SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                         Commission File Number: 0-13086



                       FNB FINANCIAL SERVICES CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


       North Carolina                                     56 - 1382275
-------------------------------                        ----------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                         Identification Number)


202 South Main Street, Reidsville, North Carolina                  27320
--------------------------------------------------------------------------------
  (Address of principal executive offices)                      (Zip Code)


                                 (336) 342-3346
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
--------------------------------------------------------------------------------
        (Former name, former address, and former fiscal years, 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.

                        Yes  [X]       No  [_]

4,559,539 common shares were outstanding as of October 31, 2001, with a par
value per share of $1.00.

<PAGE>

                       FNB FINANCIAL SERVICES CORPORATION

                                    FORM 10-Q

                                      INDEX


                                                                          Page
                                                                          ----

PART     I    FINANCIAL INFORMATION

  Item   1    Financial Statements

              Consolidated Balance Sheets
              September 30, 2001 and December 31, 2000                      1

              Consolidated Statements of Income and Comprehensive Income
              Three months and nine months ended September 30, 2001
              and 2000                                                      2

              Consolidated Statements of Cash Flows
              Nine months ended September 30, 2001 and 2000                3-4

              Notes to Consolidated Financial Statements                   5-9

  Item   2    Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                   10-14

  Item   3    Quantitative and Qualitative Disclosures About Market Risk    15


PART     II   OTHER INFORMATION

  Item   1    Legal Proceedings                                             15

  Item   2    Changes in Securities and Use of Proceeds                     15

  Item   3    Defaults Upon Senior Securities                               15

  Item   4    Submission of Matters to a Vote of Security Holders           15

  Item   5    Other Information                                             15

  Item   6    Exhibits and Reports on Form 8-K                              16


<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

FNB Financial Services Corporation and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands except par value)

<TABLE>
<CAPTION>
                                                                               September 30,          December 31,
                                                                                    2001                  2000
                                                                                (Unaudited)             (Audited)
                                                                             -------------------    ------------------
ASSETS
<S>                                                                                <C>                  <C>
Cash and due from banks                                                            $ 21,914             $ 15,952
Investment securities:
     Securities available for sale                                                  156,360              145,738
     Federal Home Loan Bank and Federal Reserve Bank Stock                            3,967                3,967
Loans, net allowance for credit losses of  $6,560 at
       September 30, 2001 and $6,311 at December 31, 2000                           516,075              494,326
Premises and equipment, net                                                          12,289               12,046
Accrued income and other assets                                                      13,852               13,875
                                                                                   --------             --------

               Total assets                                                        $724,457             $685,904
                                                                                   ========             ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
     Noninterest bearing                                                           $ 57,107             $ 54,434
     Interest bearing                                                               545,326              515,017
                                                                                   --------             --------
               Total deposits                                                       602,433              569,451

Federal funds purchased and retail repurchase agreements                             15,702               12,537
Other borrowings                                                                     37,000               41,000
Accrued expenses and other liabilities                                                6,435                6,524
                                                                                   --------             --------

               Total liabilities                                                    661,570              629,512
                                                                                   --------             --------

Shareholders' Equity:
Preferred stock no par value; authorized 10,000,000 shares;
               None issued                                                             --                   --
Common stock, $1.00 par value; authorized 40,000,000 shares;
               outstanding 4,554,946 at September 30, 2001 and
               4,488,259 at December 31, 2000                                         4,555                4,488
Paid-in capital                                                                      26,355               25,723
Retained earnings                                                                    28,849               26,028
Accumulated other comprehensive income                                                3,128                  153
                                                                                   --------             --------

               Total shareholders' equity                                            62,887               56,392
                                                                                   --------             --------

               Total liabilities and shareholders' equity                          $724,457             $685,904
                                                                                   ========             ========
</TABLE>


         See notes to unaudited consolidated financial statements.

                                        1


<PAGE>

FNB Financial Services Corporation and Subsidiary
Consolidated Statements of Income and Comprehensive Income
(Unaudited; dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Three Months Ended                Nine Months Ended
                                                               September 30,                     September 30,
                                                        ---------------------------       ---------------------------
                                                           2001             2000             2001            2000
                                                        ----------       ----------       ----------       ----------
Interest income
<S>                                                     <C>              <C>              <C>              <C>
     Loans                                              $   10,638       $   11,317       $   33,529       $   31,487
     Federal funds sold and overnight deposits                 111              179              280              350
     Investment securities
               Taxable                                       2,119            1,767            6,135            5,307
               Tax exempt                                      194              200              580              514
     Other                                                      71               57              231              179
                                                        ----------       ----------       ----------       ----------

