Exhibit 13






                                FNB CORPORATION

                         ANNUAL REPORT TO SHAREHOLDERS

                                      2004
<PAGE>


                     INDEX TO ANNUAL REPORT TO SHAREHOLDERS


                                                                      Page


Selected Consolidated Financial Information                             1

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

Market Price and Dividend Data                                         12

Market Risks Related to Financial Instruments                          13

Management's Statement of Financial Responsibility                     16

Independent Registered Public Accountants' Report on
Consolidated Financial Statements                                      17

Consolidated Balance Sheets                                            18

Consolidated Statements of Income                                      19

Consolidated Statements of Cash Flows                                  21

Consolidated Statements of Changes in Stockholders' Equity             24

Notes to Consolidated Financial Statements                             27

Board of Directors and Corporate Executive Officers                    60
<PAGE>

<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
                                             Years Ended December 31,
                                    2004      2003(1)  2002     2001(1)  2000
<S>                            <C>         <C>       <C>     <C>      <C>
Selected income statement data
   (in thousands):
     Interest income           $  70,461    61,464   59,618   47,850   42,017
     Interest expense             22,660    19,935   22,196   22,827   20,102

     Net interest income          47,801    41,529   37,422   25,023   21,915
     Provision for loan
        losses                     3,046     2,158    1,369    1,637    1,082
     Noninterest income           14,349    15,678   11,545    5,798    3,528
     Noninterest expense          36,830    35,703   31,282   19,900   15,073
     Income tax expense            8,027     6,414    5,225    2,550    2,454

     Net income                $  14,247    12,932   11,091    6,734    6,834

Per share data:(2)
     Basic earnings            $    1.96      2.03     1.93     1.54     1.61
     Diluted earnings               1.95      2.01     1.90     1.53     1.61
     Cash dividends declared         .74       .70      .68      .68      .66
     Book value                    20.63     19.57    16.52    14.96    12.37

Average shares outstanding(2)
   (in thousands):
     Basic                         7,252     6,378    5,758    4,373    4,233
     Diluted                       7,320     6,445    5,833    4,404    4,233

Selected balance sheet data
   at year end
      (in thousands):
     Total securities          $ 156,732   193,237  163,283  182,164   97,167
     Loans, net of unearned
        income                 1,103,470   999,888  691,661  648,263  409,586
     Allowance for loan
        losses                    13,165    12,002    9,466    8,827    5,670
     Total assets              1,396,116 1,326,811  992,431  954,450  539,231
     Deposits                  1,124,267 1,048,802  845,688  806,787  431,659
     Trust preferred              27,836    27,836   15,464   14,549        -
     Stockholders' equity        150,001   141,108   95,099   86,633   51,942

Selected ratios (in percentages):
     Return on average assets       1.04      1.14     1.16     1.04     1.32
     Return on average equity       9.82     11.26    12.36    11.67    13.77
     Dividend pay-out ratio        39.53     33.38    35.37    44.85    40.94
     Average equity to
        average assets             10.57     10.11     9.36     8.89     9.58
</TABLE>
Notes:

(1)  Includes effect of acquisitions.  See full discussion in Note 23 of the
     Notes to Consolidated Financial Statements.

(2)  All share and per share data have been adjusted retroactively to reflect
     a 6% stock dividend in 2002.
<PAGE>    1

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS


The following is a discussion of factors that significantly affected the
financial condition and results of operations of FNB Corporation, a bank
holding company, and its wholly owned subsidiaries.  This discussion should
be read in connection with the consolidated financial statements, statistical
disclosures and other financial information presented herein.  All amounts
presented are denoted in thousands except per share data, percentages or as
otherwise specified.

Forward Looking Information

This report may contain forward-looking statements with respect to the
financial condition, results of operations and business of the Corporation.
These forward-looking statements involve risks and uncertainties and are
based on the beliefs and assumptions of management of the Corporation,
and on the information available to management at the time that these
disclosures were prepared.  Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements
include, but are not limited to, the following possibilities:  (1)
competitive pressures between depository and other financial institutions may
increase significantly; (2) changes in the interest rate environment may
reduce margins; (3) general economic conditions, either nationally or
regionally, may be less favorable than expected, resulting in, among other
things, a deterioration in credit quality and/or a reduced demand for credit;
(4) legislative or regulatory changes, including changes in accounting
standards, may adversely affect the businesses in which the Corporation is
engaged; (5) costs or difficulties related to the integration of the
businesses of the Corporation and its merger partners may be greater than
expected; (6) competitors may have greater financial resources and develop
products that enable such competitors to compete more successfully than the
Corporation; and (7) adverse changes may occur in the securities markets.

Critical Accounting Policies

The Corporation's significant accounting policies are set forth in Note 1 of
the Notes to the Consolidated Financial Statements.  The Corporation's
financial position and results of operations are affected by management's
application of accounting policies, including estimates, assumptions and
judgments made to arrive at the carrying value of assets and liabilities and
amounts reported for revenues and expenses.  Different assumptions in the
application of these policies could result in material changes in the
Corporation's consolidated financial position and/or consolidated results of
operations.  The Corporation considers its policies regarding the allowance
for loan losses and valuing intangible assets associated with mergers and
acquisitions to be its most critical accounting policies, because they
require many of management's most subjective and complex judgments.
Understanding the Corporation's accounting policies is fundamental to
understanding its consolidated financial position and consolidated results of
operations.

The Corporation has developed appropriate policies and procedures for
assessing the adequacy of the allowance for loan losses, recognizing that
this process requires a number of assumptions and estimates with respect to
its loan portfolio.  The Corporation's assessments may be impacted in future
<PAGE>    2
periods by changes in economic conditions, regulatory examinations and the
discovery of information with respect to borrowers that is not currently
known.  For additional discussion concerning the Corporation's allowance for
loan losses and related matters, see Note 6, "Loans and Allowance for Loan
Losses" of the Notes to Consolidated Financial Statements.

The Corporation's growth in business, profitability and market share over the
past several years has been enhanced significantly by mergers and
acquisitions.  To account for mergers and acquisitions the Corporation
follows Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations," which allows only the use of the purchase method of
accounting.

For purchase acquisitions, the Corporation is required to record the assets
acquired, including identified intangible assets, and liabilities assumed at
their fair value, which in many instances involves estimates based on third
party valuations, such as appraisals, or internal valuations based on
discounted cash flow analyses or other valuation techniques.  The
determination of the useful lives of intangible assets is subjective, as is
the appropriate amortization period for such intangible assets.  In addition,
purchase acquisitions typically result in goodwill, which is subject to
ongoing periodic impairment testing based on the fair value of net assets
acquired compared to the carrying value of goodwill.  Changes in merger
multiples, the overall interest rate environment, or the continuing
operations of the acquisition targets could have a significant impact on the
periodic impairment testing.  For additional discussion concerning the
Corporation's valuation of intangible assets and merger/acquisition
activities, see Note 16, "Goodwill and Other Intangibles," and Note 23,
"Mergers and Acquisitions."

Overview

The Corporation's earnings were up over last year due to the merger of
Bedford Federal Savings Bank (Bedford) and higher net income in the
community-banking segment due to growth in loans, deposits, and revenue from
other product lines.  Bedford's earnings were included in the Corporation's
results of operations starting in August 2003 effective with the consummation
of the merger.  The increase in earnings due to the Bedford acquisition and
the community-banking segment was partially offset by a decline in earnings
resulting from reduced secondary market mortgage loan volume.

The focus of the Corporation in 2005 will be to expand our business to
existing customers by utilizing a new customer relationship management
system to identify and implement cross-selling opportunities.  Additionally,
the Corporation will focus heavily on expanding its footprint in the
Corporation's newer markets of the Roanoke Valley and Central Virginia by
promoting the Corporation's community banking business approach and breadth
of financial services in a consistent manner, introducing new products and
positioning branches in locations that are most convenient to existing and
prospective customers.

The sustained level of lower interest rates has had a negative impact on the
net interest margin.  Recent and expected increases in the prime rate should
provide a boost to the margin in 2005.  Even though the Corporation closed
its mortgage loan production office in Hilton Head, South Carolina in
November, 2004, the Corporation expects loan growth to continue to be strong
in the markets it serves.  The closing of the Hilton Head office is discussed
<PAGE>    3
in more detail below.  The Corporation will also focus on deposit gathering
so that deposit growth keeps pace with loan growth, thereby reducing
dependency on higher-cost borrowings.  Management will continue to emphasize
expense control and the Corporation should more fully benefit from the
consolidation of support functions of acquisitions.

Although the Corporation's Hilton Head mortgage office was successful in
generating a significant amount of mortgage loans, it did not meet business
plan expectations for secondary market mortgage loan financings.  In
addition, the portfolio mortgage loans originated by that office competed for
funding with loans originated in the Corporation's core Virginia markets.
The Corporation expects to realize earnings benefits in 2005 from a reduction
in operating expenses associated with the closure of this office and from
continuing revenue from the office's loan portfolio which was assumed by
other offices within the Corporation.

We expect the above actions and events to have a positive impact on the
margin and earnings in 2005.

Mergers and Acquisitions

On August 1, 2003, the Corporation acquired Bedford Bancshares, Inc.
("Bedford") and its subsidiary, Bedford Federal Savings Bank.  Shareholders
of Bedford received 1.403 million shares of FNB Corporation common stock and
$11.5 million in cash.  Bedford Bancshares, Inc. was liquidated and Bedford
Federal Savings Bank became a subsidiary of FNB Corporation.  The acquisition
was recorded under the purchase method of accounting.  Bedford Federal
Savings Bank was converted to a national bank charter on December 10, 2004,
and its name is now Bedford Federal Savings Bank, National Association.
Because the acquisition of Bedford was recorded under the purchase method of
accounting, the results of its operations are only included in the
accompanying financial statements from the date of acquisition (August 1,
2003).

