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 JUNE 30, 2002

                         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  [    ]

4,589,571  common shares were  outstanding as of July 31, 2002, with a par value
per share of $1.00.

<PAGE>

<TABLE>
<CAPTION>



                       FNB FINANCIAL SERVICES CORPORATION

                                    FORM 10-Q

                                      INDEX

                                                                                Page

  PART  I   FINANCIAL INFORMATION

<S>                                                                             <C>
  Item  1    Financial Statements

             Consolidated Balance Sheets
             June 30, 2002 and December 31, 2001                                    1

             Consolidated Statements of Income and Comprehensive Income Three
             months and six months ended June 30, 2002 and 2001                     2

             Consolidated Statements of Cash Flows
             Six months ended June 30, 2002 and 2001                              3 - 4

             Notes to Consolidated Financial Statements                           5 - 9

  Item  2    Management's Discussion and Analysis of Financial Condition and
             Results of Operations                                               10 - 15

  Item  3    Quantitative and Qualitative Disclosures About Market Risk            16


  PART  II    OTHER INFORMATION

  Item  1    Legal Proceedings                                                     17

  Item  2    Changes in Securities and Use of Proceeds                             17

  Item  3    Defaults Upon Senior Securities                                       17

  Item  4    Submission of Matters to a Vote of Security Holders                   17

  Item  5    Other Information                                                     18

  Item  6    Exhibits and Reports on Form 8 - K                                    18
</TABLE>

<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>
                                                                       June 30,            December 31,
                                                                        2002                   2001
                                                                     (Unaudited)             (Audited)
                                                                       --------              --------
<S>                                                                    <C>                   <C>
ASSETS

Cash and due from banks                                                $ 14,707              $ 23,673
Investment securities:
     Securities available for sale                                       89,061               123,597
     Federal Home Loan Bank and Federal Reserve Bank Stock                3,879                 3,967
Loans, net of allowance for credit losses of $6,908 at
      June 30, 2002 and $6,731 at December 31, 2001                     536,582               528,614
Premises and equipment, net                                              10,960                11,381
Accrued income and other assets                                          16,150                13,593
                                                                       --------              --------

               Total assets                                            $671,339              $704,825
                                                                       ========              ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
     Noninterest bearing                                               $ 53,772              $ 58,831
     Interest bearing                                                   484,603               527,929
                                                                       --------              --------
               Total deposits                                           538,375               586,760

Federal funds purchased and retail repurchase agreements                 18,898                19,677
Other borrowings                                                         45,000                30,000
Accrued expenses and other liabilities                                    4,883                 5,680
                                                                       --------              --------

               Total liabilities                                        607,156               642,117
                                                                       --------              --------

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 4,617,878 at June 30, 2002 and
               4,568,907 at December 31, 2001                             4,618                 4,569
Paid-in capital                                                          26,390                26,465
Retained earnings                                                        31,766                30,178
Accumulated other comprehensive income                                    1,409                 1,496
                                                                       --------              --------

               Total shareholders' equity                                64,183                62,708
                                                                       --------              --------

               Total liabilities and shareholders' equity              $671,339              $704,825
                                                                       ========              ========
</TABLE>


         See notes to unaudited consolidated financial statements.

<PAGE>
                                       1

<TABLE>
<CAPTION>


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

                                                               Three Months Ended                   Six Months Ended
                                                                    June 30,                            June 30,
                                                            ------------------------             -----------------------

                                                              2002            2001           2002              2001
                                                              ----            ----           ----              ----


Interest income
<S>                                                     <C>              <C>              <C>                <C>
     Loans                                              $     9,218      $    11,251      $    18,242        $   22,891
     Federal funds sold and overnight deposits                   23               82               43               169
     Investment securities
               Taxable                                        1,221            2,067            2,752             4,016
               Tax exempt                                        96              193              193               386
               Other                                             58               69              119               160
                                                        -----------      -----------      -----------        ----------

               Total interest income                         10,616           13,662           21,349            27,622
                                                        -----------      -----------      -----------        ----------
Interest expense
     Deposits                                                 4,243            7,573            9,141            15,134
     Federal funds purchased and other borrowings               368              591              672             1,432
                                                        -----------      -----------      -----------        ----------

               Total interest expense                         4,611            8,164            9,813            16,566