               Total interest income                        13,133           13,520           40,755           37,837
                                                        ----------       ----------       ----------       ----------

Interest expense
     Deposits                                                7,232            6,792           22,366           18,320
     Federal funds purchased and other borrowings              496            1,040            1,929            2,783
                                                        ----------       ----------       ----------       ----------

               Total interest expense                        7,728            7,832           24,295           21,103
                                                        ----------       ----------       ----------       ----------

Net interest income                                          5,405            5,688           16,460           16,734
Provision for credit losses                                    315              370              798            1,246
                                                        ----------       ----------       ----------       ----------

Net interest income after provision for credit loss          5,090            5,318           15,662           15,488

Other income
     Service charges on deposit accounts                       515              606            1,609            1,566
     Net gain on securities available for sale                 298               62              457               62
     Net gain on sale of credit card operations                 --               --               --              148
     Income from investment services                            62                5              136               16
     Other income                                              201               59              403              506
                                                        ----------       ----------       ----------       ----------

               Total other income                            1,076              732            2,605            2,298

Other expenses
     Salaries and employee benefits                          2,316            2,198            7,028            6,263
     Occupancy expense                                         264              234              770              630
     Furniture and equipment expense                           470              372            1,439            1,066
     Insurance expense, including FDIC assessment               46               75              131              163
     Printing and supply expense                               108               69              281              212
     Other expenses                                            767              824            2,181            2,758
                                                        ----------       ----------       ----------       ----------

               Total other expenses                          3,971            3,772           11,830           11,092

Income before income taxes                                   2,195            2,278            6,437            6,694
Income tax expense                                             664              794            1,883            2,222
                                                        ----------       ----------       ----------       ----------

Net income                                                   1,531            1,484            4,554            4,472
Other comprehensive income                                   1,746            1,322            2,975              936
                                                        ----------       ----------       ----------       ----------


Comprehensive income                                    $    3,277       $    2,806       $    7,529       $    5,408
                                                        ==========       ==========       ==========       ==========

Per share data
     Net income, basic                                  $     0.34       $     0.33       $     1.01       $     1.00
     Net income, diluted                                $     0.33       $     0.33       $     0.99       $     0.99
     Cash dividends                                     $     0.13       $     0.11       $     0.38       $     0.33
Weighted average shares outstanding, basic               4,544,457        4,485,209        4,516,280        4,483,468
Weighted average shares outstanding, diluted             4,634,312        4,528,485        4,583,446        4,525,720
</TABLE>


         See notes to unaudited consolidated financial statements.


                                        2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            Nine Months Ended
                                                                                               September 30,
                                                                                       -----------------------------
                                                                                         2001                2000
                                                                                       ---------           ---------

Cash flows from operating activities:
<S>                                                                                    <C>                 <C>
          Interest received                                                            $  40,852           $  36,893
          Fees and commissions received                                                    3,203               2,812
          Interest paid                                                                  (25,323)            (20,182)
          Noninterest expense paid                                                       (10,498)            (11,132)
          Income taxes paid                                                               (1,951)             (3,049)
          Funding of loans held for sale                                                 (12,363)                  0
          Proceeds from sales of loans held for sale                                      12,541               1,849
                                                                                       ---------           ---------

               Net cash provided by operating activities                                   6,461               7,191
                                                                                       ---------           ---------

Cash flows from investing activities:
          Proceeds from sales or calls of securities available for sale                  119,414               5,179
          Proceeds from maturities of securities available for sale                       20,500                 488
          Purchase of securities                                                        (147,718)            (12,404)
          Capital expenditures                                                              (612)             (3,082)
          (Increase) decrease in other real estate owned                                     307                 304
          (Increase) decrease in loans                                                   (23,494)            (68,525)
                                                                                       ---------           ---------

               Net cash used in investing activities                                     (31,603)            (78,040)
                                                                                       ---------           ---------

Cash flows from financing activities:
          Increase (decrease) in demand, savings and interest
                checking accounts                                                         12,187              (5,165)
          Increase (decrease) in time deposits                                            20,795              74,616
          Increase (decrease) in federal funds purchased and
                retail repurchase agreements                                               3,165              (5,260)
          Increase (decrease) in other borrowings                                         (4,000)             11,000
          Proceeds from issuance of common stock                                             690                  77
          Dividends paid                                                                  (1,733)             (1,505)
                                                                                       ---------           ---------

               Net cash provided by financing activities                                  31,104              73,763
                                                                                       ---------           ---------

Net increase (decrease) in cash and cash equivalents                                       5,962               2,914
Cash and cash equivalents, January 1                                                      15,952              24,391
                                                                                       ---------           ---------

Cash and cash equivalents, September 30                                                $  21,914           $  27,305
                                                                                       =========           =========

Supplemental disclosure of non-cash transactions:
Non-cash transfers from loans to other real estate                                     $   1,647           $     202
                                                                                       =========           =========
</TABLE>


         See notes to unaudited consolidated financial statements.