Financial Information Excluding Bedford

The following financial information shows the performance of FNB Corporation
with Bedford excluded.  In addition to results presented in accordance with
generally accepted accounting principles ("GAAP"), this discussion presents
additional selected financial information excluding the impact of the Bedford
acquisition.  These "non-GAAP financial measures" are reconciled to their
most comparable GAAP counterparts in the tables immediately below.
Management feels that the presentation of these non-GAAP financial measures
provides useful information to investors about the Corporation because it
allows investors to better understand the impact of general economic trends
on the Corporation's financial condition and results of operations without
the impact of the acquisition.  Management also uses these non-GAAP measures
to analyze change in performance on a comparable basis.
<PAGE>    4
<TABLE>
<CAPTION>
FNB Corporation Financials: 2004 vs. 2003 With and Without Bedford


                                  2004                        2003    Change
                2004     2004     Excl.     2003     2003     Excl.    Excl.
              Reported  Bedford  Bedford  Reported  Bedford  Bedford  Bedford
<S>          <C>       <C>      <C>      <C>       <C>      <C>      <C>
Net
 interest
 income       $47,801    8,838    38,963    41,529   4,407    37,122   1,841
Provision
 for
 loan loss      3,046      450     2,596     2,158     225     1,933     663
Noninterest
 income        14,349    1,376    12,973    15,678     228    15,450  (2,477)
Noninterest
 expense       36,830    5,139    31,691    35,703   2,057    33,646  (1,955)
Income
 before
 taxes         22,274    4,625    17,649    19,346   2,353    16,993     656
Taxes           8,027    2,021     6,006     6,414     955     5,459     547
Net
 income       $14,247    2,604    11,643    12,932   1,398    11,534     109
</TABLE>
<TABLE>
<CAPTION>
FNB Corporation Financials: 2003 vs. 2002 With and Without Bedford


                                              2003                   Change
                    2003         2003       Excluding     2002      Excluding
                  Reported      Bedford      Bedford    Reported     Bedford
<S>              <C>           <C>          <C>        <C>         <C>
Net interest
  income          $ 41,529       4,407       37,122      37,422       (300)
Provision for
  loan loss          2,158         225        1,933       1,369        564
Noninterest
  income            15,678         228       15,450      11,545      3,905
Noninterest
  expense           35,703       2,057       33,646      31,282      2,364
Income before
  taxes             19,346       2,353       16,993      16,316        677
Taxes                6,414         955        5,459       5,225        234
Net income        $ 12,932       1,398       11,534      11,091        443
</TABLE>

Results of Operations

Net Income

Net income for 2004 was $14,247 compared to $12,932 for 2003 and $11,091 for
2002.  The $1,315 increase in net income from 2003 to 2004 was primarily due
to Bedford.  Excluding Bedford, net income was up $109.  Higher net income in
the community-banking segment more than offset a decline in earnings in the
secondary market mortgage line of business.  Excluding Bedford, earnings were
up $443 from 2003 over 2002, due primarily to higher noninterest revenues.
Basic earnings per share were $1.96 in 2004 compared to $2.03 in 2003 and
$1.93 in 2002.
<PAGE>    5

The Corporation adopted SFAS No. 142 on January 1, 2002.  SFAS No. 142
provides that goodwill related to acquisitions that had been subject to
periodic amortization can no longer be amortized but must be tested at least
annually for impairment.  In October 2004, an analysis commissioned by
management to determine whether goodwill had been impaired in accordance with
the standards promulgated in SFAS No. 142 was completed by an independent
investment-banking firm that specializes in the commercial banking industry.
The firm incorporated SFAS No. 142's definition of fair value with a number
of generally accepted valuation methods appropriate to the stated facts.  In
their opinion, based on the standards and requirements of SFAS No. 142, the
combined goodwill balance of $42,624 held on the Corporation's consolidated
balance sheet on September 30, 2004 had not been impaired.

Part of the premium paid for an acquisition is considered to be for the
benefit of acquiring low-cost deposits and a stable customer base.  These are
referred to as "core deposit intangibles".  This premium was calculated by
independent outside firms that specialize in these studies.  In accordance
with SFAS No. 142, the calculated premium is being amortized on an
accelerated basis over ten years.  Core deposit intangible amortization
amounted to $1,387 in 2004 and $1,193 in 2003.

Net Interest Income

Net interest income currently provides 77% of the revenue of the Corporation.
Net interest income is the amount of interest earned on interest-bearing
assets less the amount of interest paid on deposits and other interest-
bearing liabilities.

Net interest income before provision for loan losses was $47,801 for 2004
compared to $41,529 for 2003, for an increase of $6,272.  Excluding Bedford,
net interest income was up $1,841.  Net interest income increased $2,754
due to strong growth in average loans and deposits and favorable changes in
the composition of the balance sheet.  Higher-yielding loan balances as a
percent of earning assets increased and lower-yielding investments decreased
as loan growth was funded in part by a decline in the investment portfolio.
Year-to-date average lower cost transaction deposits grew at a faster pace
than year-to-date average higher cost certificates of deposit/IRA balances.
This favorable growth and change in composition of the balance sheet was
offset in part by a decline of $913 due to lower rates as loan yields
declined faster than deposit costs.  Reduction in deposit costs was limited
because many deposit products were already near pricing floors.

The net interest margin declined from 4.09% for 2003 to 3.85% for 2004 due to
the sustained low interest rate environment and a lower margin on the product
line in Bedford.  Recent increases in the prime rate have had a positive
impact on the net interest margin.  Expected increases in 2005 should further
enhance the margin.  Bedford's assets and liabilities are being transitioned
to include more commercial bank loan and deposit products in order to better
serve our existing customers, attract new customers and boost revenue.

Management attempts to match the maturities and re-pricing intervals of its
earning assets and liabilities in order to avoid material fluctuations in
earnings if interest rates change.  Historically, the Corporation has been
asset-sensitive, which means that assets re-price more quickly than
liabilities.  An asset-sensitive position favors an expansion of the net
interest margin if interest rates rise.  There is an expectation that
interest rates may rise further if the economy continues to expand in 2005.
<PAGE>    6
The Corporation's margin should improve accordingly if this occurs.  Rate-
sensitivity is more fully covered under the heading "Market Risks Related to
Financial Instruments".

Net interest income before provision for loan losses was $41,529 in 2003
compared to $37,422 in 2002, an increase of $4,107.  The net interest margin
declined from 4.37% to 4.09% during the same period.  Net interest income was
up $4,407 due to the acquisition of Bedford.  In addition, net interest
income increased $1,188 due primarily to a favorable shift in the composition
of the deposit base from higher cost certificates of deposit and IRAs to
lower cost checking accounts and other transaction deposit accounts.  Net
interest income was also up $1,933 due to growth in the balance sheet.  These
favorable variances were offset by a decline in net interest income of $3,421
resulting from a drop in average rates from 2002 to 2003.  Yields on loans
dropped 102 basis points; whereas, the cost of deposits dropped only 64 basis
points.

Provision for Loan Losses

The provision for loan losses was $3,046 for 2004, $2,158 for 2003 and $1,369
for 2002.  The provision for loan losses, when expressed as a percentage of
year-to-date average loans outstanding, was .29%, .26% and .21% for 2004,
2003 and 2002, respectively.  The provision was up from 2003 to 2004 due to
higher loan growth, the addition of Bedford for a full year and higher net
charge-offs.  Net charge-offs were $1,883, $1,004 and $730 for 2004, 2003 and
2002, respectively.  Net charge-offs to average year-to-date loans
outstanding were .18%, .12% and .11% for 2004, 2003 and 2002, respectively.
The increase in net charge-offs from 2003 to 2004 was primarily divided among
the commercial and consumer loan categories.  The 2004 ratio is comparable to
peer averages. Included in 2002 was a $491 recovery from one customer.  Net
charge-offs for 2003 would be below 2002 if this large recovery was
excluded.

Management analyzes the loan portfolio quarterly to determine the appropriate
level of loan loss reserve (see discussion under the heading "Allowance for
Loan Losses").

Noninterest Income

Noninterest income, which includes service charges on deposit accounts, loan
origination income and service release fees on mortgage loans sold, other
service charges, investment group fees and commissions, sundry income and net
securities gains (losses), was $14,349, $15,678 and $11,545, for 2004, 2003
and 2002, respectively.  Noninterest income declined by $1,329 from 2003 to
2004.  Excluding Bedford, noninterest income declined $2,477.  This decline
was due primarily to lower secondary market mortgage revenue ($2,997) due to
a tapering off of mortgage loan re-financings, which was partially offset by
higher service charges ($332) and higher trust and investment product revenue
($200).  Secondary market loan production declined 43% from 2003 to 2004.

The $4,133 increase from 2002 to 2003 was due primarily to higher mortgage
revenue of $3,377, higher revenue realized from the successful launch of a
new "Overdraft Privilege" product in October 2002 and higher revenue from the
sale of investment products ($189).  This increase from 2002 to 2003 was
reduced by a $1,206 gain on the sale of the bankcard portfolio in 2002 and
reduced securities gains.  The Corporation also had record mortgage loan
production in 2003 due to the low interest rate environment.
<PAGE>    7

Noninterest Expense

Noninterest expense, consisting of salaries and employee benefits, occupancy
and equipment costs, checkcard and merchant processing, supplies and other
expenses was $36,830, $35,703 and $31,282 for 2004, 2003 and 2002,
respectively.

Noninterest expense increased by $1,127 from 2003 to 2004.  Excluding the
Bedford acquisition, noninterest expense decreased by $1,955 from 2003 to
2004.  This decline was due primarily to lower commissions and incentives due
largely to reduced volume in the secondary market function, realized
economies from the Bedford merger as Bedford was converted to the
Corporation's core processor and most administrative functions were
centralized, and lower losses on sales of fixed assets because of a loss on
the sale of a building in downtown Roanoke of $391 in December 2003.

Noninterest expense increased $4,421 from 2002 to 2003 due to the merger of
Bedford ($2,057) and the expansion of the secondary mortgage operation
resulting from increased volume and entry into new markets ($1,624).  The
remaining $748 was due primarily to higher incentives paid to all employees
as a result of record earnings (the plan was self funding from increased
revenues and expense containment attributable to results documented by the
plan) and a $391 loss on the sale of a building in downtown Roanoke.

Income Taxes

Income tax expense as a percentage of pre-tax income was 36.0%, 33.1% and
32.0% in 2004, 2003 and 2002, respectively.  The increase in the effective
tax rate from 2003 to 2004 was primarily due to the accrual of state income
taxes on Bedford for a full year in 2004 and a partial year in 2003 and the
decline of nontaxable interest on securities and other nontaxable income.
Bedford paid state taxes because it was a savings and loan instead of a bank.
Bedford was converted from a savings and loan charter to a national bank
charter on December 10, 2004.  The increase in the effective tax rate from
2002 to 2003 was due primarily to the decline of nontaxable income.

Decisions as to which securities to purchase are based on taxable equivalent
yields for specific terms.  The Corporation has increased its investments in
certain taxable securities, which had higher yields than nontaxable
securities when measured on a taxable equivalent basis.

Balance Sheet

Total assets of the Corporation grew 5.2%, or $69,305, from $1,326,811 at
December 31, 2003 to $1,396,116 at December 31, 2004, due primarily to strong
loan growth financed in part by a reduction in securities.

Total securities available for sale and held to maturity declined $31,272 and
$5,735, respectively, from 2003 to 2004 to fund the excess growth in loans
over the growth in deposits, advances and borrowings.

Total loans at December 31, 2004 were $1,103,470, up a strong 10.4% or
$103,582 over the balance of $999,888 at December 31, 2003.  Growth occurred
in all categories with the largest increase in real estate construction.
Loan growth attributable to the Hilton Head office was $32,000.  This office
was closed in November 2004, as discussed in the "Overview" section above.
<PAGE>    8
Mortgage loans held for sale balances increased from $6,222 at December 31,
2003 to $10,905 at December 31, 2004, for an increase of $4,683 due to an
upswing in secondary market mortgage volume since the end of 2003.

Total deposits grew a strong 7.2% or $75,465, from $1,048,802 at December 31,
2003 to $1,124,267 at December 31, 2004.  Much of the growth occurred in
certificates of deposit/IRA balances because of several successful deposit
promotions.

Federal Home Loan Bank ("FHLB") advances and other borrowings consisting of
Federal funds purchased and customer borrowings secured by securities dropped
$10,166 and $2,739, respectively from 2003 to 2004.  These
advances/borrowings are used to manage the net funds position of the
Corporation by either securing additional funds or paying down
advances/borrowings depending on the net change in loans, deposits and
securities.

Stockholders' Equity

Stockholders' equity increased $8,893 from December 31, 2003 to December 31,
2004, primarily due to earnings of $14,247 largely offset by cash dividends
paid of $5,632 and a decrease of $875 in net tax effected unrealized gains on
securities available for sale.