Net interest income                                           6,005            5,498           11,536            11,056
Provision for credit losses                                     680              260              965               483
                                                        -----------      -----------      -----------        ----------

Net interest income after provision for credit losses         5,325            5,238           10,571            10,573

Other income
     Service charges on deposit accounts                        663              500            1,245             1,094
     Net gain on sale of securities                             318              158              318               159
     Net gain on disposition of asset                            94               --              104                 4
     Income from investment services                             77               37              146                74
     Mortgage banking fees                                      282               48              442                48
     Other income                                               114               91              223               151
                                                        -----------      -----------      -----------        ----------

               Total other income                             1,548              834            2,478             1,530

Other expenses
     Salaries and employee benefits                           2,524            2,392            4,936             4,712
     Occupancy expense                                          270              259              529               506
     Furniture and equipment expense                            482              492              979               969
     Insurance expense, including FDIC assessment                52               43               97                85
     Marketing expense                                           74               60              119               110
     Printing and supply expense                                 94              109              229               173
     Other expenses                                           1,081              590            2,019             1,306
                                                        -----------      -----------      -----------        ----------

               Total other expenses                           4,577            3,945            8,908             7,861

Income before income taxes                                    2,296            2,127            4,141             4,242
Income tax expense                                              761              608            1,354             1,219
                                                        -----------      -----------      -----------        ----------

Net income                                                    1,535            1,519            2,787             3,023
Other comprehensive income (loss)                               973               19              (87)            1,229
                                                        -----------      -----------      -----------        ----------
Comprehensive income                                    $     2,508      $     1,538      $      2,700       $    4,252
                                                        ===========      ===========      ============       ==========
Per share data
     Net income, basic                                  $      0.33      $      0.34      $       0.60             0.67
     Net income, diluted                                $      0.32      $      0.33      $       0.59       $     0.66
     Cash dividends                                     $      0.13      $      0.13              0.26       $     0.25
     Weighted average shares outstanding, basic           4,635,296      $ 4,511,576         4,605,891        4,501,958
     Weighted average shares outstanding, diluted         4,739,204      $ 4,576,011        4,694,325         4,557,881

</TABLE>

         See notes to unaudited consolidated financial statements.
<PAGE>
                                       2



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

<TABLE>
<CAPTION>
                                                                                   Six Months Ended
                                                                                        June 30,
                                                                                2002                 2001
                                                                              --------            --------
<S>                                                                           <C>                 <C>
Cash flows from operating activities:
          Interest received                                                   $ 19,738            $ 35,906
          Fees and commissions received                                          2,280               1,762
          Interest paid                                                        (10,548)            (17,763)
          Noninterest expense paid                                              (8,682)             (6,616)
          Income taxes paid                                                     (2,026)             (1,232)
          Funding of loans held for sale                                       (12,232)             (8,761)
          Proceeds from sales of loans held for sale                            12,514               8,026
                                                                              --------            --------

               Net cash provided by operating activities                         1,044              11,322
                                                                              --------            --------
Cash flows from investing activities:
          Proceeds from sales or calls of securities available for sale         33,029              69,546
          Proceeds from maturities of securities available for sale                 --               1,500
          Purchase of securities                                                  (220)            (85,612)
          Capital expenditures                                                    (218)               (428)
          (Increase) decrease in other real estate owned                           823                  75
          (Increase) decrease in loans                                          (8,033)            (15,569)
                                                                              --------            --------

               Net cash provided (used) in investing activities                 25,381             (30,488)
                                                                              --------            --------

Cash flows from financing activities:
          Increase (decrease) in demand, savings and interest
                checking accounts                                               (2,908)              2,846
          Increase (decrease) in time deposits                                 (45,477)             36,618
          Increase (decrease) in federal funds purchased and
                retail repurchase agreements                                      (779)             (2,069)
          Increase (decrease) in other borrowings                               15,000             (11,000)
          Proceeds from issuance of common stock                                 1,072                  81
          Repurchase of common stock                                            (1,100)                 --
          Dividends paid                                                        (1,199)             (1,142)
                                                                              --------            --------

               Net cash provided (used) by financing activities                (35,391)             25,334
                                                                              --------            --------

Net increase (decrease) in cash and cash equivalents                            (8,966)              6,168
Cash and cash equivalents, January 1                                            23,673              15,952
                                                                              --------            --------

Cash and cash equivalents, June 30                                            $ 14,707            $ 22,120
                                                                              ========            ========

Supplemental disclosure of non-cash transactions:
Non-cash transfers from loans to other real estate                            $    394            $    189
                                                                              ========            ========
</TABLE>


         See notes to unaudited consolidated financial statements.