                                        3
<PAGE>


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

Reconciliation of net income to net cash provided by operating activities:

<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                             September 30,
                                                                                    ---------------------------------
                                                                                         2001               2000
                                                                                    ---------------     -------------
<S>                                                                                   <C>                 <C>
Net income                                                                            $  4,554            $  4,472

Adjustments to reconcile net income to net cash provided by operating
activities:
          Provision for credit losses                                                      798               1,246
          Depreciation                                                                   1,114                 859
          Accretion and amortization                                                       353                 301
          (Gain) loss on sale of securities available for sale                            (457)                (62)
          Funding of loans held for sale                                               (12,363)                  0
          Proceeds from sales of loans held for sale                                    12,541               1,849
          (Gain) loss on other assets                                                      (13)                (77)
          (Increase) decrease in accrued income and other assets                            23                 421
          Increase (decrease) in accrued expenses and other liabilities                    (89)             (1,818)
                                                                                      --------            --------

               Net cash provided by operating activities                              $  6,461            $  7,191
                                                                                      ========            ========
</TABLE>


         See notes to unaudited consolidated financial statements.


                                        4
<PAGE>


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

1.   Basis of Presentation

          The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles and
     with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
     Accordingly, these statements do not include all of the information and
     footnotes required by generally accepted accounting principles for complete
     financial statements. In the opinion of management, all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     presentation have been included. Operating results for the nine month
     period ended September 30, 2001 are not necessarily indicative of the
     results that may be expected for the year ending December 31, 2001.


2.   Significant Activities

          FNB Financial Services Corporation (the "Company") is a North Carolina
     financial holding company. The Company's wholly owned subsidiary, FNB
     Southeast (the "Bank"), is a North Carolina chartered commercial bank. FNB
     Southeast operates two wholly owned subsidiaries, FNB Southeast Investment
     Services, Inc. and FNB Southeast Mortgage Corporation.

          As of September 30, 2001, FNB Southeast operated thirteen banking
     offices in North Carolina and four banking offices in Virginia. On August
     31, 2001, the Bank consolidated its two banking offices in Harrisonburg,
     Virginia. The Company and the Bank are headquartered in Reidsville, North
     Carolina.


3.   Comprehensive Income

          The Company's other comprehensive income for the three and nine month
     periods ended September 30, 2001 and 2000 consists of unrealized gains and
     losses on available for sale securities, net of related income taxes, as
     follows:

<TABLE>
<CAPTION>
                                              Three Months Ended                  Nine Months Ended
                                                 September 30,                      September 30,
                                        --------------------------------    -------------------------------
                                            2001              2000             2001              2000
                                        --------------    --------------    ------------     --------------
<S>                                        <C>                <C>             <C>                <C>
Unrealized gains (losses) on
    available for sale securities          $ 2,863            $ 2,066         $ 4,878            $ 1,858

Reclassification of realized gains            (298)               (62)           (457)               (62)

Income tax effect                             (819)              (682)         (1,446)              (860)
                                           -------            -------         -------            -------
Other comprehensive income (loss)          $ 1,746            $ 1,322         $ 2,975            $   936
                                           =======            =======         =======            =======
</TABLE>


                                        5

<PAGE>

4.   Segment Information

          The Company follows the provisions of Statement of Financial
     Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an
     Enterprise and Related Information." SFAS 131 establishes standards for
     determining an entity's operating segments and the type and level of
     financial information to be disclosed in both annual and interim financial
     statements. It also establishes standards for related disclosures about
     products and services, geographic areas, and major customers.

          Operating segments are components of an enterprise with separate
     financial information available for use by the chief operating decision
     maker to allocate resources and to assess performance. The Company has
     determined that it has one significant operating segment: the providing of
     general financial services to the customers of its wholly owned subsidiary,
     FNB Southeast. The various products offered by FNB Southeast are those
     generally offered by community banks, and the allocation of resources is
     based on the overall performance of the Company, rather than the individual
     performance of banking offices or products.


5.   Net Income Per Share

          Basic and diluted earnings per share amounts have been computed based
     upon net income as presented in the accompanying income statements divided
     by the weighted average number of common shares outstanding or assumed to
     be outstanding as summarized.

