# 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 endedSeptember 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 November 1, 2003:

# Common Stock,
$1 par value -- 985,055 shares

# THIS REPORT
CONTAINS 25 PAGES

---

# FIRST
NATIONAL BANKSHARES CORPORATION

# FORM 10-Q

# For the
Quarter Ended September 30, 2003

# INDEX

`Page
PART I.   FINANCIAL INFORMATION

    Item 1.  Financial Statements (Unaudited)

              Consolidated Balance Sheets -
                  September 30, 2003 (Unaudited) and December 31, 2002                   3

              Consolidated Statements of Income (Unaudited) -
                  Three Months Ended September 30, 2003 and 2002 and
                  Nine Months Ended September 30, 2003 and 2002                          4

              Consolidated Statements of Shareholders' Equity (Unaudited) -
                  Three Months Ended September 30, 2003 and 2002 and
                  Nine Months Ended September 30, 2003 and 2002                          5

              Consolidated Statements of Cash Flows (Unaudited) -
                  Nine Months Ended September 30, 2003 and 2002                          6

              Notes to Consolidated Financial Statements (Unaudited)                  7-11

     Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                              12-19

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk             19-20

     Item 4.  Controls and Procedures                                                   20

PART II.  OTHER INFORMATION

     Item 1. Legal Proceedings                                                          21

     Item 2. Changes in Securities                                                      21

     Item 3. Defaults upon Senior Securities                                            21

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

     Item 5. Other Information                                                          21

     Item 6.  Exhibits and Reports on Form 8-K                                          18

     SIGNATURES                                                                         22`

---

# PART I. FINANCIAL
INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

# FIRST
NATIONAL BANKSHARES CORPORATION

CONSOLIDATED
BALANCE SHEETS(in thousands of dollars, except per share data)

`Sept. 30,        Dec. 31,
                                                                     2003            2002
                                                                 --------------- -------------
                                       ASSETS

Cash and due from banks                                           $       3,736   $     3,037
Interest-bearing deposits with other banks                                  204           225
Federal funds sold                                                          211         2,325
Securities available for sale                                            21,661        23,125
Securities held to maturity (estimated fair value
   of $9,672 and $9,716, respectively)                                    9,555         9,552
Loans, less allowance for loan losses of $1,196 and
   $1,036, respectively                                                 127,089       109,516
Premises and equipment, net                                               2,597         2,730
Accrued interest receivable                                                 770           720
Other real estate owned and other foreclosed assets                           8            30
Other assets                                                                668           548
                                                                 --------------- -------------
      Total assets                                                 $    166,499   $   151,808
                                                                 =============== =============

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
   Noninterest-bearing                                             $     17,966   $    15,610
   Interest-bearing                                                     126,109       118,643
                                                                 --------------- -------------
      Total deposits                                                    144,075       134,253
Short-term borrowings                                                     2,674         2,536
Other liabilities                                                         1,123         1,090
Long-term borrowings                                                      5,438         1,350
                                                                 --------------- -------------
      Total liabilities                                                 153,310       139,229
                                                                 --------------- -------------

Shareholders' equity
Common stock, $1.00 par value, authorized
   10,000,000 shares, issued 985,055 and 983,780 shares,
       respectively                                                         985           984
Capital surplus                                                           1,227         1,208
Retained earnings                                                        10,978        10,331
Accumulated other comprehensive (loss) income                                (1)           56
                                                                 --------------- -------------
      Total shareholders' equity                                         13,189        12,579
                                                                 --------------- -------------
      Total liabilities and shareholders' equity                   $    166,499   $   151,808
                                                                 =============== =============`

# See Notes to Consolidated
Financial Statements

---

# FIRST
NATIONAL BANKSHARES CORPORATION

CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS AND
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(In thousands of dollars, except per share data)