<PAGE>
                                       3




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>


                                                                                       Six Months Ended
                                                                                           June 30,
                                                                                 ----------------------------
                                                                                   2002                2001
                                                                                 --------            --------
<S>                                                                              <C>                 <C>
Net income                                                                       $  2,787            $  3,023

Adjustments to reconcile net income to net cash provided by operating
activities:
          Provision for credit losses                                                 965                 483
          Depreciation                                                                684                 744
          Accretion and amortization                                                  102                 220
          (Gain) loss on sale of securities available for sale                       (318)               (159)
          Funding of loans held for sale                                          (12,232)             (8,761)
          Proceeds from sales of loans held for sale                               12,514               8,026
          (Gain) loss on other assets                                                (104)                 (4)
          (Increase) decrease in accrued income and other assets                   (2,557)              1,077
          Increase (decrease) in accrued expenses and other liabilities              (797)              6,673
                                                                                 --------            --------

               Net cash provided by operating activities                         $  1,044            $ 11,322
                                                                                 ========            ========
</TABLE>


         See notes to unaudited consolidated financial statements.

<PAGE>
                                       4




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 six month period
     ended June 30, 2002 are not necessarily  indicative of the results that may
     be expected for the year ending December 31, 2002.


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 June 30, 2002, FNB Southeast  operated  thirteen banking offices
     in North Carolina and four banking offices in 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 six month
     periods  ended June 30,  2002 and 2001  consists  of  unrealized  gains and
     losses on available for sale  securities,  net of related income taxes,  as
     follows:

<TABLE>
<CAPTION>


     (Dollars in thousands)                  Three Months Ended                      Six Months Ended
                                                  June 30,                                June 30,
                                         ---------------------------             ---------------------------
                                           2002                2001                2002                2001
                                         -------             -------             -------             -------
<S>                                      <C>                 <C>                 <C>                 <C>
Unrealized gains (losses) on
    available for sale securities        $ 1,913             $   189             $   176             $ 2,174

Reclassification of realized gains          (318)               (158)               (318)               (159)

Income tax effect                           (622)                (12)                 55                (786)
                                         -------             -------             -------             -------
                                         $   973             $    19             $   (87)            $ 1,229
                                         =======             =======             =======             =======
Other comprehensive income (loss)

</TABLE>


<PAGE>
                                       5


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                 Six Months Ended
                                                               June 30,                          June 30,
                                                      ---------------------------         ---------------------------
                                                         2002              2001              2002              2001
                                                      ---------         ---------         ---------         ---------
<S>                                                   <C>               <C>               <C>               <C>
Weighted average number of shares
        used in basic EPS                             4,635,296         4,511,576         4,605,891         4,501,958
Effect of dilutive stock options                        103,908            64,435            88,434            55,923
                                                      ---------         ---------         ---------         ---------
Weighted average number of common
        shares and dilutive potential common
        shares used in dilutive EPS                   4,739,204         4,576,011         4,694,325         4,557,881
                                                      =========         =========         =========         =========

</TABLE>


          As of June 30, 2002,  there were 181,249  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.

<PAGE>
                                       6


 6.  Investment Securities Available for Sale

<TABLE>
<CAPTION>

                                                June 30, 2002                        December 31, 2001
                                         ----------------------------           -----------------------------
      (Dollars in thousands)             Amortized            Fair              Amortized             Fair
                                           Cost               Value                Cost               Value
                                         --------            --------            --------            --------
<S>                                      <C>                 <C>                 <C>                 <C>
U.S. Agency securities                   $ 75,043            $ 76,822            $104,039            $106,032
Mortgage backed securities                  6,851               7,092               8,477               8,628
State and municipal obligations             4,551               4,833               8,325               8,628
Other                                         306                 314                 304                 309
                                         --------            --------            --------            --------

Total available for sale                 $ 86,751            $ 89,061            $121,145            $123,597
                                         ========            ========            ========            ========
</TABLE>


7.   Loans  (net of unearned income)

<TABLE>
<CAPTION>

       (Dollars in thousands)                  June 30,         December 31,
                                                 2002               2001
                                               --------           --------
<S>                                            <C>                <C>