<TABLE>
<CAPTION>
                                                     Three Months Ended               Nine Months Ended
                                                       September 30,                    September 30,
                                                -----------------------------    -----------------------------
                                                   2001             2000            2001             2000
                                                ------------    -------------    ------------    -------------
<S>                                               <C>              <C>             <C>              <C>
Weighted average number of shares
        used in basic EPS                         4,544,457        4,485,209       4,516,280        4,483,468
Effect of dilutive stock options                     89,855           43,276          67,166           42,252
                                                ------------    -------------    ------------    -------------

Weighted average number of common
        shares and dilutive potential common
        shares used in dilutive EPS               4,634,312        4,528,485       4,583,446        4,525,720
                                                ============    =============    ============    =============
</TABLE>

          As of September 30, 2001, there were 747,594 potentially dilutive
     share options not included in the weighted average calculation since the
     option exercise prices are greater than the fair market value of the common
     shares.



                                        6

<PAGE>


6.   Investment Securities Available for Sale

<TABLE>
<CAPTION>
                                                September 30, 2001                  December 31, 2000
                                          --------------------------------    -------------------------------
 (Dollars in thousands)                     Amortized           Fair           Amortized        Fair Value
                                              Cost              Value             Cost
                                          --------------    --------------    -------------    --------------
<S>                                       <C>                <C>              <C>              <C>
U.S. Treasury securities                  $           0      $          0     $        200     $         200
U.S. Agency securities                          125,385           129,096          119,579           119,074
Mortgage backed securities                        9,392             9,650            8,280             8,227
State and municipal obligations                  16,150            17,305           16,097            16,928
Other                                               304               309            1,331             1,309
                                          --------------    --------------    -------------    --------------

Total available for sale                  $     151,231          $156,360         $145,487          $145,738
                                          ==============    ==============    =============    ==============
</TABLE>


7.   Loans

<TABLE>
<CAPTION>
(Dollars in thousands)                                        September 30, 2001      December 31, 2000
                                                              ------------------      -----------------

Loan Category
<S>                                                                <C>                     <C>
          Real estate - commercial                                 $130,279                $119,584
          Real estate - residential                                 137,667                 150,113
          Real estate - construction                                 79,749                  66,148
          Commercial, financial and agricultural                     87,166                  74,981
          Consumer - direct                                          38,906                  46,463
          Consumer - home equity                                     42,566                  39,204
          Consumer - other                                            5,768                   3,432
                                                                   --------                --------

                    Subtotal loans                                  522,101                 499,925

          Loans held for sale                                           534                     712
                                                                   --------                --------

                    Gross loans                                    $522,635                $500,637
                                                                   ========                ========
</TABLE>


                                        7

<PAGE>


8.   Allocation of Allowance for Credit Losses

<TABLE>
<CAPTION>
                                                     September 30, 2001                    December 31, 2000
                                              ---------------------------------     ---------------------------------
                                                                  % of Loans                           % of Loans
(Dollars in thousands)                                             in Each                              in Each
                                                                 Category to                          Category to
                                                Allowance        Total  Loans         Allowance       Total  Loans
                                              -------------    ----------------     -------------    ----------------
Balance at end of period applicable to:
<S>                                             <C>                    <C>             <C>                    <C>
   Real estate - construction                   $   21                 15              $   28                 13
   Real estate - mortgage                           91                 26                 125                 30
   Commercial                                    4,295                 42               4,445                 39
   Consumer                                      2,076                 17               1,635                 18
   General                                          77                  0                  78                  0
                                                ------             ------              ------             ------

        Total allocation                        $6,560                100%             $6,311                100%
                                                ======             ======              ======             ======
</TABLE>

9.   Analysis of Allowance for Credit Losses

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                            September 30,
                                                                ------------------------------------
(Dollars in thousands)                                               2001                   2000
                                                                ---------------        -------------
<S>                                                               <C>                      <C>
Balance, beginning of period                                      $ 6,311                  $ 4,436

Charge-offs                                                           661                      537
Recoveries                                                           (112)                    (125)
                                                                  -------                  -------

Net Charge-offs                                                       549                      412
                                                                  -------                  -------

Allowance charged to operations                                       798                    1,246
                                                                  -------                  -------

Balance, end of period                                            $ 6,560                  $ 5,270
                                                                  =======                  =======

Ratio of annualized net charge-offs during the
          period to average loans outstanding
          during the period                                          0.14%                    0.12%
                                                                  =======                  =======

Ratio of allowance for credit losses to
          month end loans                                            1.26%                    1.09%
                                                                  =======                  =======
</TABLE>


