portfolio was
predominantly used to fund loan growth. A more detailed discussion of the
securities portfolio may be found in Note 3 of the consolidated financial
statements found in Item I. 

The Bank attempts to
minimize its involvement in overnight funds; however due to liquidity reasons
(i.e. fluctuations in loan and deposit balances), the bank may buy or sell funds
on an overnight basis. On average, its daily position in the overnight market
for the six months ended June 30, 2003 was $1,907,000, which compares to
2002s average position of $4,141,000. The decline in the average overnight
position is directly related to the increased loan demand experienced in 2003
versus the slower loan demand in 2002. 

As more fully discussed in
the DEPOSITS AND OTHER FUNDING SOURCES section, the overnight position at June
30, 2003 was temporarily impacted due to large dollar deposits made at or near
June 30, 2003. Loan Portfolio
and Asset Quality

Gross loans, which were
$120,087,000 at June 30, 2003, increased $9,500,000 or 8.6% during the first six
months of 2003, with the Covington, Virginia market experiencing the majority of the
growth where loans have increased $6,248,000 since year-end 2002. A key
personnel hire and an aggressive advertising campaign have netted significant
results in Covington. Net loan growth in the Companys West Virginia locations for
the six months ended June 30, 2003 was $3,252,000. The
majority of this growth was derived from the Companys involvement in a
specific real estate development project in Greenbrier County. As reported in
Note 3 to the Consolidated Financial Statements included in Item I, the majority
of the growth has transpired in the commercial and real estate loan portfolios. 

The allowance for loan
losses was $1,106,000 at June 30, 2003 compared to $1,036,000 at December 31,
2002. Expressed as a percentage of gross loans, the allowance for loan losses
was 0.92% and 0.94% at June 30, 2003 and December 31, 2002, respectively. The
allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably estimated. On a quarterly basis,
management performs a comprehensive evaluation of the adequacy of the allowance
for loan losses using both quantitative and qualitative factors. The assessment
encompasses an evaluation of specifically identified problem loans and their
potential loss, if any. Loss potential for each specifically identified problem
loan is determined based on a quantitative evaluation of repayment from sources
such as cash flow and the fair market value of underlying collateral. For the
remaining loans in the banks commercial, installment and real estate
portfolios, management considers the impact of qualitative factors such as
historical loan loss experience, new loan volume, portfolio composition, levels
of nonperforming and past due loans and current and anticipated economic
conditions in evaluating potential loss exposure and the adequacy of the
allowance for loan losses. In managements opinion, the allowance for loan
losses is adequate to absorb the current estimated risk of loss in the existing
portfolio. 

Given the recent economic
conditions, asset quality has remained a focal point across the financial
services industry. The Company is not immune to the negative impact of the
economy, and as a result, has experienced a mild negative trend in its loan
portfolio whereby nonaccrual loans have increased from $242,000 at June 30, 2002
to its current level of $778,000 [Management has estimated a loss exposure of
$162,000 on the pool of nonaccrual loans]. In addition, net charge-offs for the
six months ended June 30, 2003 were $105,000 compared to $43,000 in the
comparable period of 2002 and $105,000 for the entire year in 2002. The timing
and amount of future loan loss provisions will greatly depend on the
Companys prospective net loss experience and any future impact of
continued economic weakness on the performance of the loan portfolio. See Note 4
of the consolidated financial statements for an analysis of the activity in the
Companys allowance for loan losses for the six-month periods ended June
30, 2003 and 2002, and for the year ended December 31, 2002. 

A summary of the
Companys past due loans and nonperforming assets is provided in the
following table:

`SUMMARY OF PAST DUE LOANS AND NONPERFORMING ASSETS
                                      (in thousands of dollars)

                                                        June 30,     June 30,    Dec. 31,
                                                          2003         2002        2002
                                                    ------------- ------------- -----------
Loans past due 90 or more days still accruing       $       -      $       -     $      -
                                                    ============= ============= ===========
Nonperforming assets:
   Nonaccrual loans                                 $     778      $     242     $    433
   Other real estate owned                                  -            534           30
   Other foreclosed assets                                  8              -            -
                                                    ------------- ------------- -----------
      Total nonperforming assets                    $     786      $     776     $    463
                                                    ============= ============= ===========
      Nonperforming assets as a % of total assets        0.48%          0.54%        0.40%
                                                    ============= ============= ===========`