`Three Months Ended     Nine Months Ended
                                                         September 30,        September 30,
                                                      2003        2002       2003      2002
                                                    ---------  ---------   --------  ---------
Interest income
   Interest and fees on loans                       $   2,012   $  1,929    $ 5,723   $  5,775
   Interest and dividends on securities:
      Taxable                                             169        218        545        573
      Tax-exempt                                           69         30        187        118
   Interest on Federal funds sold and
      interest-bearing deposits                             8         23         19         68
                                                    ----------  ---------   --------  --------
         Total interest income                          2,258      2,200      6,474      6,534
                                                    ----------  ---------   --------  --------
Interest expense
   Deposits                                               538        706      1,655      2,186
   Short-term borrowings                                   10         12         30         43
   Long-term borrowings                                    23         10         53         23
                                                     ---------  ---------  --------  ---------
         Total interest expense                           571        728      1,738      2,252
                                                     ---------  ---------  --------  ---------
         Net interest income                            1,687      1,472      4,736      4,282
Provision for loan losses                                 165         30        340        239
         Net interest income after provision
       for loan losses                     1,522      1,442      4,396      4,043
                                                     ---------  ---------  --------- ---------
Noninterest income
   Service fees                                           118        114        356        339
   Secondary loan market fees                             100         66        285        220
   Securities gains, net                                   -           3         10          3
   Other income                                            52         34        184         89
                                                     ---------  ---------  --------- ---------
         Total noninterest income                         270        217        835        651
                                                     ---------  ---------  --------- ---------
Noninterest expense
   Salaries and employee benefits                         616        549      1,841      1,668
   Net occupancy expense                                   79         81        250        248
   Equipment rental, depreciation and maintenance          97         99        296        309
   Data processing                                        108        101        339        286
   Advertising                                             45         36        113         99
   Professional and legal                                  32         31        148         96
   Mailing and postage                                     41         35        108         92
   Directors' fees and shareholder expenses                28         25         91         93
   Stationary and supplies                                 27         30         87        105
   Loss on foreclosed real estate                           -          4          -        266
   Other operating expenses                               138        118        403        359
                                                     ---------  ---------  ---------- --------
         Total noninterest expense                      1,211      1,109      3,676      3,621
                                                     ---------  ---------  ---------- --------
Income before income taxes                                581        550      1,555      1,073
Income tax expense                                        186        191        514        345
                                                     ---------  ---------  ---------- --------
Net income                                           $    395   $    359    $ 1,041    $   728
                                                     =========  =========  ========== ========
Net income per common share:
   Basic earnings per common share                    $   0.40  $   0.37    $  1.06    $  0.74
                                                     =========  =========  ========== ========
   Diluted earnings per common share                  $   0.40  $   0.36    $  1.05    $  0.74
                                                     =========  =========  ========== ========
Cash dividends declared per common share              $   0.13  $   0.07    $  0.40    $  0.32
                                                     =========  =========  ========== ========`

See Notes to
Consolidated Financial Statements

---

# FIRST
NATIONAL BANKSHARES CORPORATION

CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)

THREE MONTHS AND
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002(In thousands of dollars, except per share data)

`Three Months Ended   Nine Months Ended
                                                           September 30,        September 30,
                                                          2003       2002     2003       2002
                                                       ---------- ---------  -------- --------
Balance, beginning of period                           $   13,041 $  12,012  $ 12,579 $ 11,822
Comprehensive income
   Net income                                                 395       359     1,041      728
   Other comprehensive income, net of deferred
      income tax (benefit) of $(89) and $29 for the
      three months ended September 30, 2003 and 2002,
      respectively, and $(37) and $72 for the nine
      months ended September 30, 2003 and 2002,
      respectively:
      Unrealized (losses) gains on securities                (139)       45       (57)     112
                                                        ---------- --------  --------- --------
      Total comprehensive income                              256       404       984      840
                                                        ---------- --------  --------- --------
Cash dividends declared                                      (128)      (68)     (394)    (314)
Issued 1,275 shares of common stock pursuant
   to exercise of stock options                                20         -        20        -
                                                        ---------- --------  --------- --------
Balance, end of period                                  $  13,189  $ 12,348  $ 13,189  $12,348
                                                        ========== ========  ========= ========`

# See Notes to
Consolidated Financial Statements

---

# FIRST
NATIONAL BANKSHARES CORPORATION

CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS
ENDED SEPTEMBER 30,(In thousands of dollars)

`2003           2002
                                                             --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                    $       1,041   $      728
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation and amortization                                           236          242
Loss on disposals of premises and equipment                               1            3
(Gain) loss on sale of foreclosed assets, net                           (11)         266
Securities gains, net                                                   (10)          (3)
Provision for loan losses                                               340          239
Deferred income tax benefit                                            (103)         (16)
Net amortization of security premiums                                   119           46
Increase in accrued interest receivable                                 (50)        (111)
Decrease (increase) in other assets                                      19          (59)
Increase (decrease) in other liabilities                                 43          (58)
                                                             --------------- ---------------
      Net cash provided by operating activities                       1,625        1,277
                                                             --------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities
          available for sale                                         17,666       14,783
Proceeds from maturities and calls of securities
          held to maturity                                              982        3,043
Purchases of securities available for sale                          (16,397)     (27,599)
Purchases of securities held to maturity                               (993)        (881)
Net increase in loans                                               (17,924)      (3,503)
Purchases of premises and equipment                                    (103)        (589)
Proceeds from sale of foreclosed assets                                  44          530
                                                              -------------- ---------------
      Net cash used in investing activities                         (16,725)     (14,216)
                                                              -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW and savings accounts            13,996       15,457
Net (decrease) increase in time deposits                             (4,174)         377
Net increase (decrease) increase in short-term borrowings               138         (258)
Principal advances on long-term borrowings                            4,157           -
Principal payments on long-term borrowings                              (69)        (442)
Proceeds from stock option exercises                                     20           -
Dividends paid                                                         (404)        (392)
                                                              -------------- ---------------
      Net cash provided by financing activities                      13,664       14,742
                                                              -------------- ---------------

(Decrease) increase in cash and cash equivalents                     (1,436)       1,803

Cash and cash equivalents:
Beginning                                                             5,587        5,722
                                                              -------------- ---------------
Ending                                                        $       4,151   $    7,525
                                                              ============== ===============`