                                        8

<PAGE>


10.  Nonperforming Assets

<TABLE>
<CAPTION>
                                                            September 30, 2001       December 31, 2000
     (Dollars in thousands)                                 ------------------       -----------------
<S>                                                              <C>                      <C>
Nonaccrual (1)                                                   $3,744                   $3,222
Past due 90 days or more and still accruing interest                  5                       --
Other real estate                                                 2,347                    1,007
Renegotiated troubled debt                                           --                       --
</TABLE>


(1)  Other than amounts listed above, there are no other loans which: (a)
     represent or result from trends or uncertainties which management
     reasonably expects will materially affect future operating results,
     liquidity, or capital resources, or (b) represent material credits about
     which management is aware of any information which causes management to
     have serious doubts as to the ability of such borrowers to comply with the
     loan repayment terms.


                                        9

<PAGE>

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

Information set forth below contains various  forward-looking  statements within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange  Act of 1934,  which  statements  represent  the  Company's
judgment  concerning the future and are subject to risks and uncertainties  that
could cause the Company's actual operating  results to differ  materially.  Such
forward-looking  statements  can be  identified  by the  use of  forward-looking
terminology,  such  as  "may",  "will",  "expect",   "anticipate",   "estimate",
"believe", or "continue", or the negative thereof or other variations thereof or
comparable   terminology.   The  Company  cautions  that  such   forward-looking
statements  are further  qualified  by  important  factors  that could cause the
Company's  actual  operating  results  to differ  materially  from  those in the
forward-looking statements.

Summary

     Assets at September 30, 2001 reached $724.5 million, an increase of $38.6
million since December 31, 2000. The increase in assets is primarily due to loan
growth of $22.0 million and an increase in securities of $10.6 million over the
first nine months of 2001. To support this asset growth over the past nine
months, deposits have increased $33.0 million.

     Net income for the quarter ended September 30, 2001, of $1.5 million was
the same as the amount earned in the third quarter last year. Diluted earnings
per share for the current quarter was $0.33 per share, equal to last year. For
the nine months to date, earnings of $4.5 million and diluted earnings per share
of $0.99 were essentially equal to the same period in 2000.


Interest Income and Interest Expense

     Third quarter total interest income was $13.1 million, a decrease of 2.9%
over the same quarter last year. Average earning assets for the quarter were
$698.4 million, compared to $620.9 million for the year ago period. Interest
income from loans was $10.6 million, down 6.0% from $11.3 million in the third
quarter of 2000. The decrease was driven by a dramatic decrease in the prime
lending rate. Average loans of $516.7 million were 10.1% higher than the $469.3
million last year. For the third quarter, the average yield on loans was 8.17%
in 2001 compared to 9.64% in 2000. For the nine months ended on September 30,
2001 total interest income was up 7.7% to $40.8 million from $37.8 million in
the same period in 2000, on a 14.5% increase in average earning assets.

     Interest income on investments totaled $2.5 million for the current
quarter, up 13.3% from $2.2 million for the year ago quarter. The change is
primarily attributable to an increase of $336,000 in interest income on U.S.
Agency securities, and a 24.6% increase in the average balance of the investment
portfolio. Investment income for the nine month period increased from $6.4
million in 2000 to $7.2 million in 2001.

     Third quarter total interest expense was $7.7 million compared to $7.8
million from the third quarter of last year, a 1.3% decrease. Average interest
bearing liabilities for the third quarter 2001 increased 11.9% to $607.2 million
from $542.5 million for the third quarter of 2000. Overall cost of funds for the
third quarter was 5.05% and 5.77% for 2001 and 2000, respectively. Total
interest expense for the first nine months of 2001 was $24.3 million, a 15.1%
increase over the $21.1 million expense for the first nine months of 2000.



                                       10

<PAGE>

     Interest expense on deposits for the quarter increased 6.5% to $7.2 million
as average interest bearing deposits increased 17.8% to $565.4 million. The
average rate for the quarter on interest bearing deposits decreased to 5.07%
from 5.78% one year earlier. Deposit interest expense for the nine months ended
September 30, increased from $18.3 million in 2000 to $22.4 million in 2001.

     Interest expense on federal funds purchased and other borrowings was
$496,000 for the current quarter, down 52.2%, from $1.0 million in the third
quarter of 2000. The decrease is primarily attributable to a decrease in average
purchased funds from $62.5 million in the 2000 third quarter compared to $41.8
million in the 2001 third quarter. For the nine months ended September 30,
interest expense for this category decreased from $2.8 million in 2000 to $1.9
million in 2001.