Deposits and
Other Funding Sources

Total deposits at June 30,
2003 increased $7,053,000 or 5.3% from December 31, 2002. On average, deposits
totaled $135,515,000 during the first six months of 2003, which compares to
$134,253,000 on hand as of December 31, 2002. In June 2003, a small group of
unrelated customers deposited significant funds with the Company (approximately
$4,000,000), which inflated the quarter end deposit and Federal funds sold
balances. Based upon the nature of the accounts, management does not expect
these deposits to remain with the Company beyond the third quarter of 2003. The
following table summarizes the quarter-end and average deposit mix for June 30,
2003 as compared to the December 31, 2002 year-end balance:

`Percentage
                                                                   Increase/Decrease
                                                                      Compared to
                                                   Avg. YTD      Dec. 31, 2002 Year-end
                                                   Balance              Balance:
                                                              -------------------------
                                   June 30,        June 30,      June 30,   Avg. YTD
                                    2003            2003          2003       Balance
                               -------------- --------------- ------------ ------------
Demand deposits                $       36,455  $       34,816      6.7%        1.9%
Savings                                74,999          69,767     10.5%        2.8%
Certificates of deposit                29,852          30,932     -7.4%       -4.1%
                               -------------- ---------------
   Total deposits              $      141,306  $      135,515      5.3%        0.9%
                               ============== ===============`

As reported above, on
average, deposit growth was flat during the six months ended June 30, 2003,
which was due in part by design by the Companys management. During most of
2002, deposit growth had outpaced loan growth resulting in an excess funding
position. In 2003, management has chosen to manage its deposit growth by
managing its pricing of interest-bearing products. As a result, deposit growth
has flattened out and the incremental loan growth has been funded via the
conversion of Federal funds sold and the securities portfolio as opposed to
incremental core deposit growth. 

The Companys
involvement in short-term borrowings during the six months ended June 30, 2003
consisted of repurchase agreements, Federal funds sold and a short-term advance
from the Federal Home Loan Bank (FHLB). As more fully discussed in
Note 6 of the Consolidated Financial Statements included in Item I, the Company
obtained a $3,000,000 short-term advance from the FHLB in May 2003, which
accounted for the increase in short-term borrowings compared to the December 31,
2002 balance and was utilized to support the loan growth. 

Although the Company
remains committed to funding its assets with traditional community bank deposit
products, interest rate costs, timeliness and transaction costs are weighed in
determining the most effective method of funding the bank. Future funding
sources will most likely involve more alternative funding sources, such as
short-term and long-term advances from the FHLB, because of the lower cost of
funds.LIQUIDITY

Liquidity reflects the
Companys ability to ensure the availability of adequate funds to meet loan
commitments and deposit withdrawals, as well as to provide for other Company
transactional requirements. Liquidity is provided primarily by funds invested in
cash and due from banks, Federal funds sold and interest-bearing deposits, which
totaled $10,343,000 at June 30, 2003 versus $5,587,000 at December 31, 2002.
Year to date, the average balance of its liquid assets totaled $5,147,000. These
funds are further supplemented by loan payments, proceeds from investment
security transactions (maturities, calls and coupon payments) and increases in
deposits. The Companys liquidity is further enhanced by the availability
of approximately $50,700,000 in available lines of credit with various
correspondent banks for added funding or liquidity support. Management is not
aware of any trends, commitments, events or uncertainties that have resulted in
or are reasonably likely to result in a material change to the Companys
liquidity.

CAPITAL
RESOURCES

Maintenance of a strong
capital position is a continuing goal of the Companys management. Through
management of its capital resources, the Company seeks to provide an attractive
financial return to its shareholders while retaining sufficient capital to
support future growth. 

Total shareholders
equity at June 30, 2003 was $13,041,000 compared to $12,579,000 at December 31,
2002, representing an increase of $462,000. A reconciliation of the increase is
reported in the consolidated statements of shareholders equity included in
Item I. Average total shareholders equity expressed as a percentage of
average total assets was approximately 8.31% at June 30, 2003 compared to 8.45%
at December 31, 2002. 