# See Notes to
Consolidated Financial Statements

---

# FIRST
NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

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 may 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 nine months ended September 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 nine months
ended September 30, 2003 and 2002 are based upon the following outstanding
shares:

`Three Months Ended   Nine Months Ended
                                                        September 30,      September 30,
                                                     2003      2002       2003      2002
                                                   -------- ----------  -------- ---------
Weighted average shares outstanding
   for basic earnings per share calculation        984,190    981,780    983,918   981,780
Dilutive effect of stock options                     4,526      2,824      3,409     3,121
                                                   -------- ----------  -------- ---------
Weighted average shares outstanding
   for dilutive earnings per share calculation     988,716    984,604    987,327   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 nine months ended
September 30, 2003 and 2002:

`Three Months Ended      Nine Months Ended
                                              September 30,           September 30,
                                           2003        2002         2003        2002
                                        ----------- -----------  ---------- -----------
Net income:
   As reported                          $      395  $      359   $    1,041  $     728
   Pro forma                            $      395  $      359   $    1,041  $     726
Basic earnings per share:
   As reported                          $     0.40  $     0.37   $     1.06  $    0.74
   Pro forma                            $     0.40  $     0.37   $     1.06  $    0.74
Diluted earnings per share:
   As reported                          $     0.40  $     0.36   $     1.05  $    0.74
   Pro forma                            $     0.40  $     0.36   $     1.05  $    0.74`

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

---

`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                               September 30, 2003
                                                 ---------------------------------------------
                                                                                     Estimated
                                                   Amortized  Unrealized  Unrealized   Fair
                                                       Cost     Gains      Losses      Value
                                                 ----------- ----------- ----------- ---------
Available for Sale
  Taxable:
   U.S. Government agencies and corporations     $   17,205   $    101    $     30   $  17,276
   Federal Reserve Bank stock                            57          -           -          57
   Federal Home Loan Bank stock                         582          -           -         582
   Other equities                                        95          -           -          95
                                                 ----------- ----------- ----------- ---------
         Total taxable                               17,939        101          30      18,010
   Tax-exempt:
   State and political subdivisions                   3,722          -          73       3,649
   Federal Reserve Bank stock                             2          -           -           2
                                                 ----------- ----------- ----------- ---------
         Total tax-exempt                             3,724          -          73       3,651
                                                 ----------- ----------- ----------- ---------
        Total securities available for sale      $   21,663  $     101    $    103   $  21,661
                                                 =========== =========== =========== =========
Held to maturity
  Taxable:
   U.S. Government agencies and corporations     $    1,000  $      10    $      -   $   1,010
   State and political subdivisions                     440          5           -         445
   Certificates of deposit                            2,550          -           -       2,550
                                                 ----------- ------------ ---------- ---------
         Total taxable                                3,990         15           -       4,005
   Tax-exempt:
   State and political subdivisions                   5,565        104           2       5,667
                                                 ----------- ------------ ---------- ---------
           Total securities held to maturity     $    9,555  $     119    $      2   $   9,672
                                                 =========== ============ ========== =========


                                                                 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 September 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                           $    3,914   $   3,932  $        -    $      -
Due after 1 but within 5 years                   2,803       2,857       20,686      20,695
Due after 5 but within 10 years                  2,148       2,179          241         230
Due after 10 years                                 690         704           -           -
Equity securities                                   -           -           736         736
                                            ------------ ---------- ------------ ------------
                                            $    9,555   $   9,672  $    21,663   $  21,661
                                            ============ ========== ============ ============`

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

Total loans are summarized
as follows (in thousands):

`September 30,    December 31,
                                                                  2003            2002 
                                                             --------------- ---------------
Commercial, financial and agricultural                        $     53,010    $     47,268
Real estate - construction                                           1,945           1,340
Real estate - mortgage                                              58,088          45,775
Installment loans to individuals                                    13,836          13,805
Other                                                                1,531           2,399
                                                              -------------- ---------------
   Gross loans                                                     128,410         110,587
Net deferred loan origination fees                                    (125)            (35)
                                                              -------------- ---------------
   Total loans net of deferred loan origination fees               128,285         110,552
Less allowance for loan losses                                       1,196           1,036
                                                              -------------- ---------------
   Loans, net                                                  $   127,089    $    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) for the nine month
periods ended September 30, 2003 and 2002 and for the year ended December 31,
2002:

`September 30,            Dec. 31,
                                               2003           2002           2002
                                           -------------- ------------- -------------
Balance, beginning of period                $      1,036  $       837    $       837

   Loans charged off                                 200           54            121
   Recoveries                                         20           11             16
                                           -------------- ------------- -------------
      Net losses                                     180           43            105
                                           -------------- ------------- -------------
   Provision for loan losses                         340          239            304
                                           -------------- ------------- -------------
Balance, end of period                      $      1,196  $     1,033    $     1,036
                                           ============== ============= =============`