Loan Category:

Real estate - commercial                       $163,661           $168,419
Real estate - residential                       123,863            129,212
Real estate - construction                       75,234             55,861
Commercial, financial and agricultural           87,657             90,858
Consumer                                         92,305             89,943
                                               --------           --------

        Subtotal loans                          542,720            534,293

Loans held for sale                                 770              1,052
                                               --------           --------

          Gross loans                          $543,490           $535,345
                                               ========           ========

</TABLE>



<PAGE>
                                       7


<TABLE>
<CAPTION>


Allowance for Credit Losses

                                                 June 30, 2002                  December 31, 2001
                                          ---------------------------     ------------------------------
                                                           % of Loans                       % of Loans
(Dollars in thousands)                                      in Each                           in Each
                                                          Category to                       Category to
                                          Allowance       Total Loans      Allowance         Total Loans
                                          ---------       -----------      ---------         -----------
<S>                                        <C>                <C>             <C>               <C>
Balance at end of period
applicable to:

Real estate - construction                     22              14          $    18                10
Real estate - mortgage                        185              53              104                56
Commercial                                  4,745              16            4,773                17
Consumer                                    1,956              17            1,836                17
                                          ---------       -----------      ---------         -----------

     Total                                 $6,908             100%          $ 6,731              100%
                                          =========       ===========      =========         ===========
</TABLE>




9.       Analysis of Allowance for Credit Losses

                                                          Six Months Ended
                                                              June 30,
                                                    ---------------------------
(Dollars in thousands)                                 2002             2001
                                                     -------          -------

Balance, beginning of period                         $ 6,731          $ 6,311

Charge-offs                                              857              398
Recoveries                                               (69)            (101)
                                                     -------          -------

Net charge-offs                                          788              297
                                                     -------          -------

Allowance charged to operations                          965              483
                                                     -------          -------

Balance, end of period                               $ 6,908          $ 6,497
                                                     =======          =======

Ratio of annualized net charge-offs during the
          period to average loans outstanding
          during the period                             0.29%            0.12%
                                                     =======          =======

Ratio of allowance for credit losses to
          month end loans                               1.27%            1.26%
                                                     =======          =======


<
                                       8

<PAGE>


10.  Nonperforming Assets

                                                          June 30,  December 31,
     (Dollars in thousands)                                 2002        2001
                                                           ------      ------

     Nonaccrual (1)                                        $2,848      $2,260
     Past due 90 days or more and still accruing interest      61           6
     Other real estate                                      1,490       2,707


     (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 June 30, 2002 were $671.3  million,  a decrease of $33.5  million
since  December 31, 2001. The decrease in assets was primarily due to a decrease
in investment  securities available for sale of $34.5 million over the first six
months of 2002.  The decrease in the  investment  portfolio was due to continued
calls by issuers of various  securities.  The  Company  has elected to use these
proceeds to fund a managed decrease in relatively high cost deposits rather than
reinvesting in securities near the perceived  bottom of the interest rate cycle.
Over the past six months, deposits have decreased $48.4 million.

     Net income for the quarter ended June 30, 2002, of $1.5 million was $16,000
or 1.0% higher than the amount earned in the second  quarter last year.  Diluted
earnings  per share for the  current  quarter  were $0.32 per share  compared to
$0.33 per share last year. For the six months to date,  earnings of $2.8 million
were lower than the same  period  last year by  $236,000  or 7.8%,  and  diluted
earnings per share totaled $0.59 compared to $0.66 in the same period last year.

Interest Income and Interest Expense

     Second quarter total interest income was $10.6 million, a decrease of 22.3%
over the same quarter  last year.  Average  earning  assets for the quarter were
$642.4  million,  compared to $683.3  million for the year ago period.  Interest
income from loans was $9.2 million,  down 18.1% from $11.3 million in the second
quarter of 2001.  The  decrease in  interest  income was driven  primarily  by a
dramatic decline in the prime lending rate. Average loans of $539.4 million were
5.1% higher  than the $513.1  million  last year.  For the second  quarter,  the
average yield on loans was 6.85% in 2002 compared to 8.80% in 2001.  For the six
months ended on June 30,  2002,  total  interest  income was down 22.7% to $21.3
million  from $27.6  million in the same period in 2001,  on a 3.5%  decrease in
average earning assets.