Stockholders' equity increased $46,009 from December 31, 2002 to December 31,
2003 primarily due to the issuance of 1.403 million shares for the
acquisition of Bedford amounting to $37,331.  The remainder of the increase
was due primarily to earnings net of dividends ($8,615) and a decrease of
$1,077 in net tax effected unrealized gains on securities available for sale.

All financial institutions are required to maintain minimum levels of
regulatory capital to be considered well-capitalized.  The Federal Reserve
and the Office of the Comptroller of the Currency ("OCC") have established
substantially similar risk-based capital standards for the financial
institutions they regulate.  Please see footnote 13 for the detailed
computation of these ratios.  Using the highest minimum requirement of the
above regulators, the Corporation is required to maintain a minimum ratio of
total capital to risk-weighted assets of at least 10.0%.  At least half of
the total capital is required to be "Tier 1 capital", which consists
principally of common and certain qualifying preferred stockholders' equity
less certain intangibles and other adjustments. The remainder, "Tier 2
capital", consists of a limited amount of subordinated and other qualifying
debt and a limited amount of the general loan loss reserve.  The minimum
requirement for Tier 1 capital to risk-weighted assets is 6.0%.  Total and
Tier 1 capital to risk-weighted assets ratios on a consolidated basis at
December 31, 2004, were 12.32% and 11.17%, respectively, exceeding minimum
requirements.  Management presently intends to maintain ratios in excess of
the minimum required 10.0% and 6.0% for Total and Tier 1 capital to risk-
weighted assets, respectively.

In addition, federal regulatory agencies have established minimum leveraged
capital guidelines to be considered well-capitalized for insured financial
institutions (Tier 1 capital to tangible assets).  These guidelines provide
for a minimum leveraged capital ratio of 5.0% for banks and their respective
holding companies that meet certain specified criteria, including that they
have the highest regulatory examination rating and are not contemplating
significant growth or expansion.  All other institutions are expected to
<PAGE>    9
maintain a leverage ratio of at least 100 to 200 basis points above that
minimum.  The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.  The leverage ratio of the
Corporation on a consolidated basis at December 31, 2004 was 9.49%.

As of December 31, 2004, the affiliate banks were categorized as "well
capitalized" by the regulators under the regulatory framework for prompt
corrective action based on their latest notification.  To be categorized as
well-capitalized, minimum total risk-based capital, Tier 1 risk-based
capital, and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively,
must be maintained.  The Corporation's affiliate banks exceeded all three of
these minimums as of December 31, 2004.  There are no conditions or events
that management believes have changed the category of any of the affiliate
banks.

Past Due Loans and Nonperforming Assets

Loans 90 days or more past due at December 31, 2004 on which interest was
still accruing totaled $747 compared to $437 at December 31, 2003.  Expressed
as a percentage, these loans represent .07% and .04% of total loans, net of
unearned income outstanding at December 31, 2004 and 2003, respectively.  A
substantial portion of these loans is secured by real estate, and management
anticipates no material losses as these loans are repaid or collection is
completed through liquidation of underlying collateral.

Nonaccrual loans and other real estate owned totaled $4,803 at December 31,
2004, compared to $5,014 at December 31, 2003.  Nonaccrual loans and other
real estate declined as a percentage of loans, net of unearned plus other
real estate, from .50% at December 31, 2003 to .43% at December 31, 2004.
Management does not anticipate any significant increase in these levels.

Allowance for Loan Losses

The Corporation identifies specific credit exposures through its periodic
analysis of the loan portfolio and monitors general exposures from economic
trends, market values and other external factors.  The Corporation maintains
an allowance for loan losses, which is adequate to absorb losses inherent in
the loan portfolio.  The allowance for loan losses increased $1,163 to
$13,165 or 1.19% of outstanding loans, net of unearned income at December 31,
2004, from $12,002 or 1.20% of outstanding loans, net of unearned income at
December 31, 2003.  The increase in the amount of the allowance for loan
losses was due primarily to loan growth.

The allowance for loan losses increased $2,536 to $12,002 or 1.20% of
outstanding loans, net of unearned income at December 31, 2003, from $9,466
or 1.37% of outstanding loans, net of unearned income at December 31, 2002.
The increase in the allowance for loan losses was due principally to the
acquisition of Bedford ($1,582) and loan growth.  The allowance for loan
losses as a percentage of outstanding loans, net of unearned income, declined
due to the acquisition of Bedford.  Bedford's reserve was lower because its
<PAGE>   10
loan portfolio consisted primarily of loans secured by residential real
estate, which have a much lower risk of loss than commercial loans or regular
consumer loans.

The adequacy of the allowance for loan losses is reviewed quarterly and, for
commercial loans, is calculated based on a very structured commercial credit
risk grading system, which is continuously monitored.  All commercial and
commercial real estate loans over $25 are risk rated.  Loans identified as
"Watch" and "Special Mention" are grouped into pools of risk with loss
factors consistent with identified risk.  Loans with "Classified" ratings are
assigned allocated reserves based on identified risk exposure in each
individual credit.  "Pass" credits have reserve factors applied consistent
with migration analysis and ten year forward moving historic loss experience.
The allowance for other loan categories (consumer, equity line, real estate
mortgage) is based on historic loss experience.  Reserve assumptions are
monitored and validated quarterly.

Liquidity and Capital Resources

Liquidity is the ability to provide sufficient cash flow to meet financial
commitments and to fund additional loan demand or withdrawal of existing
deposits.  Liquidity trends are monitored monthly and projections are updated
quarterly and tested under multiple stress conditions.  We have in place an
action plan to ensure adequate liquidity should any of these scenarios occur.
The Corporation's targeted key internal ratios are currently well within
the guidelines established by management (loans to funding sources are less
than 80%, pledged to total securities are less than 50%, external funding is
less than 18% and core deposits to assets are greater than 60%).  Primary
sources of liquidity include customer-based core deposits and cash generated
by operations.  Even though the Corporation's loan to deposit ratio is 98.2%
at December 31, 2004, the Corporation has access to funding sources to meet
anticipated liquidity needs in the form of available borrowings from the
Federal Home Loan Bank and Federal funds lines (at December 31, 2004, both
sources provide $244 million of additional borrowing capacity), the National
CD market and other external sources.  Testing of these sources through
periodic usage is performed to ensure availability when needed.

The only significant source of cash for the holding company is dividends from
its bank subsidiaries.  The maximum amount of dividends that may be paid by
each affiliate bank to the holding company in any calendar year without prior
regulatory approval is the retained net profits of that year, as defined,
combined with the retained net profits for the two preceding years.  In
effect, this limits 2005 dividends (unless prior regulatory approval is
obtained) to $10,675 plus year-to-date 2005 net profits as of the declaration
date.  This limitation had no effect on the liquidity of the holding company
in 2004 and it is not expected to have any material impact in 2005.  During
2004, the affiliate banks paid $14,396 in dividends to the holding company.

Contractual Cash Obligations

The following table summarizes the Corporation's cash obligations at December
31, 2004, and the effect such obligations are expected to have on liquidity
and cash flow in the future periods.  The Corporation also has line of credit
commitments in the normal course of business that are excluded from this
table, most of which expire within twelve months (see Note 17).
<PAGE>   11
<TABLE>
<CAPTION>
                           Payments due by period

                                    Less                             More
                                    Than        2-3        4-5      Than 5
                         Total     1 Year      Years      Years      Years
<S>                  <C>         <C>        <C>        <C>        <C>
Federal Home Loan
 Bank Borrowings      $ 86,380     52,081     16,635     17,211        453
Trust Preferred
 Securities             27,836          -          -          -     27,836
Operating Leases           911        331        412        136         32
Total Contractual
 Cash Obligations     $115,127     52,412     17,047     17,347     28,321
</TABLE>

Off-Balance Sheet Arrangements

The Corporation's off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the Corporation's financial
condition, change in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors are discussed in Note 17 to the Consolidated Financial
Statements.

Market Price and Dividend Data

Our common stock is listed for quotation on the Nasdaq SmallCap Market under
the symbol FNBP.

The following table sets forth the amount of cash dividends declared per
share and the high and low closing sales prices of the Corporation's common
stock for each quarter during the two years ended December 31, 2004, as
reported on the Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
                                                      Dividends
    2004                High        Low               Per Share
<S>                 <C>          <C>                 <C>
First Quarter        $ 30.95       26.64                0.18
Second Quarter         29.00       25.10                0.18
Third Quarter          28.82       25.03                0.19
Fourth Quarter         29.89       25.75                0.19
</TABLE>

<TABLE>
<CAPTION>
                                                      Dividends
    2003                High        Low               Per Share
<S>                 <C>          <C>                <C>
First Quarter        $ 30.39       23.00                0.17
Second Quarter         29.30       23.87                0.17
Third Quarter          29.02       26.16                0.18
Fourth Quarter         30.95       25.75                0.18
</TABLE>

As of December 31, 2004, there were 1,860 holders of record of FNB
Corporation Common Stock.
<PAGE>   12

Market Risks Related to Financial Instruments

The Corporation is a party to a variety of financial instruments in the
ordinary course of business, including loans, investments and deposits.  By
their nature most financial instruments carry associated market risks.  The
most significant market risk associated with the Corporation's financial
instruments is interest rate risk; that is, the risk that net interest income
and fair values of the Corporation could change as a result of changes in
market interest rates.  For example, a decline in market interest rates will
generally have the effect of reducing the expected future interest to be
received on a loan with a variable contractual interest rate with no impact
on its fair value.  However, such a decline will normally have the effect of
increasing the fair value of a fixed contractual rate investment security.

The Corporation manages its interest rate risk by establishing
asset/liability management policies and by continually monitoring the
characteristics of its asset and liability portfolios that impact interest
rate risk.  Interest rate management is conducted in coordination with the
management of liquidity and capital adequacy.  Interest rate risk is managed
by an asset liability committee comprised of executive officers and monitored
by the corporate and bank boards.  Management seeks to minimize the risks to
earnings and equity associated with movements in interest rates.  To achieve
this objective, management monitors such factors as:

   Relative volumes of fixed-rate versus variable-rate loans and deposits;

   Average interest rate spreads between interest bearing assets and
   liabilities; and,

   Maturity and re-pricing schedules of loans, investment securities and
   deposits, including the extent to which expected maturities of interest
   sensitive assets align with those of interest sensitive liabilities
   ("sensitivity gap").

Techniques used by management to adjust exposure to interest rate risk
include but are not limited to selling certain types of loans (especially
fixed rate loans); periodically changing stated interest rates charged on
loans and offered on deposits in conjunction with market trends; promoting or
changing the pricing of or developing new products to emphasize or de-
emphasize different maturities and/or fixed versus variable loans and
deposits; redirecting funds from the maturity of investment securities and
loan repayments; and careful selection among choices of sources of borrowed
funds other than deposits.  The Corporation has not entered into any
derivative financial instruments such as futures, forward interest rate
agreements, swaps or option contracts in order to manage interest rate risk.
However, the policy of the Asset Liability Committee permits purchases
of a limited amount of these instruments should the committee think it
prudent to do so to enhance interest rate risk management.  In general, the
Corporation does not enter into financial instruments for trading purposes,
nor does it try to "time" the market.