The Companys total
recorded investment in impaired loans at September 30, 2003 and December 31, 2002 approximated
$551,000 and $433,000, respectively, for which the related allowance for credit losses determined in
accordance with accounting principles generally accepted in the United States
approximated $83,000 and $82,000, respectively. All impaired loans at September 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 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 September 30, 2002 and December 31, 2002, and the contractual
amount of commitments to lend are as follows, in thousands of dollars:

`Sept. 30,      Dec. 31,
                                                 2003          2002
                                             ------------- --------------
Total loan commitments                       $     19,182   $    15,648
                                             ============= ==============`

Incident to the Companys  proposed going private  transaction,  the Company has signed a letter of intent with a third party,  whereby
it has committed to a trust preferred  securities  issuance of up to $6,000,000.  In the agreement,  the Company has agreed to specific
terms and conditions of the issuance, all of which are predicated on shareholder approval of the going private transaction.

Note 6.
Long-term borrowings

The Companys
long-term borrowings of $5,438,000 and $1,350,000 at September 30,2003 and
December 31, 2002, respectively, consist of advances from the Federal Home Loan
Bank (FHLB). These borrowings bear fixed rates and are secured by
Federal Home Loan Bank stock, qualifying first mortgage loans, certain
nonmortgage loans and all investments not otherwise pledged. The average
interest rate on the borrowings at September 30, 2003 and 2002 was 3.0% and
4.3%, respectively.

A summary of the maturities of all long-term borrowings for the next five years and thereafter is as follows (in thousands):

`Year Ending
                             December 31,         Amount
                           ---------------   -------------
                           2003 (remaining)     $     46
                                2004                 183
                                2005               1,689
                                2006               1,697
                                2007                 203
                            Thereafter             1,620
                                             -------------
                                               $   5,438
                                             =============`

---

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

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.
However, on October 8, 2003 the FASB agreed to defer the effective date for interests acquired before
February 1, 2003 until after December 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

Three Months Ended September 30, 2003 vs. 2002
The Company reported consolidated
net income of $395,000, or $0.40 per diluted share for the three months ended
September 30, 2003, compared to consolidated net income of $359,000, or $0.36
per diluted share, for the same period of 2002. The Companys annualized
return on average assets (ROA) was 0.95% and 0.98% for the three-month periods
ended September 30, 2003 and 2002, respectively, while the annualized return on
average shareholders equity (ROE) was 12.1% and 11.8% for the same
periods, respectively.

On a quarter-to-quarter
basis, the improvements reported above were largely due to a favorable
variance in net interest income and non-interest income. As more fully discussed
in the NET INTEREST INCOME section below, growth in the Companys
interest-earning assets had a significant positive impact on the Companys
net interest income. The improvements were partially offset by a $135,000
increase in the provision for loan losses and higher operating expenses.

Nine Months Ended September 30, 2003 vs. 2002
The Company reported
consolidated net income of $1,041,000, or $1.05 per diluted share for the nine
months ended September 30, 2003, compared to consolidated net income of
$728,000, or $0.74 per diluted share, for the same period of 2002. The
Companys annualized return on average assets (ROA) was 0.87% and 0.69% for
the nine-month periods ended September 30, 2003 and 2002, respectively, while
the annualized return on average shareholders equity (ROE) was 11.8% and
8.1% for the nine months ended September 30, 2003 and 2002, respectively.

---

As with the third quarter
results, growth in the Companys interest-earning assets, principally
loans, has significantly improved the Companys net interest income from
the prior year. In addition, the Company experienced a $184,000 improvement in
non-interest income. The improvements were partially offset by a $101,000
increase in the loan loss provision. Additionally, 2002s results of
operations were significantly affected by a $266,000 charge to earnings stemming
from a loss on foreclosed property. No such similar charge was recorded in 2003.

## 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 nine-month periods ended September 30, 2003 and 2002, the tax-equivalent
adjustment was $96,000 and $61,000, respectively.

For the nine months ended
September 30, 2003, net interest income on a tax equivalent basis improved by
$489,000 or 11.3% compared to 2002. As reported in Table II, growth in the
Companys interest-earning assets and liabilities has resulted in a net
increase of $648,000 in net interest income from the prior year. Mitigating this
increase was the impact of the lower interest rate environment, whereby the
decline in interest rates resulted in a net decrease in net interest income of
$159,000.

Over the past two years,
falling interest rates, prepayment and competitive factors have all put downward
pressure on the Companys net interest margin. For the nine months ended
September 30, 2003, the Companys margin was 4.23%, which represents a
decline of 10 basis points from the margin at September 30, 2002.
Notwithstanding the decline from 2002 to 2003, First National has experienced a
positive trend in its margin since year-end 2002. First Nationals margins
for the past four quarters have been: 4.06% (fourth quarter of 2002), 4.17%
(first quarter of 2003), 4.21% (second quarter of 2003) and 4.31% (third quarter
of 2003). The improvement in the margin coincides with the current loan growth
trend.

Further information 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 is presented in Tables I and II.