Cash dividends totaling
$266,000, or $0.27 per share were declared during the six months ended June 30,
2003, which compares to $246,000 or $0.25 per share declared in the comparable
period of 2002. These payout levels represented approximately 41.1% and 66.7% of
the Companys year-to-date earnings for the six months ended June 30, 2003
and 2002, respectively. The Company has a dividend policy whereby the dividend
payout level may not exceed 40% of the Companys annual net income.
Accordingly, future declarations may be limited to the amounts that would be
available under the policy directive. 

The Company has experienced
rapid growth over the past three years, and accordingly, the Companys
leverage ratio (equity to assets) has decreased. Although the Company continues
to report capital ratios well above minimum guidelines as discussed in the
following section, it has become prudent for the Company to manage the dividend
growth rate in order to preserve capital for future internal asset growth and to
build a capital position that will allow the Company to react in a timely manner
to external growth opportunities should they present themselves. As a result,
future dividend payout levels may not be indicative of past payout levels. REGULATORY
RESTRICTIONS ON CAPITAL AND DIVIDENDS

The primary source of funds
for the dividends paid by First National Bankshares Corporation is dividends
received from its subsidiary bank. Dividends paid by the subsidiary bank are
subject to restrictions by banking regulations. The most restrictive provision
requires approval by the regulatory agency if dividends declared in any year
exceed the years net income, as defined, plus the net retained profits of
the two preceding years. Management does not anticipate any such restrictions on
its dividends in 2003. 

Quantitative measures
established by regulation to ensure capital adequacy require the subsidiary bank
to maintain minimum amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier capital (as defined) to average assets (as defined).
Management believes, as of June 30, 2003, that the subsidiary bank meets all
capital adequacy requirements to which it is subject, as evidenced by the
following table:

# RISK-BASED
CAPITAL RATIOS

June 30, 2003

`Minimum
                                                                 Actual         Requirement 
                                                             -------------   ---------------
     Tier 1 risk-based capital ratio                              10.92%           4.00%
     Total risk-based capital ratio                               11.93%           8.00%
     Leverage ratio                                                7.64%           3.00%`

# ITEM 3.

QUANTITATIVE
AND QUALITATIVE

DISCLOSURES
ABOUT MARKET RISK

The Company invests in
various types of interest-earning assets (primarily loans and investment
securities), which are funded largely by interest-bearing liabilities (primarily
deposits and FHLB advances). Such financial instruments have varying levels of
sensitivity to changes in market interest rates, which creates interest rate
risk for the Company. Accordingly, the Companys net interest income, the
most significant component of its net income, is subject to substantial
volatility due to changes in interest rates or market yield curves, particularly
if there are differences, or gaps, in the re-pricing frequencies of its
interest-earning assets and the interest-bearing liabilities which fund them.
The Company monitors such interest rate gaps and seeks to manage its interest
rate risk by adjusting the re-pricing frequencies of its interest-earning assets
and interest-bearing liabilities.

The following table represents the results of
the Companys interest sensitivity simulation analysis as of June 30, 2003.
Key assumptions in the preparation of the table include changes in market
conditions including interest rates, loan volumes, and pricing; deposit
sensitivity; customer preferences; and capital plans. To attempt to quantify the
potential change in net interest income, given a change in interest rates,
various interest rate scenarios are applied to projected balances, maturities
and repricing opportunities. The resulting change in cumulative net interest
income for the succeeding fiscal year reflects the level of sensitivity that net
interest income has in relation to changing interest rates.

`Hypothetical%
                                                                      Change in Net
                   Interest rate scenario                            Interest Income 
                                                                  --------------------
                   Up 100 basis points                                      3.2%
                   Down 100 basis points                                   -4.0%`

The change in the Down 100 basis points scenario from year-end 2002 is due in part to the current  interest rate  environment.  Many of
the Companys  interest-bearing  deposits  (including demand and savings deposits which in most cases do not have a stated maturity and
therefore,  reprice  immediately) are at or near interest rate floor levels.  Therefore,  there is marginal  interest expense savings
in a declining  interest rate  environment.  Conversely,  the Companys  interest-earning  assets are positioned where they will likely
absorb a greater decline in interest income in a falling interest rate environment.