An important analytical technique used by management to manage interest rate
risk is "interest rate shock" testing by means of a computer simulation
model.  One method projects the impact that multiple interest rate scenarios
have on earnings.  The model incorporates current volumes, average rates and
scheduled maturities and payments of asset and liability portfolios, together
<PAGE>   13
with multiple scenarios of projected prepayments, re-pricing opportunities
and anticipated volume growth.  This method is subject to the accuracies of
the assumptions that underlie the process, however, it provides a better
illustration of the sensitivity of earnings to changes in interest rates than
other techniques.  A second method seeks first to estimate the current market
value of the Corporation's assets and liabilities by applying present value
techniques (discounting) of the Corporation's assets and liabilities at
current market interest rates.  The difference between the market value of
assets and liabilities is the market value of the Corporation's equity.  The
current market value of assets and liabilities is then recalculated assuming
an immediate hypothetical increase or decrease in market interest rates of up
to 300 basis points.

The table below reflects the outcome of these analyses at December 31, 2004.
Earnings would rise by 11.71% in the first 12 months if rates were to
increase immediately by 300 basis points and fall by 16.66% in the first 12
months if they were to fall immediately by 300 basis.  The Corporation is
positioned to benefit from an earnings standpoint over the next twelve months
from a rise in rates.  Market value of equity would increase by .65% if
market rates were to rise by 300 basis points and fall by 8.34% if market
rates were to fall by 300 basis points.  With the exception of the
hypothetical decline in rates of 200 and 300 basis points on earnings which
is deemed to be unrealistic with current interest rates close to all time
lows, all of these changes fall within management's guideline maximums.


                                     Hypothetical            Hypothetical
                                    Percent Change          Percent Change
      Change in Prime Rate           In Earnings          Market Value Equity
             3.00%                     11.71%                     .65%
             2.00%                      7.68%                     .54%
             1.00%                      4.00%                     .37%
            -1.00%                     -4.89%                   -1.74%
            -2.00%                    -10.72%                   -4.75%
            -3.00%                    -16.66%                   -8.34%


The simulation model incorporates management's estimates on loan prepayments,
which vary depending upon the relationship between the change in rates
scenarios and current book yields.  Investment securities are assumed to
remain in the portfolio until maturity unless called by the issuer.  Non-
maturity deposits such as checking and savings are assumed to have a life of
60 months.  Rates on interest bearing accounts are increased or decreased
according to the pricing expectations, before cash flows are discounted.  As
a result, while the rates on these accounts change, they do not change as
quickly or to the same extent as market rates.  This captures the value of
the optionality in the pricing of these deposits.  Discount rates for loans
are based upon loan pricing spreads, and discount rates for term deposits are
based upon the cost of wholesale funding.  The model described above is used
by many financial institutions and conforms to the guidelines established by
the OCC.

Impact of Inflation and Changing Prices

The majority of the assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most industrial
companies that have significant investments in fixed assets.  Due to this
<PAGE>   14
fact, the effects of inflation on the Corporation's balance sheet are
minimal, meaning that there are no substantial increases or decreases in net
purchasing power over time.  The most significant effect of inflation is on
other expenses that tend to rise during periods of general inflation.  The
most significant item that does not reflect the effects of inflation is
depreciation expense because historically presented dollar values used to
determine this expense do not reflect the effect of inflation on the market
value of depreciable assets.

Management thinks that the most significant impact of inflation on financial
results is changes in interest rates and the Corporation's ability to react
to those changes.  As discussed above, management attempts to measure,
monitor and control interest rate risk.
<PAGE>   15

          MANAGEMENT'S STATEMENT OF FINANCIAL RESPONSIBILITY


The management of FNB Corporation is responsible for the content of the
financial information contained herein.  In order to meet this
responsibility, the financial statements have been prepared in conformity
with U.S. generally accepted accounting principles appropriate in the
circumstances to reflect, in all material respects, the substance of events
and transactions that should be included.

The accounting systems and related internal accounting controls of FNB
Corporation and its subsidiaries are designed to provide reasonable assurance
that the financial records are reliable for preparing financial statements
and maintaining accountability for assets, including safeguarding assets
against loss from unauthorized use or disposition.  The system of internal
controls is augmented by written policies, internal audits and staff training
programs.

The Audit Committee of FNB Corporation, composed solely of outside directors,
who are independent in accordance with the requirements of the Securities and
Exchange Commission and the Nasdaq Stock Market, reviews the internal audit
function and meets periodically with representatives of Brown Edwards &
Company, L.L.P., the Corporation's independent registered public accountants,
whose selection to express an independent professional opinion as to the
fairness of the presentation of FNB Corporation's consolidated financial
statements has been ratified by the shareholders.
<PAGE>   16


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
FNB Corporation
Christiansburg, Virginia


          We have audited the accompanying consolidated balance sheets of FNB
Corporation and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income and comprehensive income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2004. These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

          We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits provide
a reasonable basis for our opinion.

          In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FNB
Corporation and Subsidiaries as of December 31, 2004 and 2003, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2004 in conformity with U.S. generally
accepted accounting principles.



                                    s/Brown, Edwards & Company, L.L.P.
                                    CERTIFIED PUBLIC ACCOUNTANTS



Bluefield, West Virginia
February 18, 2005

<PAGE>   17
<TABLE>
<CAPTION>
                                                   December 31, 2004 and 2003
CONSOLIDATED BALANCE SHEETS   (in thousands, except share and per share data)

ASSETS
                                                         2004           2003
<S>                                               <C>             <C>
Cash and due from banks                            $   37,786         36,838
Federal funds sold                                          -          1,200
Cash and cash equivalents                              37,786         38,038
Securities available-for-sale, at fair value          142,369        173,641
Securities held-to-maturity, at amortized cost
  (fair value approximated $4,036 and $10,009
   at December 31, 2004 & 2003, respectively)           3,939          9,674
Other investments at cost                              10,424          9,922
Mortgage loans held for sale                           10,905          6,222
Loans, net of unearned income                       1,103,470        999,888
Less allowance for loan losses                         13,165         12,002
          Loans, net                                1,090,305        987,886
Bank premises and equipment, net                       23,976         24,373
Other real estate owned                                 1,269          1,872
Goodwill                                               42,624         42,624
Core deposit intangibles                                5,284          6,671
Other assets                                           27,235         25,888
          Total assets                             $1,396,116      1,326,811


LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
   Noninterest-bearing demand deposits             $  139,863        134,819
   Interest-bearing demand and savings deposits       385,088        380,142
   Time deposits                                      444,567        410,005
   Certificates of deposit of $100,000 and over       154,749        123,836
          Total deposits                            1,124,267      1,048,802
   FHLB advances                                       86,380         96,546
   Trust preferred                                     27,836         27,836
   Other borrowings                                     3,325          6,064
   Other liabilities                                    4,307          6,455
          Total liabilities                         1,246,115      1,185,703
Stockholders' equity
   Common stock, $5.00 par value.  Authorized
      25,000,000 shares; issued and outstanding
      7,274,937 shares in 2004 and 7,234,050
      in 2003                                          36,375         36,170
   Surplus                                             82,955         82,252
   Unearned ESOP shares (5,516 and 22,333
      shares in 2004 and 2003, respectively)             (100)          (345)
   Retained earnings                                   29,818         21,203
   Accumulated other comprehensive income (loss)          953          1,828
          Total stockholders' equity                  150,001        141,108
          Total liabilities and
             stockholders' equity                  $1,396,116      1,326,811
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   18

<TABLE>
<CAPTION>
                                 Years Ended December 31, 2004, 2003 and 2002
                                        (in thousands, except per share data)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

                                                2004          2003       2002
<S>                                      <C>             <C>         <C>
Interest income:
    Interest and fees on loans             $  61,911        52,712     49,285
    Interest on securities:
        Taxable                                7,225         6,447      7,988
        Nontaxable                               700         1,094      1,527
    Interest on federal funds sold
      and short term investments                 625         1,211        818
            Total interest income             70,461        61,464     59,618

Interest expense:
    Deposits                                  18,358        16,945     20,051
    Federal funds purchased
      and securities sold under agreements
      to repurchase                               80            66        111
    Debt                                       4,222         2,924      2,034
            Total interest expense            22,660        19,935     22,196
            Net interest income               47,801        41,529     37,422

Provision for loan losses                      3,046         2,158      1,369
            Net interest income after
              provision for loan losses       44,755        39,371     36,053

Noninterest income:
    Service charges on deposit
      accounts                                 6,147         5,105      3,418
    Loan origination fees                      3,131         6,116      2,894
    Other service charges and fees             2,660         2,276      1,828
    Other income                               2,396         2,147      1,908
    Gain on sale of bankcards                      -             -      1,206
    Securities gains (losses), net                15            34        291
            Total noninterest income          14,349        15,678     11,545

Noninterest expense:
    Salaries and employee benefits            19,065        19,323     16,231
    Occupancy and equipment
      expense, net                             5,864         5,790      5,130
    Cardholder/merchant processing               737           572        719
    Supplies expense                             845           822        860
    Telephone expense                            825           653        749
    Amortization of core deposit
      intangibles                              1,387         1,193      1,068
    Other expenses                             8,107         7,350      6,525
            Total noninterest expense         36,830        35,703     31,282

Income before income tax expense              22,274        19,346     16,316
Income tax expense                             8,027         6,414      5,225
            Net income                     $  14,247        12,932     11,091
</TABLE>
<PAGE>   19
<TABLE>
<CAPTION>

                                 Years Ended December 31, 2004, 2003 and 2002
                                        (in thousands, except per share data)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (Continued)

                                                2004         2003       2002
<S>                                         <C>          <C>        <C>
Other comprehensive income (loss),
    net of income tax expense (benefit):
      Gross unrealized gains (losses) on
        available-for-sale securities           (860)      (1,043)     2,319
         Less:  Reclassification adjustment
           for (gains) losses included in
           net income                            (15)         (34)      (291)
      Other comprehensive income                (875)      (1,077)     2,028

           Comprehensive income            $  13,372       11,855     13,119

           Basic earnings per share        $    1.96         2.03       1.93
           Diluted earnings per share      $    1.95         2.01       1.90
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   20

<TABLE>
<CAPTION>
                                Years Ended December 31, 2004, 2003 and 2002

CONSOLIDATED STATEMENTS OF CASH FLOWS                          (in thousands)



                                                   2004       2003      2002
<S>                                            <C>        <C>       <C>
Cash flows from operating activities:
    Net income                                 $ 14,247     12,932    11,091
    Adjustments to reconcile net income to net
      cash provided by operating activities:
        Provision for loan losses                 3,046      2,158     1,369
        Depreciation and amortization of
          bank premises and equipment             2,668      2,581     2,455
        Amortization of core deposit
          intangibles                             1,387      1,193     1,068
        ESOP compensation                           233        317       299
        Stock awards compensation                   251        306       164
        Deferred income tax expense (benefit)      (100)       289        45
        Amortization of premiums and
          accretion of discounts, net               792      1,386     1,037
        Gain on sales of securities, net            (15)       (34)     (291)
        Loss (gain) on sale of fixed assets
          and other real estate                     (76)       363      (107)
        Gain on sale of bankcard portfolio            -          -    (1,206)
        Net decrease (increase) in mortgage
          loans held for sale                    (4,683)    29,780   (20,345)
        Decrease (increase) in other assets        (816)    (2,310)    1,145
        Decrease in other liabilities            (2,148)      (460)     (785)
            Net cash provided by (used in)
              operating activities             $ 14,786     48,501    (4,061)
</TABLE>
<PAGE>   21

<TABLE>
<CAPTION>
                                Years Ended December 31, 2004, 2003 and 2002
CONSOLIDATED STATEMENTS OF                                     (in thousands)
CASH FLOWS (continued)