     Interest  income  on  investments  totaled  $1.4  million  for the  current
quarter,  down 39.1% from $2.3 million for the year ago quarter.  The change was
primarily  attributable  to a  40.1%  decrease  in the  average  balance  of the
investment  portfolio from $162.8 million in the second quarter of 2001 to $97.5
million  in the  second  quarter  of 2002.  Due to call and sales of  securities
within the portfolio over the last year,  interest income on taxable  investment
securities  decreased  $846,000,  while interest income on tax exempt securities
decreased  $97,000.  Investment  income for the six month period  decreased from
$4.6 million in 2001 to $3.1 million in 2002 for the same reasons.

     Second  quarter total  interest  expense was $4.6 million  compared to $8.2
million from the second quarter of last year, a 43.5% decrease. Average interest
bearing liabilities for the second quarter 2002 decreased 8.7% to $543.8 million
from $595.7  million for the second  quarter of 2001.  Overall cost of funds for
the second  quarter  was 3.40% and 5.50% in 2002 and 2001,  respectively.  Total
interest  expense  for the first six  months of 2002 was $9.8  million,  a 40.8%
decrease over the $16.6 million expense for the first six months of 2001.


                                       10
<PAGE>


     Interest expense on deposits for the second quarter decreased 44.0% to $4.2
million as average interest bearing deposits for the quarter  decreased 12.7% to
$478.8  million  from  $548.6  million in 2001.  The  Company  elected to fund a
managed  decrease in  relatively  high cost  deposits  rather with proceeds from
called or sold investment  securities rather than reinvesting in securities near
the  perceived  bottom of the  interest  rate cycle.  The  average  rate for the
quarter on  interest  bearing  deposits  decreased  to 3.55% from 5.54% one year
earlier.  Deposit  interest  expense  for the six months  ended  June 30,  2002,
decreased from $15.1 million in 2001 to $9.1 million in 2002.

     Interest  expense on  federal  funds  purchased  and other  borrowings  was
$368,000 for the quarter ended June 30, 2002,  down 37.7%,  from $591,000 in the
second quarter of 2001. The decrease was primarily  attributable to a decline in
average  rate paid on  purchased  funds to 2.27% in the  second  quarter of 2002
compared to 5.03% in the second  quarter of 2001.  For the six months ended June
30,  interest  expense for this category  decreased from $1.4 million in 2001 to
$672,000 in 2002.

Comparable net interest margins are as follows:

<TABLE>
<CAPTION>

Time Period                         Asset Yield              Rate             Interest Rate Spread
                                  -----------------      -------------       ------------------------
<S>                                    <C>                  <C>                         <C>
     Second Quarter, 2002              6.66%         -      3.40%         =             3.26%
     Second Quarter, 2001              8.08%         -      5.50%         =             2.58%

     Year-To-Date, 2002                6.65%         -      3.57%         =             3.08%
     Year-To-Date, 2001                8.33%         -      5.68%         =             2.65%
</TABLE>

Noninterest Income and Expense

     Noninterest  income in the second quarter of this year  increased  85.4% to
$1.5  million  from  $834,000  in the same  period  last year.  For the  current
quarter,  $318,000  of net  gains  from  sales  of  investment  securities  were
recognized, an increase from $158,000 of net gains in the second quarter of last
year.  Deposit  service  charges  of  $663,000  for the  second  quarter of 2002
increased  32.6% from the  $500,000 in the second  quarter of 2001.  Noninterest
income in the second quarter of 2002 included  $282,000 in mortgage banking fees
and  $77,000 in  investment  service  fees  compared  to revenues of $48,000 and
$37,000,  respectively,  for the previous year. The increase in mortgage banking
fees  for the  first  half of 2002  was  attributable  to the  operation  of the
mortgage  banking  subsidiary  established  in June of 2001.  During  the second
quarter  of  2002,  the  Company  recognized  a gain of  $94,000  on the sale of
mortgage  servicing rights. All of the underlying loans had been previously sold
in the secondary mortgage market. Mortgage servicing fees totaled $24,000 during
the first six months of 2002,  but will be  substantially  reduced in the second
half of 2002. Total  noninterest  income for the first half of 2002 totaled $2.5
million,  a 62.0%  increase  over the $1.5  million  earned in the first half of
2001.  Deposit  service  charges of $1.2  million  for the six months were 13.8%
higher than the $1.1 million recorded in the same period last year.