A factor affecting both scenarios  reported above is the relationship  between the NY prime interest rate (prime) as published in the
Wall Street Journal and its impact on the Companys loan yield and its cost of funds on a significant  portion of its  interest-bearing
liabilities,  principally its savings product.  As of June 30, 2003,  approximately 50.1% ($61,400,000) of the Companys loan portfolio
and its related yield are tied to the prime interest  rate.  Similarly,  43.5%  ($61,502,000)  of the Companys  total deposits at June
30,  2003  bear an  interest  rate  tied to  prime.  This  compares  to 46.0%  and 40.8% at  December  31,  2002,  respectively.  Their
respective  yield and rate  relationship  to prime is such that should the prime rate  increase or decrease 100 basis  points  (without
considering  the timing of the  interest  rate  changes,  which for loans  depends on the loan  agreement  and for savings is generally
immediate),  the net impact of the two  products  tied to prime is to expand (in an  increasing  rate  environment)  or contract  (in a
decreasing  rate  environment)  the  Companys  net  interest  margin 55 basis  points.  As a result of the  growth in the  assets  and
liabilities  tied to prime,  the interest  rate  scenarios  detailed  above have  changed from the figures  reported in the 2002 Annual
Report.  Management does not anticipate a significant deviation from this type of asset and liability growth in the future.

As of June 30, 2003, the Companys interest rate risk as measured above was within the Companys risk management policy guidelines.

# ITEM 4

CONTROLS AND PROCEDURES

Disclosure
Controls and Procedures

The Companys
management, with the participation of the Companys Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion.Internal
Control Over Financial Reporting

There have not been any
changes in the Companys internal controls over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fiscal quarter to which this report relates 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 |                                                                                                                                                                                                                                                                                                                                
|-------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           | Various
legal proceedings are presently pending in which the Bank is a named party.
These proceedings involve routine litigation incidental to the Banks
business. In Managements opinion, based upon advice of counsel, the
resolution of such proceedings will not have a material impact on the
Banks financial position.

|Item 2.  Changes in Securities |      
|------------------------------ | -----
|                               | None.

|Item 3.  Defaults upon Senior Securities |      
|---------------------------------------- | -----
|                                         | None.

|Item. 4.  Submission of Matters to a Vote of Security Holders |                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                              | The
annual meeting of shareholders of First National Bankshares Corporation was held
on April 24, 2003. A total of 645,930 shares, or 65.7% of outstanding shares,
were voted with 631,655 represented by proxy and 14,275 represented in person.
At this meeting, the following business was transacted:

| | a)    The  following  nominees were elected to serve as Company  directors
  for a three-year term expiring in        the year
                      2006:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                             | For     | Withheld
| | ------------------------------------------- | ------- | --------
| | Nominees
selected by the Board of Directors |         |         
| | David A. Carson                             | 628,730 | 17,200  
| | G. Thomas Garten                            | 626,115 | 19,815  
| | Walter Bennett Fuller                       | 628,463 | 17,467  
| | Richard L. Skaggs                           | 627,948 | 17,982  
| | Nominees from
the Floor                     |         |         
| | None                                        |         |         

| | b)    The appointment of Ernst & Young LLP of Charleston,  WV as the Company's independent
           
       accountants was ratified by the
                  shareholders with 639,844 shares voting for the appointment,
            
      2,060 shares voting against the motion and 4,026 shares
                  abstaining.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c)    No other matters were voted upon by the shareholders at this meeting.
| | ---------------------------------------------------------------------------

|Item 5.  Other Information |      
|-------------------------- | -----
|                           | None.

|Item 6.   Exhibits and Reports on Form 8-K
|------------------------------------------
|                                          
|                                          
|                                          
|                                          
|                                          

# 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.

# FIRST
NATIONAL BANKSHARES CORPORATION

| | By/s/ L. Thomas Bulla
L. Thomas Bulla
President and Chief Executive Officer
| | ---------------------------------------------------------------------------
| | By/s/ Matthew L. Burns
Matthew L. Burns
Chief Financial Officer            

|Date:  August14, 2003
|---------------------

# EXHIBIT 31.0
CERTIFICATION

I, L. Thomas Bulla, President and CEO, certify that:

| | 1. | I have reviewed this quarterly report on Form 10-Q of First National Bankshares Corporation;                                                                                                                                                                                                                                            
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Based on my  knowledge,  this report  does not contain  any untrue  statement  of a material  fact or omit to state a
         material fact necessary to make the statements  made, in light of the  circumstances  under which such  statements  were made,
         not misleading with respect to the period covered by this report;
| | 3. | Based on my knowledge,  the financial  statements,  and other  financial  information  included in this report,  fairly
         present in all material  respects the financial  condition,  results of operations and cash flows of the registrant as of, and
         for, the periods presented in this report;                     
| | 4. | The registrant's  other certifying  officer(s) and I are responsible for  establishing and maintaining  disclosure  controls and
         procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e)and have:                                                                                                                    