                                                   2004       2003      2002
<S>                                           <C>         <C>       <C>
Cash flows from investing activities:
    Net decrease in short term
      investments                                     -          -    16,549
    Proceeds from sales of securities
      available-for-sale                          9,676     17,691     5,718
    Proceeds from calls and maturities
      of securities available-for-sale           59,035     84,657    88,100
    Proceeds from calls and maturities
      of securities held-to-maturity              5,724      6,836    15,824
    Purchase of securities available-
      for-sale                                  (40,009)  (129,372)  (87,083)
    Purchase of securities held-to-
      maturity                                        -       (430)   (1,351)
    Net cash acquired from purchase of
      subsidiary                                      -      9,603         -
    Cash payment for purchase of Salem
      Community Bankshares                            -          -   (13,550)
    Sale of bankcard portfolio                        -          -    10,266
    Net increase in loans                      (107,191)   (70,838)  (55,839)
    Proceeds from sale of fixed assets
      and other real estate owned                 2,399      2,238     2,120
    Recoveries on loans previously
      charged off                                   483        436       918
    Bank premises and equipment
      expenditures                               (2,748)    (2,719)   (2,924)
    Investment in bank owned life insurance           -          -   (10,800)
            Net cash used in investing
              activities                       $(72,631)   (81,898)  (32,052)
</TABLE>
<PAGE>   22

<TABLE>
<CAPTION>
                                Years Ended December 31, 2004, 2003 and 2002
CONSOLIDATED STATEMENTS OF                                     (in thousands)
CASH FLOWS (continued)

                                                   2004       2003      2002
<S>                                           <C>         <C>        <C>
Cash flows from financing activities:
    Net increase in deposits                   $ 75,465     14,646    38,901
    Net increase (decrease) in FHLB advances    (10,166)     9,839     4,798
    Net increase (decrease) in other
      borrowings                                 (2,739)    10,365       523
    Principal payments on ESOP debt                 245        376         -
    Repurchase FNB Corporation stock                  -        (94)   (1,682)
    Stock options exercised                         420        229        76
    Dividends paid                               (5,632)    (4,317)   (3,939)
            Net cash provided by
              financing activities               57,593     31,044    38,677

Net increase (decrease) in cash and cash
  equivalents                                      (252)    (2,353)    2,564
Cash and cash equivalents at beginning
  of year                                        38,038     40,391    37,827

Cash and cash equivalents at end of year       $ 37,786     38,038    40,391
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   23

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2004, 2003 and 2002
CHANGES IN STOCKHOLDERS' EQUITY     (in thousands, except share and per share
                                       data)
                                                           Accumulated
                                                           Other
                                      Unearned             Compre-
                    Common            ESOP      Retained   hensive
                    Stock   Surplus   Shares    Earnings   Income      Total
<S>             <C>       <C>       <C>       <C>        <C>       <C>
Balances at
 December 31,
 2001            $ 27,696   47,481   (1,139)     11,718      877      86,633

Net income              -        -        -      11,091        -      11,091
Cash dividends,
 $0.68 per share        -        -        -      (3,923)       -      (3,923)
6% Stock dividend   1,649    4,633        -      (6,282)       -           -
Cash payment for
 fractional shares
 on 6% stock
 dividend               -        -        -         (16)       -         (16)
ESOP shares
 allocated
 upon loan
 repayment              -      299      418           -        -         717
Stock issued           14       61        -           -        -          75
Stock awards
 issued                37      138        -           -        -         175
Stock options
 exercised             39       37        -           -        -          76
Repurchase and
 retirement of
 common stock        (410)  (1,399)       -           -        -      (1,809)
Change in net
 unrealized
 gains (losses)
 on securities
 available-for-sale,
 net of tax effect
 of $1,045              -        -        -           -    2,028       2,028
Adjustment related
 to purchase of
 Salem Community
 Bankshares, Inc.      13       39        -           -        -          52

Balances at
 December 31,
 2002            $ 29,038   51,289     (721)     12,588    2,905      95,099
</TABLE>
<PAGE>   24

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2004, 2003 and 2002
CHANGES IN STOCKHOLDERS' EQUITY     (in thousands, except share and per share
(continued)                          data)
                                                           Accumulated
                                                           Other
                                      Unearned             Compre-
                    Common            ESOP      Retained   hensive
                    Stock   Surplus   Shares    Earnings   Income       Total
<S>             <C>        <C>       <C>       <C>        <C>        <C>
Net income       $      -        -        -      12,932        -      12,932
Cash dividends,
 $0.70 per share        -        -        -      (4,317)       -      (4,317)
ESOP shares
 allocated upon
 loan repayment         -      317      376           -        -         693
Stock awards
 issued                57      255        -           -        -         312
Stock options
 exercised             74      155        -           -        -         229
Repurchase and
 retirement of
 common stock         (16)     (78)       -           -        -         (94)
Acquisition of
 subsidiary         7,017   30,314        -           -        -      37,331
Change in net
 unrealized gains
 (losses) on
 securities
 available-for-
 sale, net of
 tax effect of
 $(557)                 -        -        -           -   (1,077)     (1,077)

Balances at
 December 31,
 2003            $ 36,170   82,252     (345)     21,203    1,828     141,108
</TABLE>
<PAGE>   25

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2004, 2003 and 2002
CHANGES IN STOCKHOLDERS' EQUITY     (in thousands, except share and per share
(continued)                          data)
                                                           Accumulated
                                                           Other
                                      Unearned             Compre-
                    Common            ESOP      Retained   hensive
                    Stock   Surplus   Shares    Earnings   Income      Total
<S>              <C>       <C>       <C>       <C>        <C>        <C>
Net Income       $      -         -        -      14,247        -     14,247
Cash dividends,
 $0.74 per share        -         -        -      (5,632)       -     (5,632)
ESOP shares
 allocated upon
 loan repayment         -       233      245           -        -        478
Stock awards
 issued                50       205        -           -        -        255
Stock options
 exercised            155       265        -           -        -        420
Change in net
 unrealized gains
 (losses) on
 securities
 available-for-
 sale, net of
 tax effect of
 $(471)                  -         -        -           -    (875)      (875)

Balances at
 December 31,
 2004             $ 36,375    82,955     (100)     29,818     953   $150,001
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  December 31, 2004
                                            (amounts in thousands, except per
                                                   share and percentage data)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the more significant accounting policies used
in the preparation and presentation of the financial statements.  The
accounting and reporting policies of the Corporation conform to U. S.
Generally Accepted Accounting Principles and general practices within the
banking industry.

In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the year.  Material estimates that are particularly susceptible to
significant changes in the near term related to the determination of the
allowance for loan losses, valuation of other real estate acquired in
connection with foreclosures or in satisfaction of loans, and the estimates
of fair market values of loans, deposits and other assets and liabilities
acquired in merger transactions accounted for under the purchase method of
accounting.  Actual results could differ significantly from those estimates.

      (a)   Consolidation

            The consolidated financial statements include FNB Corporation, a
            bank holding company and its wholly-owned subsidiaries
            (collectively the "Corporation").  The primary subsidiaries of
            FNB Corporation are First National Bank, FNB Salem Bank & Trust,
            N.A., and Bedford Federal Savings Bank, National Association
            (collectively referred to as the "Bank").  Significant
            intercompany transactions and balances have been eliminated in
            consolidation.

      (b)   Cash and Cash Equivalents

            For purposes of reporting cash flows, cash and cash equivalents
            include those amounts in the balance sheet caption, cash and due
            from banks.  Generally, cash and cash equivalents are considered
            to have maturities of three months or less.  The Bank maintains
            amounts due from banks, which, at times, may exceed federally
            insured limits.  No losses have been experienced in such
            accounts.

      (c)   Securities

            The Corporation follows the provisions of Statement of Financial
            Accounting Standards ("SFAS") No. 115, "Accounting for Certain
            Investments In Debt and Equity Securities."  Under Statement
            115, investments in debt and equity securities are required to be
            classified in three categories and accounted for as follows:

               Debt securities which the Corporation has the positive intent
               and ability to hold to maturity are classified as held-to-
               maturity securities and reported at amortized cost, computed
               by the level yield method.
<PAGE>   27
               Debt and equity securities that are bought and held
               principally for the purpose of selling them in the near term
               are classified as trading securities and reported at fair
               value, with unrealized gains and losses included in income.
               The Corporation has no trading securities.

               Debt and equity securities not classified as either held-to-
               maturity or trading securities are classified as available-
               for-sale securities and reported at fair value, with
               unrealized gains and losses excluded from income and reported
               as a separate component of stockholders' equity, net of the
               related income tax effect.

            Gains and losses on sales of securities are based on the net
            proceeds and adjusted carrying amount of the security sold using
            the specific identification method.  Declines in fair values of
            individual securities below their cost that are other than
            temporary are charged to income resulting in a new cost basis for
            the security.

      (d)   Other Investments

            Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB)
            stock are the primary components of Other Investments.  These
            investments are recorded at cost and considered to be restricted
            as the Company is required by these agencies to hold these
            investments, and the only market for this stock is the issuing
            agency.  Other Investments have a carrying value of $10,424 and
            $9,922 at December 31, 2004 and 2003, respectively.

      (e)   Loans

            Loans are stated at the amount of funds disbursed plus the
            applicable amount, if any, of unearned interest and deferred fees
            and costs less payments received.  Interest on commercial and
            real estate mortgage loans is accrued based on the average loan
            balance outstanding times the applicable interest rate.  Interest
            on installment loans is recognized on methods that approximate
            the level yield method.  Loan origination and commitment fees and
            certain costs are deferred, and the net amount is amortized over
            the contractual life of the related loans as an adjustment of the
            yield.

            Interest related to nonaccrual loans is recognized on a cash
            basis.  Loans are generally placed on nonaccrual status when the
            collection of principal or interest is 90 days or more past due,
            unless the obligation is both well-secured and in the process of
            collection.

            Mortgage loans held for sale are carried at the lower of
            aggregate cost or market value.  Gains or losses on sales of
            loans are recognized when control over these assets has been
            surrendered.
<PAGE>   28

      (f)   Allowance for Loan Losses

            The allowance for loan losses is established as losses are
            estimated to have occurred through a provision for loan losses
            charged to earnings.  Loan losses are charged against the
            allowance when management believes the uncollectibility of a loan
            balance is confirmed.  Subsequent recoveries, if any, are
            credited to the allowance.

            The allowance for loan losses is evaluated on a regular basis by
            management and is based upon management's periodic review of the
            collectibility of the loans in light of historical experience,
            the nature and volume of the loan portfolio, adverse situations
            that may affect the borrower's ability to repay, estimated value
            of any underlying collateral and prevailing economic conditions.
            This evaluation is inherently subjective as it requires estimates
            that are susceptible to significant revision as more information
            becomes available.

            Impaired loans are measured based on the present value of
            expected future cash flows discounted at the loan's effective
            interest rate or, as a practical expedient, at the loan's
            observable market price or the fair value of the collateral if
            the loan is collateral dependent.  A loan is considered impaired
            when, based on management's judgment, it is probable that the
            Corporation will not be able to collect on all amounts due
            according to the contractual terms of the loan.  In making such
            assessment, management considers the individual strength of
            borrowers, the strength of particular industries, the payment
            history of individual loans, the value and marketability of
            collateral and general economic conditions.  Management's
            methodology for evaluating the collectibility of a loan after it
            is deemed to be impaired does not differ from the methodology
            used for nonimpaired loans.