Comparable net interest margins as follows:

<TABLE>
<CAPTION>
                                                 Liability
Time Period                Asset Yield              Rate             Interest Rate Spread
-----------              ---------------        -----------         ----------------------
<S>                           <C>                  <C>                       <C>
Third Quarter, 2001           7.52%         -      5.05%       =             2.47%
Third Quarter, 2000           8.78%         -      5.77%       =             3.01%

Year to Date, 2001            8.05%         -      5.46%       =             2.59%
Year to Date, 2000            8.53%         -      5.42%       =             3.11%
</TABLE>

Noninterest Income and Expense

     Noninterest income in the third quarter this year increased 47.0% to $1.1
million from $732,000 in the same period last year. For the current quarter, net
securities gains were $298,000 compared to $62,000 recorded in the same period
one year earlier. Deposit service charges of $515,000 for the third quarter of
2001 decreased from the $606,000 in the third quarter of 2000. Total noninterest
income for the first nine months of 2001 was $2.6 million, a 13.4% increase from
$2.3 million recorded one year earlier. Noninterest income for the first nine
months of 2000 included a nonrecurring gain of $148,000 from the sale of the
Company's credit card portfolio and related operations, and $76,000 in
nonrecurring fees. Deposit service charges for the nine months of 2001 totaled
$1.6 million, a 2.7% increase from last year.

     Noninterest expense for the third quarter of 2001 was $4.0 million, a 5.3%
increase over the $3.8 million expense in the third quarter of 2000. Salaries
and employee benefits increased $118,000, occupancy expense increased $30,000,
and furniture and equipment expense increased $98,000 compared to the year ago
quarter. This increase was primarily driven by expenses incurred in the current
quarter associated with three branches opened during the second quarter of 2000
and the operation of the mortgage company for the entire quarter. These
increases were offset by decreases in other categories. Marketing expense, exams
and audits expense and professional expense all declined from levels recorded in
the prior year. This year's nine-month noninterest expense of $11.8 million was
6.7% higher than the $11.1 million in the same period last year, with the three
new branches accounting for most of that increase.

     The provision for credit losses in the third quarter of 2001 was $315,000
compared to $370,000 in 2000. The allowance for credit losses as a percentage of
gross loans outstanding increased to 1.26% at September 30, 2001, from 1.09% at
September 30, 2000. For the 2001 nine months, the provision totaled $798,000,
compared to $1.2 million for the same period in 2000. The decrease in the
provision for 2001 is attributable to lower loan growth during the current year.


                                       11
<PAGE>


     The effective income tax rate of 29.2% for the first nine months of 2001
was lower than the 33.2% rate for the same nine month period of 2000. The tax
rate for 2001 was lower due to the anticipated decrease of taxable interest
income from the loan portfolio. This decrease results in a higher percentage of
income from tax-exempt securities, and accordingly a slightly lower effective
tax rate.

Financial Condition

     The Company's total assets at September 30, 2001 and 2000 were $724.5
million and $665.8 million, respectively. The $58.7 million increase represents
an 8.8% increase over one year earlier. Since December 31, 2000, assets have
increased $38.6 million. Average earning assets for the 2001 third quarter were
$698.4 million, or 12.5% higher than the $620.9 million average in the same
quarter last year.

     Loans at September 30, 2001 totaled $522.6 million compared to $481.5
million one year earlier, an increase of 8.5%. Loans have increased 4.4% from
$500.6 million at December 31, 2000. Average loans for the third quarter of 2001
were $516.7 million, or 10.1% higher than $469.3 million in this same period one
year ago.

     Investment securities of $160.3 million at September 30, 2001 were 16.2%
higher than the $138.0 million recorded one year earlier. Average investment
securities were $169.7 million and $136.2 million for the third quarter of 2001
and 2000, respectively. The decrease in interest rates during 2001 has resulted
in approximately $76 million of securities being called during the first nine
months, while approximately $148 million of securities were purchased during
this time.

     Deposits totaled $602.4 million at September 30, 2001, an 8.8% increase
versus $553.7 million one year ago, and a 5.8% increase over the $569.5 million
recorded at December 31, 2000. At September 30, 2001, noninterest bearing
deposits were $57.1 million, or 9.5% of total deposits.

     At September 30, 2001, borrowings at the Federal Home Loan Bank of Atlanta
totaled $37.0 million, compared to $41.0 million at December 31, 2000. The
Company used funds generated through deposit growth to reduce the level of FHLB
borrowings by $4.0 million during the nine months of 2001.