     Noninterest  expense  for the second  quarter of 2002 was $4.6  million,  a
16.0%  increase  over the $3.9  million  expense in the second  quarter of 2001.
Salaries and employee  benefits  increased  $132,000 because of higher insurance
and retirement costs,  occupancy expense  increased  $11,000,  and furniture and
equipment  expense  decreased  $10,000  compared to the year ago quarter.  Other
expense for the 2002 second quarter  totaled $1.1 million,  compared to $590,000
for the year ago quarter.  The Company  incurred a $60,000  expense to buy-out a
third party  service  agreement and expense also recorded a writedown of $80,000
for the disposal of fixed assets.  The Company intends to sell  approximately 32
free standing  ATMs during the third quarter of this year. A quarterly  increase
of $108,000  was  incurred in  collection  expenses,  exams and audit  expenses,
courier expense and communications  expenses. Other expense in the first half of
2002 totaled $2.0 million, an increase of $713,000 from the first half of 2001.


                                       11
<PAGE>


This increase was largely  attributable  to a write-off of $138,000 in the first
quarter of 2002 of an  uncollectable  receivable from a U.S.  government  agency
that guaranteed a portion of a charge-off loan and the above mentioned items for
the second quarter.  This year's six-month  noninterest  expense of $8.9 million
was 13.3% higher than the $7.9 million in the same period last year.

     The provision for credit losses in the second  quarter of 2002 was $680,000
compared to $260,000 in 2001. The allowance for credit losses as a percentage of
gross loans  outstanding  increased to 1.27% at June 30, 2002 from 1.26% at June
30, 2001.  The increase in the provision for credit  losses is  attributable  to
annualized  net  credit  losses  to  average  loans of 0.38% in the 2002  second
quarter  compared to 0.22% in the 2001 second quarter.  For the 2002 six months,
the  provision  totaled  $965,000,  compared to $483,000  for the same period in
2001.

     The effective income tax rate of 32.7% for the first six months of 2002 was
higher  than the 28.7%  rate for the same  quarter  of 2001.  Late in the second
quarter  of 2002,  the  Company  sold a  portion  of the  tax-exempt  investment
portfolio.  This will have the general  effect of  increasing  the effective tax
rate during the second half of 2002.

Financial Condition

     The  Company's  total assets at June 30, 2002 and 2001 were $671.3  million
and $722.5 million,  respectively.  The $51.2 million decline  represents a 7.1%
decrease over one year earlier.  Since December 31, 2001,  assets have decreased
$33.5  million.  The  decrease  in assets was  primarily  due to a  decrease  in
investment  securities  available  for sale of $34.5  million over the first six
months of 2002.  Average  earning assets for the 2002 second quarter were $642.4
million,  or 6.0% lower than the $683.3 million average in the same quarter last
year.

     Loans at June 30, 2002 totaled  $543.5  million  compared to $516.9 million
one year earlier,  an increase of 5.1%.  Loans have  increased  1.5% from $535.3
million at December 31, 2001.  Average loans for the second quarter of 2002 were
$539.4  million,  or 5.1%  higher than the $513.1  million  average in this same
period one year ago.

     Investment  securities  of $92.9  million at June 30, 2002 were 43.8% lower
than the $165.4 million recorded one year earlier. Average investment securities
were $97.5 million and $162.8  million for the second  quarter of 2002 and 2001,
respectively.  The  decrease in the  investment  portfolio  was due to continued
calls by issuers of various  securities.  The  Company  has elected to use these
proceeds to fund a managed decrease in relatively high cost deposits rather than
reinvesting in securities near the perceived bottom of the interest rate cycle.

     Deposits  totaled $538.4 million at June 30, 2002, an 11.6% decrease versus
$608.8  million  one year ago,  and an 8.3%  decrease  from the  $586.8  million
recorded  at  December  31,  2001.  At  the  end  of the  second  quarter  2002,
noninterest bearing deposits were $53.8 million, or 10.0% of total deposits. The
decrease in deposits  was the result of  management's  decision to use  proceeds
from called  investment  securities  for funding  purposes,  as discussed in the
previous paragraph.

     At June 30,  2002,  borrowings  at the  Federal  Home Loan Bank of  Atlanta
(FHLB) totaled $45.0 million,  an increase of 50.0% compared to $30.0 million at
December 31, 2001. The increase in borrowings was due to favorable funding rates
available at the current time.