            Large groups of smaller balance homogeneous loans are
            collectively evaluated for impairment.  Accordingly, the
            Corporation does not separately identify individual consumer and
            residential loans for impairment disclosures.

      (g)   Business Combinations

            Business combinations are accounted for by the purchase method
            under which net assets of the business acquired are recorded at
            their estimated fair values as of the date of acquisition with
            any excess of the cost of the acquisition over the fair value of
            the net tangible and intangible assets acquired recorded as
            goodwill.  Results of operations of the acquired business are
            included in the income statement from the date of acquisition.

      (h)   Goodwill and Other Intangible Assets

            Goodwill represents the excess of the cost of an acquisition over
            the fair value of the net assets acquired.  Other intangible
            assets represent purchased assets that also lack physical
            substance but can be distinguished from goodwill because of
            contractual or other legal rights or because the asset is capable
<PAGE>   29
            of being sold or exchanged either on its own or in combination
            with a related contract, asset or liability. On January 1, 2002,
            the Corporation adopted SFAS No. 142, "Goodwill and Other
            Intangible Assets."  Under the provisions of SFAS No. 142,
            goodwill is no longer ratably amortized into the income statement
            over an estimated life, but rather is tested at least annually
            for impairment.  Intangible assets which have finite lives
            continue to be amortized on an accelerated basis over 10 years.
            Note 16 includes a summary of goodwill and other intangible
            assets.

      (i)   Bank Premises and Equipment, Net

            Bank premises and equipment are stated at cost less accumulated
            depreciation and amortization.  Depreciation and amortization is
            charged to expense over the estimated useful lives of the assets,
            principally on the straight-line method.  Costs of maintenance
            and repairs are charged to expense as incurred, and improvements
            are capitalized.

      (j)   Other Real Estate Owned

            Other real estate owned represents properties acquired through
            foreclosure or deed taken in lieu of foreclosure.  At the time of
            acquisition, these properties are recorded at fair value less
            estimated costs to sell.  Expenses incurred in connection with
            operating these properties and subsequent write-downs, if any,
            are charged to expense.  Gains and losses on the sales of these
            properties are credited or charged to income in the year of the
            sale.

      (k)   Income Taxes

            Deferred tax assets and liabilities are recognized for the future
            tax consequences attributable to differences between the
            financial statement carrying amounts of existing assets and
            liabilities and their respective tax bases and operating loss and
            tax credit carryforwards.  Deferred tax assets and liabilities
            are measured using enacted tax rates expected to apply to taxable
            income in the years in which those temporary differences are
            expected to be recovered or settled.  The effect on deferred tax
            assets and liabilities of a change in tax rates is recognized in
            income in the period that includes the enactment date.

      (l)   Advertising Costs

            Advertising costs are generally expensed as incurred.

      (m)   Stock Compensation Plans

            SFAS No. 123, "Accounting for Stock-Based Compensation," sets
            forth compensation recognition principles that are based on a
            fair value model.  The Corporation has elected another
            alternative provided for under SFAS No. 123, which is to account
            for the activity under the 2000 Incentive Stock Plan using the
            intrinsic value method of accounting prescribed by Accounting
            Principles Board Opinion No. 25, "Accounting for Stock Issued to
<PAGE>   30
            Employees."  Accordingly, compensation cost is not recognized in
            the financial statements for grants of stock options as all
            options granted under the Plan have an exercise price equal to
            the fair market value of the underlying stock at the date of
            grant.

            Compensation expense included in the accompanying Consolidated
            Statements of Income related to stock grants under the Plan
            during 2004, 2003 and 2002 totaled $163, $203 and $108,
            respectively, net of income taxes.  Had compensation cost for the
            Corporation's stock compensation plan been determined consistent
            with SFAS No. 123, net income and earnings per share would have
            been reduced to the pro forma amounts reflected below for the
            years ended December 31:

<TABLE>
<CAPTION>
            Years Ended December 31,                2004      2003      2002
<S>                                            <C>         <C>       <C>
            Net Income, as reported             $ 14,247    12,932    11,091

              Add:  Compensation expense
                related to stock plans
                included in net income,
                net of tax                           163       203       108

            Deduct:  Compensation expense
              related to stock plans using
              fair value accounting, net of
              tax                                   289        336       221

            Net Income, on a pro forma basis   $ 14,121     12,799    10,978

            Basic earnings per share -
                                 As reported      $1.96       2.03     1.93
                                 Pro forma         1.95       2.01     1.91

            Diluted earnings per share -
                                 As reported      $1.95       2.01     1.90
                                 Pro forma         1.93       1.99     1.88
</TABLE>

            For purposes of the pro forma calculation, compensation expense
            is recognized on a straight-line basis over the vesting period of
            the grant.

      (n)   Earnings Per Share

            Basic earnings per share computations are based on the weighted
            average number of shares outstanding during each year: 7,251,588,
            6,377,680 and 5,758,490 in 2004, 2003 and 2002, respectively.
            Dilutive earnings per share reflects the additional common shares
            that would have been outstanding if dilutive potential common
            shares had been issued.  Potential common shares that may be
            issued relate to non-vested stock grants and outstanding options
            determined by the Treasury Method.  The weighted average shares
            outstanding do not include average unearned shares held by the
            Employee Stock Ownership Plan (ESOP) totaling 11,138, 30,189 and
<PAGE>   31
            58,874 shares for 2004, 2003 and 2002, respectively.  The shares
            held by the ESOP are not considered outstanding for net income
            per share calculations until the shares are allocated to employee
            accounts.

      (o)   Comprehensive Income

            Accounting principles generally require that recognized revenue,
            expenses, gains and losses be included in net income.  Although
            certain changes in assets and liabilities, such as unrealized
            gains and losses on available-for-sale securities, are reported
            as a separate component of the equity section of the balance
            sheet, such items, along with net income, are components of
            comprehensive income.

      (p)   Trust Assets

            Assets held by the Bank's trust department in a fiduciary or
            agency capacity are not included in the consolidated financial
            statements as they are not assets of the Corporation.

      (q)   Reclassification of Financial Statement Presentation

            Certain reclassifications have been made to the 2003 and 2002
            financial statements to conform with the 2004 financial statement
            presentation.  Such reclassifications had no effect on net income
            as previously reported.

(2)   RESTRICTIONS ON CASH

      Federal Reserve regulations require the Bank to maintain certain
      average balances as cash reserves.  The reserve requirements
      approximated $13,958 and $9,601 at December 31, 2004 and 2003,
      respectively.

(3)   SECURITIES AVAILABLE-FOR-SALE

      The following sets forth the composition of securities available-for-
      sale, which are reported at fair value, at December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                        Gross        Gross        Approximate
                            Amortized   Unrealized   Unrealized   Fair
     December 31, 2004      Cost        Gains        Losses       Value
<S>                     <C>           <C>           <C>         <C>
      U.S. Treasury     $     150          -            (1)         149
      U.S. Government
         agencies and
         corporations      26,880         52          (256)      26,676
      Mortgage-backed      75,650        965          (256)      76,359
      States and
         political
         subdivisions      16,888        314          (102)      17,100
      Corporate            21,334        751             -       22,085
      Total AFS debt
         securities     $ 140,902      2,082          (615)     142,369
</TABLE>
<PAGE>   32

<TABLE>
<CAPTION>
                                       Gross        Gross        Approximate
                           Amortized   Unrealized   Unrealized   Fair
      December 31, 2003    Cost        Gains        Losses       Value
<S>                     <C>          <C>         <C>           <C>
      U.S. Treasury     $    150           1             -          151
      U.S. Government
         agencies and
         corporations      56,860        515          (242)      57,133
      Mortgage-backed      69,292        999          (341)      69,950
      States and
         political
         subdivisions      19,041        459          (138)      19,362
      Corporate            25,521      1,557           (33)      27,045
      Total AFS debt
         securities     $ 170,864      3,531          (754)     173,641
</TABLE>

      The amortized cost and approximate fair value of securities available-
      for-sale that were in a loss position at December 31, 2004 are shown
      below.

<TABLE>
<CAPTION>
                                         Gross Unrealized Losses
                                         Loss            Loss
                         Amortized     Position        Position         Fair
    December 31, 2004    Cost         < 12 Months    > 12 Months       Values
<S>                     <C>          <C>            <C>             <C>
    U.S. Treasury        $     150              -             1           149
    U.S. Government
       agencies and
       corporations         12,913             41           216        12,656
    Mortgage-backed         23,835             39           216        23,580
    States and
       political
       subdivisions          3,625              -           102         3,523

    Totals               $  40,523             80           535        39,908
</TABLE>

      At December 31, 2004, the available for sale portfolio included 38
      individual investments for which the fair market value was less than
      amortized cost.  Management does not believe any individual unrealized
      loss as of December 31, 2004 represents an other-than-temporary
      impairment.  These unrealized losses are primarily attributable to
      changes in interest rates resulting from market fluctuations.  The
      Corporation has the ability to hold the securities contained in the
      previous table for the time necessary to recover the amortized cost.

      The amortized cost and approximate fair value of securities available-
      for-sale by contractual maturity are shown below.  Expected maturities
      may differ from contractual maturities because borrowers may have the
      right to call or prepay obligations with or without call or prepayment
      penalties.
<PAGE>   33

<TABLE>
<CAPTION>
                                                                 Approximate
                                                    Amortized       Fair
             December 31, 2004                         Cost         Value
<S>                                              <C>            <C>
         Due in one year or less                  $   6,604         6,710
         Due after one year through five years       42,522        43,348
         Due after five years through ten years      24,408        24,336
         Due after ten years                         67,368        67,975

            Totals                                $ 140,902       142,369
</TABLE>

      For the years ended December 31, 2004, 2003, and 2002, proceeds from
      sales of securities available-for-sale amounted to $9,676, $17,691 and
      $5,718, respectively.  Gross realized gains on securities available-
      for-sale were $64, $74 and $290 in 2004, 2003 and 2002,
      respectively.  Gross realized losses on securities available-for-sale
      were $52, $25 and $19 in 2004, 2003 and 2002, respectively.  The tax
      benefit (provision) applicable to these net realized gains and losses
      amounted to $(4) $(17) and $(92), respectively.

      The carrying value of securities available-for-sale pledged to secure
      public and trust deposits and securities sold under agreements to
      repurchase, and for other purposes as required or permitted by law, was
      $52,928 at December 31, 2004 and $53,557 at December 31, 2003.

(4)   SECURITIES HELD-TO-MATURITY

      The amortized cost, gross unrealized gains and losses, and approximate
      fair value of securities held-to-maturity at December 31, 2004 and
      2003 are as follows:

<TABLE>
<CAPTION>
                                        Gross         Gross       Approximate
                           Amortized    Unrealized    Unrealized  Fair
      December 31, 2004    Cost         Gains         Losses      Value
<S>                      <C>          <C>           <C>         <C>
      Mortgage-backed     $    121             4           (1)         124
      States and
         political
         subdivisions        3,818            94            -        3,912

      Totals              $  3,939            98           (1)       4,036
</TABLE>

<TABLE>
<CAPTION>
                                        Gross         Gross       Approximate
                           Amortized    Unrealized    Unrealized  Fair
      December 31, 2003    Cost         Gains         Losses      Value
<S>                      <C>          <C>           <C>         <C>
      Mortgage-backed     $    180             8            -          188
      States and
         political
         subdivisions        9,494           327            -        9,821

      Totals              $  9,674           335            -       10,009
</TABLE>
<PAGE>   34

      Two held-to-maturity securities were in a loss position at December 31,
      2004.