## NON-INTEREST
INCOME

Non-interest income
includes revenues from all sources other than interest income and yield related
loan fees from loans held in the Companys portfolio. On a
quarter-to-quarter basis, non-interest income improved $53,000, or 24.4%, while
for the nine month period ended September 30, 2003, it improved $184,000, or
28.3%. As a percentage of average assets, annualized non-interest income was
0.70% and 0.61% for the nine-month periods ended September 31, 2003 and 2002,
respectively.

The third quarter
improvement was largely due to the Companys secondary market loan program.
Interest rates declined to historic lows in June 2003, and as a result, the
Company experienced the strongest three-month loan closing volume since the
inception of the program (nearly $8,700,000 in loan closings).

For the year-to-year
comparison, the secondary loan market fees were up $65,000 or 29.6% while
other income was up $95,000 or 106.7%. Consistent with 2003s
third quarter, the low interest rate environment continues to spur fixed rate
refinancing transactions. As such, the Companys secondary market loan
program volume has significantly increased, thereby bolstering revenues from the
program. Included in other income in 2003 is a $17,000 non-recurring
referral fee recorded in the second quarter. In addition, other
income includes revenue from the Companys debit card and merchant
service products. Both products have experienced marked improvements from 2002
due to an increase in the volume of transactions processed through the network.

Prospectively, the Company
expects its debit card revenue to decline due to various changes stipulated by
VISA. Specifically, debit card transactions will no longer be reflected as
credit card transactions, thus, reducing the interchange fee previously
available to the Company. Management has estimated that the reduction in
revenue may be as much as $25,000 annually.

---

# TABLE I

AVERAGE
BALANCE SHEET AND

NET INTEREST
INCOME ANALYSIS(In thousands of dollars)

`Nine Months Ended         Nine Months Ended
                                                        September 30, 2003       September 30, 2002
                                                   Average  Interest  Yield/   Average Interest Yield/
                                                   Balance    (1)     Rate     Balance   (1)     Rate
                                                ----------- -------- -------  -------- -------- ------
INTEREST EARNING ASSETS
    Loans, net of unearned income               $   118,124  $ 5,723   6.46%  $106,360  $ 5,775  7.24%
    Securities:
        Taxable                                      24,775      545   2.93%    19,124      573  3.99%
        Tax-exempt  (1)                               6,869      283   5.50%     3,683      179  6.48%
                                                ----------- -------- -------  --------- ------- ------
                Total securities                     31,644      828   3.49%    22,807      752  4.40%
                                                ----------- -------- -------  --------- ------- ------
    Federal funds sold and interest-bearing
        deposits with other banks                     2,517       19   1.01%     4,622       68  1.96%
                                                ----------- -------- -------  --------- ------- ------
              Total interest earning assets         152,285    6,570   5.75%   133,789    6,595  6.57%
                                                ----------- -------- -------  --------- ------- ------
NONINTEREST EARNING ASSETS
    Cash and due from banks                           3,305                      3,648
    Bank premises and equipment                       2,661                      2,793
    Other assets                                      1,512                      2,057
    Allowance for loan losses                        (1,103)                      (951)
                                                ------------                  ----------
             Total assets                       $   158,660                   $141,336
                                                ============                  ==========

INTEREST-BEARING LIABILITIES
    Demand deposits                                  19,402        61   0.42%   18,556       99   0.71%
    Savings deposits                                 72,068       975   1.80%   55,500    1,079   2.59%
    Certificates of deposit                          30,192       619   2.73%   34,658    1,008   3.88%
                                                ------------ -------- ------- --------- ------- -------
            Total interest-bearing deposits         121,662     1,655   1.81%  108,714    2,186   2.68%
                                                ------------ -------- ------- --------- ------- -------
   Short-term borrowings                              4,001        30   1.00%    3,532       43   1.62%
   Long-term borrowings                               1,781        53   3.97%      356       23   8.61%
                                                ------------ -------- ------- --------- ------- -------
      Total other interest-bearing liabilities        5,782        83   1.91%    3,888       66   2.26%
                                                ------------ -------- ------- --------- ------- -------
            Total interest-bearing liabilities      127,444     1,738   1.82%  112,602    2,252   2.67%
                                                ------------ -------- ------- --------- ------- -------
NONINTEREST-BEARING LIABILITIES
    AND SHAREHOLDERS' EQUITY
    Demand deposits                                  16,922                     15,579
    Other liabilities                                 1,371                      1,128
    Shareholders' equity                             12,923                     12,027
                                                --------------                ---------
   Total liabilities and shareholders' equity   $   158,660                   $141,336
                                                ==============                =========


NET INTEREST EARNINGS                                         $ 4,832                    $4,343
                                                              ========                   =======
NET YIELD ON INTEREST EARNING
     ASSETS                                                              4.23%                    4.33%
                                                                       ========                  =======`

(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 2003 and 2002.
(2) - For purposes of these computations, non-accrual loans are included in the amounts of average loans outstanding.