     Shareholders'  equity  increased to $64.2  million at the end of the second
quarter 2002,  compared to $62.7 million at December 31, 2001.  The Company paid
dividends  of $0.13 per share during the quarter  ended June 30, 2002,  the same
rate as the second  quarter of 2001.  Year to date  dividends per share for 2002
were $0.26 compared to $0.25 in 2001. A stock repurchase  program of up to 5% of
the  outstanding  common stock was announced  during the second  quarter of this
year.  This program is intended to help the Company achieve its goal of building
shareholder value while maintaining appropriate capital levels. Through June 30,
2002, a total of 67,700 shares have been  purchased.  In  accordance  with state
law, repurchased shares are cancelled and are no longer considered issued.


                                       12
<PAGE>

Asset Quality

     The credit  loss  allowance  ratio at June 30,  2002 was 1.27%  compared to
1.26% at December 31, 2001 and 1.26% at June 30, 2001. For the second quarter of
2002,  provision  charges against earnings totaled $680,000 compared to $260,000
in the second  quarter one year  earlier.  Net  charge-offs  for the 2002 second
quarter  totaled  $514,000,  or a 0.38%  annualized  loss ratio based on average
loans  outstanding.  This  compares to net  charge-offs  of  $286,000,  or 0.22%
annualized  loss ratio for the 2001 second  quarter.  Annualized net charge-offs
for the first six months of 2002 and 2001 were  0.29% and  0.12%,  respectively,
based on average loans outstanding.

     The  Company's  allowance  for  credit  losses  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  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  decreased  to $1.5  million  at June 30,  2002,
compared to $2.7 million at December 31, 2001.  Approximately  $394,000 has been
transferred from loans into other real estate and approximately  $1.6 million of
such assets were  disposed of during the first six months of 2002. A net loss of
$8,000 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 June 30, 2002.

<TABLE>
<CAPTION>

                                    Regulatory Guidelines
                              -----------------------------------
                                   Well             Adequately                             FNB
     Ratio                      Capitalized        Capitalized          Company         Southeast
     -----                   ----------------    ---------------     -------------    -------------
     <S>                            <C>                <C>                <C>              <C>
     Total Capital                  10.0%              8.0%               13.1%            12.7%
     Tier 1 Capital                  6.0               4.0                11.8             11.5
     Leverage Capital                5.0               4.0                 9.3              9.0
</TABLE>

New Accounting Pronouncements

     The Financial  Accounting  Standards Board ("FASB") has issued Statement of
Financial  Accounting Standards ("SFAS") No. 141, "Business  Combinations",  and
SFAS 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


                                       13
<PAGE>



carries  forward without  reconsideration  those portions of APB Opinion No. 16,
"Business  Combinations",  that provides  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 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.  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. The
provisions of both Statements have been adopted. The implementation did not have
a material effect on the Company's financial statements.

     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). The provision of the Statement has been adopted. The implementation
did not have a material effect on the Company's financial statements.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS 144 supersedes  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 provision of
the  Statement  has been  adopted.  The  implementation  did not have a material
effect on the Company's financial statements.

     In May 2002, the FASB issued SFAS No, 145,  "Rescission of FASB  Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
as of April 2002." This  Statement  rescinds  SFAS No. 4,  "Reporting  Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, No. 64,
"Extinguishments of Debt to Satisfy  Sinking-Fund  Requirements." This Statement
also rescinds SFAS No. 44,  "Accounting for Intangible Assets of Motor Carriers"
and amends SFAS No. 13,  "Accounting for Leases",  to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease  modifications  that have economic effects that are
similar  to  sale-leaseback  transactions.  This  Statement  also  amends  other
existing  authoritative  pronouncements to make various  technical  corrections,
clarify  meanings,  or describe their  applicability  under changed  conditions.
Management  does not  anticipate  implementation  of this  Statement will have a
material effect on the Company's financial statements.


                                       14
<PAGE>


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  withdrawals,  loan funding and general corporate
activity create a need for liquidity for the Company.  Liquidity is derived from
sources  such as  deposit  growth;  maturity,  calls,  or  sales  of  investment
securities;  principal and interest payments on loans;  access to borrowed funds
or lines of credit; and profits.