      The amortized cost and approximate fair value of securities held-to-
      maturity by contractual maturity are shown below.  Expected maturities
      may differ from contractual maturities because borrowers may have the
      right to call or prepay obligations with or without call or prepayment
      penalties.

<TABLE>
<CAPTION>
                                                                Approximate
                                                  Amortized        Fair
      December 31, 2004                             Cost          Value
<S>                                              <C>           <C>
      Due in one year or less                     $  1,163         1,174
      Due after one year through five years          2,272         2,356
      Due after five years through ten years           429           432
      Due after ten years                               75            74

      Totals                                      $  3,939         4,036
</TABLE>

      Realized gains were $3, $2 and $44 and realized losses were zero, $17
      and $24 on calls and maturities of securities held-to-maturity in 2004,
      2003 and 2002, respectively.  The carrying value of securities held-to-
      maturity pledged to secure public and trust deposits and securities
      sold under agreements to repurchase, and for other purposes as required
      or permitted by law, was $2,414 and $6,974 at December 31, 2004 and
      2003, respectively.

(5)   RELATED PARTY TRANSACTIONS

      In the ordinary course of business, the Corporation has granted loans
      to officers and directors and their affiliates amounting to $7,479 in
      2004 and $6,670 in 2003.  During 2004, new direct loans to officers and
      directors amounted to $2,274 and repayments amounted to $1,466.  In
      addition, there were loans of $6,958 and $8,546 at December 31, 2004
      and 2003, respectively, which were endorsed by directors or had been
      made to companies in which directors had an equity interest.

      At December 31, 2004 and 2003, there were deposits from officers and
      directors of $12,920 and $13,832, respectively.

(6)   LOANS AND ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
      At December 31, loans consisted of the following:
                                                         2004           2003
<S>                                                <C>              <C>
      Commercial                                    $   91,909         87,826
      Consumer                                         176,042        159,722
      Real estate - commercial                         292,606        282,366
      Real estate - construction                       142,059         90,663
      Real estate - mortgage                           400,854        379,311
             Total loans, net of unearned income     1,103,470        999,888
      Less allowance for loan losses                    13,165         12,002
             Loans, net                            $ 1,090,305        987,886
</TABLE>
<PAGE>   35

      At December 31, 2004 and 2003, the Corporation had sold without
      recourse to financial institutions and other customers of the
      Corporation participations in various loans in the amount of $22,134
      and $55,905, respectively.

      A summary of the changes in the allowance for loan losses (including
      allowances for impaired loans) follows:

<TABLE>
<CAPTION>
      Years Ended December 31,             2004        2003        2002
<S>                                    <C>          <C>          <C>
      Balance at beginning of year      $12,002       9,466       8,827
      Reserve acquired through merger         -       1,382           -
      Provisions for loan losses          3,046       2,158       1,369
      Loan recoveries                       483         436         941
      Loan charge-offs                   (2,366)     (1,440)     (1,671)
      Balance at end of year            $13,165      12,002       9,466
</TABLE>

      Nonperforming assets consist of the following:

<TABLE>
<CAPTION>
      December 31,                         2004        2003        2002
<S>                                    <C>          <C>         <C>
      Nonaccrual loans                  $ 3,534       3,142       2,914
      Other real estate owned             1,269       1,872       1,001
      Loans past due 90 days
        or more                             747         437         596

      Total nonperforming assets        $ 5,550       5,451       4,511
</TABLE>

<TABLE>
<CAPTION>
      December 31,                                     2004         2003
<S>                                               <C>            <C>
      Impaired loans without a valuation
        allowance                                  $      -            -
      Impaired loans with a valuation
        allowance                                     3,976        3,293
      Total impaired loans                         $  3,976        3,293
      Valuation allowance related to
        impaired loans                             $    905          780
</TABLE>

<TABLE>
<CAPTION>
      Years Ended December 31,             2004        2003        2002
<S>                                     <C>          <C>        <C>
      Average investment in impaired
        loans                           $ 3,634       3,374       2,764
      Interest income recognized on
        impaired loans                  $    74          57          32
      Interest income recognized on a
        cash basis on impaired loans    $   146         130          32
</TABLE>

      There were no material commitments to lend additional funds to
      customers whose loans were classified as impaired at December 31, 2004.
<PAGE>   36

(7)   BANK PREMISES AND EQUIPMENT

      Bank premises and equipment are stated at cost less accumulated
      depreciation and amortization as follows:

<TABLE>
<CAPTION>
      December 31,                        2004          2003
<S>                                  <C>             <C>
      Land                            $  4,339         4,217
      Buildings                         18,482        18,580
      Furniture and equipment           21,123        20,762
      Leasehold improvements             1,197           858
                                        45,141        44,417
      Less accumulated depreciation
         and amortization              (21,165)      (20,044)

      Totals                          $ 23,976        24,373
</TABLE>

      Depreciation expense for the years ended December 31, 2004, 2003 and
      2002 amounted to $2,668, $2,581 and $2,455, respectively.

(8)   LEASING ACTIVITIES

      The Corporation's leasing activities consist of the leasing of land and
      buildings under agreements in which the Corporation is lessee.  These
      leases have been classified as operating leases.

      The following is a schedule by years of future minimum rental payments
      required under non-cancelable operating leases that have initial or
      remaining non-cancelable lease terms in excess of one year as of
      December 31, 2004:


         Year ending December 31:

                   2005                          $     331
                   2006                                267
                   2007                                145
                   2008                                 91
                   2009                                 45
                   Thereafter                           32

               Total minimum payments required   $     911


      Rental commitments of less than one year are not included in the above
      schedule.  Rentals charged to operations under operating leases were
      $494, $373 and $335 for the years ended December 31, 2004, 2003 and
      2002, respectively.
<PAGE>   37

(9)   DEPOSITS

      Time deposits and certificates of deposit of $100,000 and over as of
      December 31, 2004 mature as follows:

                   2005                          $ 280,766
                   2006                             85,235
                   2007                            124,115
                   2008                             72,946
                   2009                             35,378
                   Thereafter                          876
                                                 $ 599,316


(10)  SHORT TERM BORROWINGS AND LONG TERM DEBT

      Securities sold under agreements to repurchase (repurchase
      agreements) at December 31, 2004 totaled $1,475 and were collateralized
      by investment securities controlled by the Corporation with a book
      value of $7,060.  The maximum amount of repurchase agreements
      outstanding during 2004 was $6,296, and the average amount outstanding
      during 2004 was $2,904.

      Advances from the Federal Home Loan Bank of Atlanta (FHLB) were $86,380
      and $96,546 on December 31, 2004 and 2003, respectively.  The interest
      rates on the advances as of December 31, 2004 range from 2.18 to 7.26
      percent.  The advances are collateralized under a blanket floating
      lien agreement whereby the Corporation gives a blanket pledge of
      single family residential first mortgage loans amounting to $338,758
      at December 31, 2004.  Of the total balance at December 31, 2004,
      $33,523, $1,105, $5,000, $15,000 and $2,000 matures in 2005, 2006,
      2007, 2008, and 2009, respectively.  The remainder matures after 2009.
      The Corporation has additional borrowing capacity of $186,000 under its
      existing agreement with the FHLB at December 31, 2004.

      FNB Corporation participated in a pool of subordinated debt securities
      issued by FNB Corporation and other financial institutions to a trust
      in a method generally referred to as trust preferred financing.  FNB
      Corporation borrowed $15,464 that matures on December 18, 2031.
      Interest is payable quarterly at the three month LIBOR rate plus 3.60%.
      The rate may not exceed 12.5% prior to December 18, 2006, and the
      borrowing may be repaid on or after this date without penalty.
      Proceeds were principally used to pay cash to Salem Community
      Bankshares, Inc. shareholders.  The loan proceeds are treated as
      capital of FNB Corporation for regulatory purposes.  In addition, FNB
      Corporation borrowed $12,372 that matures on June 26, 2033.  Interest
      is payable quarterly at the three month LIBOR rate plus 3.10%.  The
      rate may not exceed 11.75% prior to June 26, 2008, and the borrowing
      may be repaid on or after this date without penalty.  Proceeds were
      principally used to pay cash to Bedford Bancshares, Inc. shareholders.
      The loan proceeds are treated as capital of FNB Corporation for
      regulatory purposes.

(11)  EMPLOYEE BENEFIT PLANS

      The Corporation sponsors a leveraged Employee Stock Ownership Plan
      (ESOP), which covers all employees following the completion of one year
<PAGE>   38
      of service and attainment of age 21.  The ESOP invests substantially in
      stock of the Corporation.  The purchase of some of the shares held by
      the ESOP has been financed by borrowings by the ESOP. FNB Corporation
      and First National Bank are the obliges on all ESOP loans.
      Consequently, in the consolidated balance sheets, the loans and the
      related liability have been eliminated.  The amounts representing
      unearned employee benefits have been recorded as reductions in
      stockholders' equity.  These amounts will be reduced as the ESOP debt
      is curtailed.  Shares released are allocated to plan participants as of
      the end of the Plan's year based on an allocation formula specified in
      the Plan.  The ESOP is repaying the loans (plus interest) using
      employer contributions and dividends received on the shares of common
      stock held by the ESOP.  Dividends on allocated ESOP shares are
      recorded as a reduction of retained earnings.  Dividends on unallocated
      shares are recorded as a reduction of ESOP debt to the extent used for
      debt service, and as compensation expense to the extent expected to be
      allocated to participants' accounts as additional contributions.  ESOP
      compensation expense of $674, $559 and $593 was recorded for 2004, 2003
      and 2002, respectively.

      ESOP shares as of December 31, 2004 consisted of 582,579 allocated
      shares and 5,516 unreleased and unearned shares.  Based on quoted
      trading and bid prices, the fair value of the unreleased and unearned
      shares at December 31, 2004 was $28.36 per share.

      Bedford Federal Savings Bank employees will be eligible to participate
      in the Corporation's ESOP plan beginning January 1, 2005.  During 2004
      and 2003 the employees of Bedford Federal Savings Bank participated in
      the ESOP plan previously sponsored by Bedford Bancshares, Inc.
      Matching contributions to that plan were $59 for the year ended
      December 31, 2004.  The expense for 2003 was incurred prior to the
      acquisition date.

      The Corporation sponsors a 401(k) plan that covers substantially
      all employees who work at least 1,000 hours per year.  Participants
      have the option to have from 1% to 100% of their salary withheld on a
      pre-tax basis to be contributed to the plan as long as the amount does
      not exceed IRS guidelines.  The Corporation matches 200% of the
      participants' contributions up to 1% of pay, plus 100% of contributions
      from 1% to 3% of pay.  Participants may choose among several investment
      options comprised primarily of mutual funds, but there is no stock of
      the Corporation in the plan.  Matching contributions totaled $532, $534
      and $235 for 2004, 2003 and 2002, respectively.