---

# TABLE II

CHANGES IN
INTEREST INCOME AND EXPENSE

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

`Nine Months Ended
                                                          Sept. 30, 2003 versus Sept. 30, 2002
                                                                Increase (Decrease)
                                                                 Due to Changes In:
                                                            Volume (1)   Rate (1)   Total
                                                           ----------- ----------- ---------
INTEREST EARNING ASSETS
    Loans                                                   $     604   $    (656)     (52)
    Securities:
        Taxable                                                   146        (174)     (28)
        Tax-exempt (2)                                            135         (31)     104
                                                           ----------- ----------- ---------
              Total securities                                    281        (205)      76
                                                           ----------- ----------- ---------
    Federal funds sold and interest-bearing deposits
        with other banks                                          (24)        (25)     (49)
            Total interest earning assets                         861        (886)     (25)
                                                           ----------- ----------- ---------

INTEREST-BEARING LIABILITIES
    Demand deposits                                                 4         (42)     (38)
    Savings deposits                                              274        (378)    (104)
    Certificates of deposit                                      (118)       (271)    (389)
    Short-term borrowings                                           5         (18)     (13)
    Long-term borrowings                                           48         (18)      30
                                                           ------------ ---------- ---------
            Total interest-bearing liabilities                    213        (727)    (514)
                                                           ------------ ---------- ---------
NET INTEREST EARNINGS                                        $    648   $    (159)     489
                                                           ============ ========== =========`

(1) -     The change in interest due to both rate and volume has been allocated between the factors in proportion to the relationship
of the absolute dollar amounts of the change in each.
(2) -     Calculated on a fully tax-equivalent basis using the rate of 34%.

## NON-INTEREST
EXPENSE

Non-interest expense
includes overhead costs that are not related to interest expense or to losses
from loans or securities. For the nine months ended September 30, 2003, the Companys
non-interest expense totaled $3,676,000, an increase of $55,000, or 1.5%, over
total non-interest expense incurred for the nine months ended September 30,
2002. Included in 2002s total is a $266,000 loss on foreclosed property.
Excluding this charge from 2002s total, the increase in non-interest
expense was $321,000 or 9.6%. For the quarter ended September 30, 2003, other non-interest
expense increased $102,000, or 9.2% compared to the quarter ended September 30, 2002.  Expressed as a percentage of average
assets, the annualized non-interest expense was 3.1% and 3.4% for the nine
months ended September 30, 2003 and 2002, respectively.

For the quarter ended September 30, 2003, salaries and employee
benefits, the Companys largest non-interest expense, increased $67,000 or
12.2% compared to 2002s third quarter, while for the nine months ended September 30, 2003,
salaries and employee
benefits increased $173,000 or 10.4% compared to the nine months ended September 30, 2002. Factors contributing to this increase include: (1) the addition of
three full-time staff in 2003; (2) annual merit and pay raises, which generally
approximate 3.0% to 4.0% each year; and (3) cost of the Companys incentive plan,
 which is largely dependent upon the Company meeting certain performance
goals and was approximately $60,000 more than 2002s cost through the first
nine months of 2003.

Data processing expense was
up $7,000 and $53,000 for the quarter and year to date, respectively. The
increases were due in part to an increase in the number of customer accounts,
transactions and reports processed. 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 costly to operate. The higher cost
coupled with the increased volume of transactions processed through the network
have equated to a greater expense in 2003.

---

Professional and legal fees
increased $1,000 and $52,000 for the quarter and year to date comparisons,
respectively. During the first two quarters, the 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 projects were not present in 2002.

## INCOME TAXES

The Companys
provisions for state and federal income taxes during the third quarters of 2003
and 2002 were $186,000 and $191,000, respectively. For the year-to-date period,
income tax expense was $514,000 in 2003 and $345,000 in 2002 representing
effective tax rates of 33.1% and 32.2%, respectively.

## CHANGES IN
FINANCIAL CONDITION

The Companys total
assets were $166,499,000 at September 30, 2003, compared to $151,808,000 at
December 31, 2002, an increase of $14,691,000 or 9.7%. Average total assets were
$158,660,000 during the nine month period ended September 30, 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 18.7% and 21.5% of the Companys
total assets at September 30, 2003 and December 31, 2002, respectively, declined
$1,461,000 during the first nine 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 2 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 nine months ended September 30, 2003 was $2,280,000, 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.

## Loan Portfolio

Better than expected loan
demand has greatly contributed to the overall asset growth of First National.
During the first nine months of 2003, gross loans, which totaled $128,410,000 at
September 30, 2003, increased $17,823,000 or 16.1%. The majority of the loan
growth has originated from First Nationals newest location in Covington,
Virginia (opened in February 2002), where loans have increased $9,951,000 since
year-end 2002. First Nationals three West Virginia locations posted net
loan growth of $7,872,000 during the first nine months of 2003. As reported in
Note 3 to the Consolidated Financial Statements included in Item I, the majority
of the growth has occurred in the commercial and real estate loan portfolios.

## Allowance and
Provision for Loan Losses

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 that encompasses
evaluating problem credits and their potential loss, if any. In addition,
management considers historical loan loss experience, new loan volume, portfolio
composition, levels of non-performing and past due loans and current and
anticipated economic conditions in evaluating the adequacy of the allowance for
loan losses. When determined necessary, a provision for loan losses is charged
to earnings in order to maintain an adequate allowance for probable loan losses.