| | a) | Designed such disclosure  controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material  information  relating to the registrant,  including
                  its consolidated  subsidiaries,  is made known to us by others within those entities,  particularly during the period
                  in which this report is being prepared;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Evaluated the  effectiveness of the registrant's  disclosure  controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and                                                                                                                                   
| | c) | Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and                                  

| | 5. | The registrant's  other certifying  officer(s) and I have disclosed,  based on our most recent evaluation
of internal control over financial reporting,  to the registrant's
         auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All significant  deficiencies and material weaknesses in the design or operation of internal  control
 which are reasonably likely to adversely  affect the  registrant's
                  ability to record,  process,  summarize and report financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Any  fraud,  whether  or not  material,  that  involves  management  or other  employees  who have a  significant  role in the
                  registrant's internal control over financial reporting.                                                                 

|Date:  August14,2003 | By/s/  L. Thomas Bulla
                  
                  
       L. Thomas Bulla
                  
                  
       President and Chief Executive Officer
|-------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

# EXHIBIT 31.1
CERTIFICATION

I, Matthew L. Burns, Chief Financial Officer, certify that:

| | 1. | I have reviewed this quarterly report on Form 10-Q of First National Bankshares Corporation;                                                                                                                                                                                                                                            
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Based on my  knowledge,  this report  does not contain  any untrue  statement  of a material  fact or omit to state a
         material fact necessary to make the statements  made, in light of the  circumstances  under which such  statements  were made,
         not misleading with respect to the period covered by this report;
| | 3. | Based on my knowledge,  the financial  statements,  and other  financial  information  included in this report,  fairly
         present in all material  respects the financial  condition,  results of operations and cash flows of the registrant as of, and
         for, the periods presented in this report;                     
| | 4. | The registrant's  other certifying  officer(s) and I are responsible for  establishing and maintaining  disclosure  controls and
         procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e)and have:                                                                                                                    

| | a) | Designed such disclosure  controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material  information  relating to the registrant,  including
                  its consolidated  subsidiaries,  is made known to us by others within those entities,  particularly during the period
                  in which this report is being prepared;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Evaluated the  effectiveness of the registrant's  disclosure  controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and                                                                                                                                   
| | c) | Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and                                  

| | 5. | The registrant's  other certifying  officer(s) and I have disclosed,  based on our most recent evaluation
of internal control over financial reporting,  to the registrant's
         auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All significant  deficiencies and material weaknesses in the design or operation of internal  control
 which are reasonably likely to adversely  affect the  registrant's
                  ability to record,  process,  summarize and report financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Any  fraud,  whether  or not  material,  that  involves  management  or other  employees  who have a  significant  role in the
                  registrant's internal control over financial reporting.                                                                 

|Date:  August14,2003 | By/s/  Matthew L. Burns
                  
                  
       Matthew L. Burns
                  
                  
       Chief Financial Officer
|-------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

# EXHIBIT 32.0

CERTIFICATION
PURSUANT TO

18 U.S.C.
SECTION 1350,

AS ADOPTED
PURSUANT TO

SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the
Quarterly Report on Form 10-Q of First National Bankshares Corporation
(First National) for the quarterly period ended June 30, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
Report), L. Thomas Bulla, as President and Chief Executive Officer
of First National, and Matthew L. Burns, as Chief Financial Officer of First
National, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 

(1)   The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2)  The  information  contained in the Report  fairly  presents,  in all material  respects,  the  financial  condition  and results of
        operations of First National.

|                   | By /s/ L. Thomas Bulla
         L. Thomas Bulla
     President and Chief Executive Officer
|------------------ | ------------------------------------------------------------------------------------------
|Date August14,2003 | By /s/ Matthew L. Burns
         Matthew L. Burns
     Chief Financial Officer            

This certification
accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of
2002, be deemed filed by First National for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended. 

A signed original of this
written statement required by Section 906 has been provided to First National
Bankshares Corporation and will be retained by First National Bankshares
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.