     Shareholders' equity increased to $62.9 million at the end of the third
quarter 2001, compared to $56.4 million at December 31, 2000. The Company paid
dividends of $0.13 per share during the current quarter, compared to $0.11 per
share in the third quarter of 2000. Year to date dividends per share for 2001
total $0.38 compared to $0.33 in 2000.


Asset Quality

     The credit loss allowance ratio at September 30, 2001 stood at 1.26%
compared to 1.26% at December 31, 2000 and 1.09% at September 30, 2000. For the
third quarter of 2001, provision charges against earnings totaled $315,000
compared to $370,000 in the third quarter one year earlier. Net loan losses for
the 2001 third quarter totaled $252,000, or a 0.20% annualized loss ratio based
on average loans outstanding. This compares to net loan losses of $318,000, or
0.27% annualized loss ratio for the 2000 third quarter. Annualized net loan
losses for the first nine months of 2001 and 2000 were 0.14% and 0.12%,
respectively, based on average loans outstanding.

     The Company's allowance for credit is analyzed quarterly by management.
This analysis includes a methodology that segments the loan portfolio by
selected types and considers the current status of the portfolio, historical
charge-off experience, current levels of delinquent, impaired and non-performing
loans, as well as economic and other risk factors. It is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology


                                       12

<PAGE>

employed and other analytical measures in comparison to a group of peer banks.
Management believes the allowance for loan losses is sufficient to absorb known
risk in the portfolio. No assurances can be given that future economic
conditions will not adversely affect borrowers and result in increased losses.

     Other real estate owned increased to $2.3 million at September 30, 2001,
compared to $1.0 million at December 31, 2000. Approximately $1.6 million has
been transferred from loans into other real estate and approximately $323,000 of
such assets have been disposed of during the first three quarters of 2001. A net
gain of $4,000 has been recorded on disposition of other real estate in the
current year.


Capital Resources

     Banks and financial holding companies, as regulated institutions, must meet
required levels of capital. The Office of the Commissioner of Banks in North
Carolina and the Board of Governors of the Federal Reserve, which are the
primary regulatory agencies for FNB Southeast and the Company, respectively,
have adopted minimum capital regulations or guidelines that categorize
components and the level of risk associated with various types of assets.
Financial institutions are required to maintain a level of capital commensurate
with the risk profile assigned to their assets in accordance with the
guidelines.

     As shown in the table below, the Company and its wholly-owned banking
subsidiary have capital levels exceeding the minimum levels for "well
capitalized" banks and financial holding companies as of September 30, 2001.

<TABLE>
<CAPTION>
                         Regulatory Guidelines
                   -----------------------------------
                        Well             Adequately                             FNB
Ratio                Capitalized        Capitalized          Company         Southeast
-----              ----------------    ---------------     -------------    -------------
<S>                      <C>                <C>                <C>              <C>
Total Capital            10.0%              8.0%               12.8%            12.4%
Tier 1 Capital            6.0               4.0                11.5             11.1
Leverage Capital          5.0               4.0                 8.2              7.9
</TABLE>

New Accounting Pronouncements

     In October of 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
a replacement of SFAS 125. SFAS 140 is effective for all fiscal quarters of all
fiscal years ending after December 15, 2000. This Standard establishes
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This Standard did not have a material
effect on the Company's financial statements.

     The FASB has issued SFAS No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets." SFAS 141 supersedes APB Opinion No. 16,
"Business Combinations", and FASB Statement No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises" and requires that all
business combinations be accounted for using the purchase method. This Statement
carries forward without reconsideration those portions of APB Opinion No. 16,
"Business Combinations", that provide guidance related to the application of the
purchase method. This Statement requires that intangible assets that meet
certain criteria be recognized as assets apart from goodwill. The provisions of
this Statement apply to all business combinations initiated after June 30, 2001.
This Statement also


                                      13

<PAGE>

applies to all business combinations accounted for using the purchase method for
which the date of acquisition is July 1, 2001, or later. SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This Statement also addresses how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. This Statement carries
forward without reconsideration those provisions of Opinion 17 related to the
accounting for internally developed intangible assets.

     The provisions of this Statement are required to be applied starting with
fiscal years beginning after December 15, 2001 and early application is
permitted for entities with fiscal years beginning after March 15, 2001, under
certain conditions. Impairment losses for goodwill and indefinite-lived
intangible assets that arise due to the initial application of this Statement
(resulting from a transitional impairment test) are to be reported as resulting
from a change in accounting principle.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 requires that obligations associated with the
retirement of a tangible long-lived asset to be recorded as a liability when
those obligations are incurred, with the amount of the liability initially
measured at fair value. SFAS 143 will be effective for financial statements
issued for fiscal years beginning after June 15, 2002 (early application is
encouraged).