During the third quarter of
2003, the Company made a $165,000 provision for loan losses compared to $30,000
during the third quarter of 2002. For the nine months ended September 30, 2003
and 2002, respectively, the provision for loan losses was $340,000 and $239,000.
Net loan charge-offs were $180,000 and $43,000 for the nine months ended
September 30, 2003 and 2002, respectively and were $105,000 for the year ended
December 31, 2002. At September 30, 2003, the allowance for loan losses was
$1,196,000 compared to $1,036,000 at December 31, 2002. Expressed as a
percentage of loans, the allowance for loan losses was 0.93% and 0.94% at
September 30, 2003 and December 31, 2002, respectively. In managements
opinion, the allowance for loan losses is adequate to absorb the current
estimated risk of loss in the existing 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 nine-month periods ended September 30, 2003
and 2002, and for the year ended December 31, 2002.

---

The allowance and the
related provision charged to operations are largely dependent upon historical
loan portfolio performance and various risk factors assessed by management, such
as national and local economic conditions. The weaker economy has affected loan
performance as evidenced by increased losses. In addition, non-performing assets
have risen modestly since December 31, 2002 (see table below). Such assets are
up $64,000 from 2002s year end balance and comprise 0.32% of total assets
at September 30, 2003 as compared to December 31, 2002s 0.30%.
Managements estimated loss exposure on the non-performing assets at
September 30, 2003 was $59,000. As a result of the above factors and the overall
loan growth, the provision for loan losses has increased over the prior year.
Future provisions will greatly depend on First Nationals prospective loss
experience and the status of future economic conditions and their estimated impact
on portfolio performance.

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

# SUMMARY OF
PAST DUE LOANS AND NON-PERFORMING ASSETS(in thousands of dollars)

`Sept. 30,   Sept. 30   Dec. 31,
                                                          2003        2002      2002
                                                       ---------- ----------- ----------
Loans past due 90 or more days still accruing          $      -    $     -     $     -
                                                       ========== =========== ==========

Non-performing assets:
   Nonaccrual loans                                    $     519   $    328    $    433
   Other real estate owned                                    -          -           30
   Other foreclosed assets                                     8          2          -
                                                        --------- ----------- ----------
      Total non-performing assets                       $    527   $    330    $    463
                                                        ========= =========== ==========
      Non-performing assets as a % of total assets          0.32%      0.22%       0.30%
                                                        ========= =========== ==========`

## Deposits and Other
Funding Sources

Total deposits at September
30, 2003 increased $9,822,000 or 7.3% from December 31, 2002. On average,
deposits totaled $138,584,000 during the nine months ended September 30, 2003,
which is a 3.2% increase over the 2002 year-end deposit balance. The following
table summarizes the quarter-end and average year to date deposit mix for
September 30, 2003 as compared to December 31, 2002:

`Avg. YTD
                                                       %                Balance
                                     Dec. 31,     Increase/  Sept. 30,  Sept. 30,
                                       2002       Decrease     2003       2003
                                     ---------   ----------  --------- ---------
Demand deposits                      $  34,161       11.2%    $ 37,981  $ 36,324
Savings                                 67,849       15.0%      78,025    72,068
Certificates of deposit                 32,243      -12.9%      28,069    30,192
                                     ---------   ----------  --------- ---------
   Total deposits                    $ 134,253        7.3%    $144,075  $138,584
                                     =========   ==========  ========= =========`

As reported above, on
average, deposit growth has been moderate during the nine months ended September
30, 2003, 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
controlling its pricing of interest-bearing products. As a result, overall
deposit growth has slowed compared to the prior year and the incremental loan
growth has been funded via the conversion of Federal funds sold, security
maturities/calls and long-term borrowings as opposed to incremental core deposit
growth.

As expected, much of the
deposit growth has come from the Companys Covington branch. This location
has experienced net growth of $7,009,000 since December 31, 2002. This accounts
for approximately 71.4% of the company-wide growth. The deposit mix at Covington
mirrors the company-wide mix, with the exception of a heavier concentration in
savings deposits (65.0% of total deposits) relative to demand deposits (17.0% of
the total deposits).

Over the past year and
coinciding with the fall in interest rates, there has been a distinct trend for
depositor preference in short-term, liquid deposits, which yield a competitive
return. This preference has led to significant growth in the Companys
savings balance relative to other deposit products. As illustrated above,
savings deposits have grown 15.0% since December 31, 2002.

---

The Companys
long-term borrowing position increased from $1,350,000 at December 31, 2002 to
$5,438,000 at September 30, 2003. Approximately $2,438,000 of the long-term debt
at September 30, 2003 represents match funding for long-term fixed rate loans,
whereby the Company has locked-in a certain interest rate spread and has limited
its exposure to interest rate risk. The remaining $3,000,000 was borrowed to
support residual loan growth. See further discussion of the Companys
long-term borrowings in Note 6 to the consolidated financial statements included
in Item 1.