     During the first six months of 2002 the  Company  had net cash  provided by
operating activities of $1.0 million. This was a reduction from $11.3 million of
net cash  provided  by  operating  activities  in the  first  half of 2001.  The
decrease is primarily  attributable  to the decline of $16.2 million in interest
received and an increase in noninterest expense paid of $2.1 million.

     Net cash provided by investing  activities in the first six months  totaled
$25.4  million  primarily  based on the proceeds of $33.0  million from calls of
investment  securities.  Purchases of investment  securities in the current year
totaled  $220,000.  This  compares to the first half of 2001 when  purchases  of
$85.6  million in investment  securities  resulted in net cash used in investing
activities of $30.5 million.  An increase in loans outstanding used $8.0 million
in cash during 2002,  compared to an increase in outstanding  loans in 2001 that
used $15.6 million of cash during the same period in 2001.

     Financing  activities  in the 2002  first half used  $35.4  million,  based
primarily  on $48.4  million  outflow  of  deposits.  These cash  outflows  were
partially  offset by increased  borrowings of $15.0 million during the first six
months. During the 2001 first half, financing activities provided $25.3 million.
Time deposits provided $36.6 million of cash, while repayment of other borrowing
used $11.0 million of cash and  repayment of federal funds  purchased and retail
repurchase agreements used $2.1 million during the first half of 2001.

     Overall cash and cash  equivalents  totaled  $14.7 million at June 30, 2002
compared  to $23.7  million at December  31, 2001 and $22.1  million at June 30,
2001.

     Liquidity  is further  enhanced by an  approximately  $115  million line of
credit with the FHLB  collateralized  by FHLB stock,  investment  securities and
qualifying 1 to 4 family residential  mortgage loans, and qualifying  commercial
real estate loans. The Company provides various reports to the FHLB on a regular
basis  throughout the year to maintain the availability of the credit line. Each
borrowing request to the FHLB is initiated  through an advance  application that
is subject to approval by the FHLB before  funds are  advanced  under the credit
agreement.

     The Company  also has  unsecured  overnight  borrowing  lines  totaling $19
million available through four financial  institutions.  These lines are used to
manage the day to day, short-term  liquidity needs of the Company.  Each Federal
funds  line has a  requirement  to repay the line in full on a  frequent  basis,
typically within five to ten business days.

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.


                                       15
<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 six months ended June 30, 2002.



                                       16
<PAGE>


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

         On May 16, 2002, at the Annual  Meeting of the Company's  shareholders,
         the following two proposals were voted on by shareholders.

         Proposal One
         ------------

         To elect five members of the Board of Directors as follows:

         One Class II Director to fill the vacancy  created by the retirement of
         Dr. Clifton G. Payne as of December 31, 2001 and to serve the remainder
         of a three year term  ending in 2004.  Votes for each  nominee  were as
         follows:

         Nominee                        For                  Withheld
         -------                        ---                  --------
         E. Reid Teague              3,442,512                35,168

         Four Class III  Directors  to serve  three-year  terms  ending in 2005.
         Votes for each nominee were as follows:

         Nominee                        For                          Withheld
         -------                        ---                          --------
         Gary G. Blosser             3,437,915                        39,765
         Joseph H. Kinnarney         3,436,328                        41,352
         Elton H. Trent, Jr.         3,437,867                        39,813
         Kenan C. Wright             3,437,900                        39,780

         The following  directors remain in office:  Barry Z. Dodson (Chairman),
         Charles A. Britt (Vice Chairman), O. Eddie Green, and Ernest J. Sewell.

         Proposal Two

         To  ratify  the  appointment  of  PricewaterhouseCoopers   LLP  as  the
         Company's  independent  accountants  for the year ending  December  31,
         2002. The votes for this proposal were as follows:

         For :             3,423,773
         Against: 48,281
         Abstain: 5,626



                                       17
<PAGE>


Item 5.  Other Information

         None.


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

               The Company  filed a Current  Report on Form 8-K on May 17, 2002,
          to  announce  plans to  repurchase  up to 5% of the  Company's  common
          stock. Purchases may be made from time-to-time,  in the open market or
          in privately negotiated  transactions,  based on market conditions and
          other  factors.  The  repurchase  program may be suspended at any time
          without prior notice.




                                       18
<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)



         August 12, 2002               /s/ Michael W. Shelton
                                       -----------------------------------------
                                       Michael W. Shelton
                                       (Vice President, Secretary and Treasurer)



                                       19