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS 121 and
applies to all long-lived assets (including discontinued operations) and
consequently amends APB Opinion No. 30, "Reporting Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business" SFAS 144 requires
that long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and, generally, its provisions are to be applied prospectively.

     The Company is currently evaluating the effect of adopting these
pronouncements.

Liquidity Management

     Liquidity management refers to the ability to meet day-to-day cash flow
requirements based primarily on activity in loan and deposit accounts of the
Company's customers. Deposit withdrawal, loan funding, dividends to
shareholders, and general corporate activities create a need for liquidity for
the Company. Liquidity is derived from sources such as deposit growth,
maturities, calls and sales of investment securities, principal and interest
payments on loans, access to borrowed funds or lines of credit, and profits.
Internal liquidity analysis indicates the Company has the ability to generate
sufficient amounts of cash to cover day-to-day activity and fund earning assets
growth over the rolling twelve month period ending September 30, 2001.

Effects of Inflation

     Inflation affects financial institutions in ways that are different from
most commercial and industrial companies, which have significant investments in
fixed assets and inventories. The effect of inflation on interest rates can
materially impact bank operations, which rely on net interest margins as a major
source of earnings. Non-interest expenses, such as salaries and wages, occupancy
and equipment cost are also negatively impacted by inflation.



                                       14

<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Market risk is the possible chance of loss from unfavorable changes in
market prices and rates. These changes may result in a reduction of current and
future period net interest income, which is the favorable spread earned from the
excess of interest income on interest-earning assets, over interest expense on
interest-bearing liabilities.

     The Company considers interest rate risk to be its most significant market
risk, which could potentially have the greatest impact on operating earnings.
The Company is asset sensitive, which means that falling interest rates could
result in a reduced amount of net interest income. The monitoring of interest
rate risk is part of the Company's overall asset/liability management process.
The primary oversight of asset/liability management rests with the Company's
Asset and Liability Committee. The Committee meets on a regular basis to review
asset/liability activities and to monitor compliance with established policies.

     The Company has not experienced any substantive changes in portfolio risk
during the nine months ended September 30, 2001.


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         None.


Item 2.  Changes in Securities and Use of Proceeds

         None.


Item 3.  Defaults Upon Senior Securities

         Not Applicable.


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

         None.


Item 5.  Other Information

         None.



                                       15

<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

         Exhibit No.    Description
         -----------    -----------

            3.01        Amended and Restated Articles of Incorporation.
            3.02        Bylaws of Company, as amended.
            4.01        Specimen Common Stock Certificate.
            10.01       Stock Compensation Plan of the
                        Registrant approved April 11, 1989, by the
                        shareholders of the Registrant, with forms of
                        stock option and stock bonus agreements
                        attached.
            10.02       Omnibus Equity Compensation Plan of the Registrant.
            10.03       Severance Policy for Senior Officers of the Registrant
                        (employed for five years or more).
            10.04       Revised Severance Plan for Senior Officers of the
                        Registrant (employed for five years or more).
            10.05       Severance Policy for Senior Officers of the Registrant
                        (employed for less than five years).
            10.07       Benefit Equivalency Plan of the Registrant effective
                        January 1, 1994.
            10.08       Annual Management Incentive Plan of the Registrant.
            10.09       Long Term Incentive Plan of the Registrant.
            10.10       Employment Agreement dated May 18, 1995, between the
                        Registrant, as employer, and Ernest J. Sewell,
                        President and Chief Executive Officer of the Registrant.
            10.11       Split-Dollar Agreement dated January 27, 1995, between
                        the Registrant and Ernest J. Sewell.
            10.13       Split-Dollar Agreement dated January 27, 1995, between
                        the Registrant and C. Melvin Gantt.
            10.14       Split-Dollar Agreement dated December 8, 1995, between
                        the Registrant and Richard L. Powell.
            10.15       Lease, dated January 31, 1997, between the Registrant
                        and Landmark Commercial, Inc., relating to the
                        Wilmington branch office.
            10.16       Amendment to Benefit Equivalency Plan of the Registrant
                        effective January 1, 1998.

         (b)  Reports on Form 8-K

               None.



                                       16

<PAGE>


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                    FNB FINANCIAL SERVICES CORPORATION
                                    (Registrant)



November 9, 2001                             /s/  Michael W. Shelton
                                    --------------------------------------------
                                                Michael W. Shelton
                                    (Vice President and Chief Financial Officer)



                                       17