## 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 $4,151,000 at September 30, 2003 versus $5,587,000 at December 31, 2002.
Year to date, the average balance of its liquid assets totaled $5,822,000. 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
approximately $49,657,000 in available credit with various correspondent
banks for added funding or liquidity support.

The recent trend in loan
growth has impacted the Companys loan to deposit ratio, which has
increased from 82.3% at December 31, 2002 to 89.1% at September 30, 2003. Loan
growth has outpaced deposit growth nearly 2 to 1 in the first nine months of
2003. Liquidity has been made available from the conversion of federal funds
sold and the securities portfolio. In addition, advances from the FHLB were
obtained to supplement a portion of the loan growth.

Managements
Asset/Liability Committee (ALCO) meets on a regular basis to review the
Companys sources and uses of funds for the succeeding (30), (60) and (90)
day time frames. In addition, projected balance sheets for the succeeding (12)
month time frame are prepared and reviewed in order to ensure that liquidity is
within policy guidelines, and if not, that appropriate strategies are
formulated, implemented and measured for effectiveness in order to bring
liquidity risk within policy guidelines. 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 in the Companys liquidity.

## CAPITAL
RESOURCES

Maintenance of a strong
capital position is a continuing goal of the Company. 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 September 30, 2003 was $13,189,000 compared to $12,579,000 at December
31, 2002, an increase of $610,000. A reconciliation of the increase is reported
in the consolidated statement of shareholders equity included in Item I.
Average total shareholders equity expressed as a percentage of average
total assets was approximately 8.1% at September 30, 2003 compared to December
31, 2002s level of 8.5%.

Cash dividends totaling
$394,000, or $0.40 per share were declared during the first nine months of 2003
compared to $314,000 or $0.32 per share declared in the comparable period of
2002. These payout levels represented approximately 37.8% and 43.1% of the
Companys year-to-date earnings for the nine-month periods ended September
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 restriction 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 I capital (as defined) to average assets (as defined).
Management believes, as of September 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 RATIOSSeptember 30, 2003

`Minimum
                                                         Actual         Requirement
                                                     -------------   ---------------
          Tier 1 risk-based capital ratio                10.76%             4.00%
          Total risk-based capital ratio                 11.81%             8.00%
          Leverage ratio                                  7.39%             3.00%`

Improved operating results
and a consistent dividend program, coupled with an effective management of
credit and interest rate risk will be the key elements towards the Company
continuing to maintain its present strong capital position in the future.

# 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 September 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                             3.6%
                   Down 100 basis points                         - 4.2%`

The change in the Down 100
basis points scenario from year-end 2002 reported in the 2002 Annual Report 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 products.
As of September 30, 2003, approximately 46.5% ($59,706,000) of the
Companys loan portfolio and its related yield are tied to the prime
interest rate. Similarly, 44.5% ($64,179,000) of the Companys total
deposits at September 30, 2003 bear an interest rate tied to prime. This
compares to 46.0% and 40.8% at December 31, 2002, respectively. The 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 would be 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 amounts 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 September 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

In accordance with Rule
13a- 15(b) of the Securities Exchange Act of 1934 (the Exchange
Act), an evaluation was carried out with the participation of the
Companys management, including the Companys Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures (as defined in Rule 13a-
15(e) and 15 d-15(e) under the Exchange Act) as of the end of the period covered
by this report. Based upon their evaluation of these disclosure controls and
procedures, the Chief Executive Officer and the Chief Financial Officer
concluded that the disclosure controls and procedures were effective as of the
end of the period covered by this report to ensure 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

| | None.
| | -----

Item 5. Other Information

| | None.
| | -----

Item 6.  Exhibits and Reports on Form 8-K

| | a)  All exhibits included with this filing follow the signature page.
| | ---------------------------------------------------------------------
| |                                                                      
| |                                                                      
| |                                                                      

| | b)          On August 14, 2003 the Company filed a Form 8-K Current  Report under  reporting Item 12 - Results of Operations and Financial
                 Condition.  The purpose of the report was to announce the Company's  financial  results for second  quarter ended June
                 30, 2003                                                                                                                                                                                
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On
October 30, 2003 the Company filed a Form 8-K Current Report under reporting
Item 12  Results of Operations and Financial Condition. The purpose of the
report was to announce the Companys financial results for third quarter
ended September 30, 2003.                                                                                                                                                                                                                              
| | On
November 6, 2003, the Company filed a Form 8-K Current Report under reporting
Item 5  Other Events. The purpose of the report was to announce its
intention to engage in a merger transaction to be voted on at a special meeting
of stockholders expected to be held in December 2003. The purpose of the
transaction is to allow the Company to go private under federal
securities laws. A letter mailed to its shareholders announcing the transaction
was attached to the filing.

---

# 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:  November14, 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 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:  November14,2003 | 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 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:  November14,2003 | 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 November14,2003 | By /s/ Matthew L. Burns
         Matthew L. Burns
     Chief Financial Officer