      Bedford Federal Savings Bank employees will be eligible to participate
      in the Corporation's 401(k) plan beginning January 1, 2005.  During
      2004 and 2003 the employees of Bedford Federal Savings Bank
      participated in the 401(k) plan previously sponsored by Bedford
      Bancshares, Inc.  Matching contributions to that plan were $30 for the
      year ended December 31, 2004 and $9 for the year ended December 31,
      2003.
<PAGE>   39

(12)  INCOME TAXES

      Total income taxes are allocated as follows:

<TABLE>
<CAPTION>
      Years Ended December 31,             2004        2003        2002
<S>                                    <C>          <C>         <C>
      Income                            $ 8,027       6,414       5,225
      Stockholders' equity, for net
         unrealized gains and (losses)
         on securities available-for-
         sale recognized for financial
         reporting purposes                (471)       (557)      1,045
      Totals                            $ 7,556       5,857       6,270
</TABLE>

      The components of federal income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
      Years Ended December 31,             2004        2003        2002
<S>                                    <C>           <C>         <C>
      Current                           $ 8,127       6,125       5,180
      Deferred                             (100)        289          45

      Total                             $ 8,027       6,414       5,225
</TABLE>

      The reconciliation of expected income tax expense at the statutory
      federal rate with the reported tax expense at the effective rate is
      as follows:

<TABLE>
<CAPTION>
      Years Ended December 31,     2004            2003            2002

                                      Percent         Percent         Percent
                                      of              of              of
                                      Pretax          Pretax          Pretax
                              Amount  Income  Amount  Income  Amount  Income
<S>                         <C>      <C>     <C>     <C>     <C>     <C>
      Expected tax
        expense at
        statutory rate       $ 7,796   35.0%   6,771   35.0%   5,547   34.0%
      Increase (decrease)
         in taxes resulting
         from:
           Tax-exempt
             income             (561)  (2.4)    (696)  (3.6)    (745)  (4.6)
           Nondeductible
             interest
             expense              19    0.1       35    0.2      174    1.1
           Nondeductible
             intangibles
             amortization        485    2.2      418    2.2      363    2.2
           State income
             taxes               179    0.8       79    0.4        -    0.0
           Other                 109    0.3     (193)  (1.1)    (114)  (0.7)

      Reported tax expense
         at effective rate   $ 8,027   36.0%   6,414   33.1%   5,225   32.0%
</TABLE>
<PAGE>   40

      The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and deferred tax liabilities are as
      follows:

<TABLE>
<CAPTION>
      December 31,                                   2004        2003
<S>                                              <C>          <C>
      Deferred tax assets:
        Loans, principally due to allowance
          for loan losses and unearned fees       $ 4,619       3,813
      Accrued employee benefits due to accrual
        for financial reporting purposes in
        excess of actual contributions                380         303
      Accrued compensation benefits due to
        accrual for financial purposes in
        excess of deductible amounts                  133         382
      Other                                           144         122
            Total gross deferred tax assets         5,276       4,620

      Deferred tax liabilities:
        Bank premises and equipment,
          due to differences in depreciation        1,054         877
        Securities, due principally to
          valuation allowance                         506         940
        Investment securities, due to
          differences in discount accretion            27          35
        Prepaids, due to advance payments             261         238
        Amortizable goodwill                          467         340
        Purchase accounting adjustment                813         448
        Other                                         317         445
        Total gross deferred tax
              liabilities                           3,445       3,323
        Net deferred tax asset,
              included in other assets            $ 1,831       1,297
</TABLE>

(13)  DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS

      The holding company's principal asset is its investment in its
      wholly-owned consolidated subsidiaries.  The primary source of income
      for the holding company to date has been dividends from the Bank.
      Regulatory agencies limit the amount of funds that may be transferred
      from the Bank to the holding company in the form of dividends, loans,
      or advances.

      Under applicable federal laws, the Comptroller of the Currency
      restricts, without prior approval, the total dividend payments of the
      Bank in any calendar year to the net profits of that year, as defined,
      combined with the retained net profits for the two preceding years.
      Dividends that may be declared in 2005 without the approval of the
      Comptroller are $10,675 plus year-to-date 2005 net profits as of the
      declaration date.

      The Corporation is subject to various regulatory capital requirements
      administered by the federal banking agencies.  Failure to meet minimum
      capital requirements can initiate certain mandatory--and possibly
      additional discretionary--actions by regulators that, if undertaken,
<PAGE>   41
      could have a direct material effect on the Corporation's financial
      statements.  Under capital adequacy guidelines and the regulatory
      framework for prompt corrective action, established by Section 38 of
      the Federal Deposit Insurance Act (FDI ACT), the Corporation must meet
      specific capital guidelines that involve quantitative measures of
      assets, liabilities, and certain off-balance-sheet items as calculated
      under regulatory accounting practices.  The Corporation's capital
      amounts and classification are also subject to qualitative judgments by
      the regulators about components, risk weightings, and other factors.
      Quantitative measures established by regulation to ensure capital
      adequacy require the Corporation to maintain minimum amounts and ratios
      of total and Tier 1 capital (as defined in the regulations) to risk-
      weighted assets (as defined), and of Tier 1 capital to average assets
      (as defined).  Management believes, as of December 31, 2004, that the
      Corporation meets all capital adequacy requirements to which it is
      subject.  The table below sets forth the ratios for the subsidiary
      banks and on a consolidated basis for December 31, 2004 and 2003.

      As of December 31, 2004, the most recent regulatory notification, the
      subsidiary banks were categorized as well-capitalized under the
      regulatory framework for prompt corrective action (Section 38 of the
      FDI ACT).  To be categorized as well-capitalized, minimum total risk-
      based capital, Tier 1 risk-based capital, and Tier 1 leverage ratios as
      set forth in the table below must be maintained.  There are no
      conditions or events since that notification that management believes
      have changed the institutions' categories.  As of December 31, 2003 the
      Comptroller of the Currency categorized the banks as well-capitalized
      under the regulatory framework for prompt corrective action (Section 38
      of the FDI ACT).
<PAGE>   42

<TABLE>
<CAPTION>
      As of December 31, 2004:
                                                 Minimum Requirements
                                                              Section 38 of
                                              For Capital     Federal Deposit
                                Actual          Adequacy       Insurance Act
                            Amount   Ratio   Amount   Ratio   Amount   Ratio
<S>                      <C>       <C>     <C>      <C>     <C>      <C>
      Total Capital
        (to Risk Weighted
         Assets)
         Consolidated     $141,205   12.3%   91,841    8.0%     N/A
         First National
          Bank              66,248   11.0%   48,180    8.0% $ 60,225   10.0%
         FNB Salem Bank
          & Trust           34,137   10.8%   25,287    8.0%   31,608   10.0%
         Bedford Federal
          Savings Bank      25,474   11.6%   17,568    8.0%   21,960   10.0%
      Tier 1 Capital
        (to Risk Weighted
         Assets)
         Consolidated      128,110   11.2%   45,754    4.0%     N/A
         First National
           Bank             59,116    9.8%   24,129    4.0%   36,193    6.0%
         FNB Salem Bank
           & Trust          30,169    9.5%   12,703    4.0%   19,054    6.0%
         Bedford Federal
          Savings Bank      23,478   10.7%    8,777    4.0%   13,165    6.0%
      Tier 1 Capital
        (to Average Assets)
         Consolidated      128,110    9.5%   53,941    4.0%     N/A
         First National
           Bank             59,116    8.2%   28,837    4.0%   36,046    5.0%
         FNB Salem Bank
           & Trust          30,169    8.7%   13,871    4.0%   17,339    5.0%
         Bedford Federal
          Savings Bank      23,478    8.0%   11,739    4.0%   14,674    5.0%
</TABLE>
<PAGE>   43

<TABLE>
<CAPTION>
      As of December 31, 2003:
                                                 Minimum Requirements
                                                              Section 38 of
                                              For Capital     Federal Deposit
                                Actual          Adequacy       Insurance Act
                            Amount   Ratio   Amount   Ratio   Amount   Ratio
<S>                      <C>        <C>    <C>      <C>     <C>      <C>
      Total Capital
        (to Risk Weighted
         Assets)
         Consolidated     $129,327   12.7%   81,466    8.0%     N/A
         First National
           Bank             61,985   11.3%   43,883    8.0% $ 54,854   10.0%
         FNB Salem Bank
           & Trust          32,019   11.1%   23,077    8.0%   28,846   10.0%
         Bedford Federal
          Savings Bank      28,052   15.5%   14,478    8.0%   18,098   10.0%
      Tier 1 Capital
        (to Risk Weighted
         Assets)
         Consolidated      117,567   11.5%   40,893    4.0%     N/A
         First National
           Bank             55,417   10.1%   21,947    4.0%   32,921    6.0%
         FNB Salem Bank
           & Trust          28,405    9.8%   11,594    4.0%   17,391    6.0%
         Bedford Federal
          Savings Bank      26,470   14.6%    7,252    4.0%   10,878    6.0%
      Tier 1 Capital
        (to Average Assets)
         Consolidated      117,567    9.2%   51,116    4.0%     N/A
         First National
           Bank             55,417    8.4%   26,389    4.0%   32,986    5.0%
         FNB Salem Bank
           & Trust          28,405    8.6%   13,212    4.0%   16,515    5.0%
         Bedford Federal
          Savings Bank      26,470    9.4%   11,264    4.0%   14,080    5.0%
      Tangible Capital
         Bedford Federal
         Savings Bank       26,470    9.4%    4,207    1.5%    N/A
</TABLE>

(14)  SUPPLEMENTAL CASH FLOW INFORMATION

      The Corporation paid $26,216, $16,206 and $22,027 for interest and
      $9,139, $5,580 and $4,660 for income taxes in 2004, 2003 and 2002,
      respectively.  Noncash investing activities included $863, $1,375 and
      $906 of loans transferred to other real estate owned in 2004, 2003 and
      2002, respectively.

(15)  COMMITMENTS AND CONTINGENCIES

      The Corporation is involved from time to time in litigation arising in
      the normal course of business.  Management believes that any resulting
      settlements and disposition of these matters will not have a material
      effect on the Corporation's consolidated results of operations or
      financial position.
<PAGE>   44

(16)  GOODWILL AND OTHER INTANGIBLES

      FASB SFAS No. 141 eliminated the pooling-of-interests method of
      accounting for business combinations and FASB SFAS No. 142 superseded
      APB Opinion No. 17, Intangible Assets.  Under SFAS No. 142, certain
      goodwill and indefinite lived intangible assets are no longer amortized
      but are reviewed annually for impairment or more frequently if
      indications of impairment arise.  Goodwill is required to be tested for
      impairment between the annual tests if an event occurs or circumstances
      change that will more likely than not reduce the fair value of a
      reporting unit below its carrying value.  An indefinite lived
      intangible asset is required to be tested for impairment between the
      annual tests if an event occurs or circumstances change indicating that
      the asset might be impaired.  Separable intangible  assets that have
      finite lives continue to be amortized over their useful lives, for
      which SFAS Nos. 142 and 147 do not impose limits.

      In accordance with the disclosure requirements of SFAS No. 142, the
      following information is presented regarding intangibles subject to
      amortization and those not subject to amortization.

<TABLE>
<CAPTION>
                                        Gross                        Net
                                        Carrying    Accumulated      Carrying
                                        Amount      Amortization     Amount
<S>                                  <C>              <C>          <C>
      Goodwill Subject to
        Amortization                   $      -               -            -
      Goodwill Not Subject to
        Amortization
          Balance, December 31, 2002     21,735               -       21,735
              Additions Due to Bedford   20,889               -       20,889
              Impairment Charges              -               -            -
          Balance, December 31, 2003     42,624               -       42,624
              Additions/Impairment            -               -            -
          Balance, December 31, 2004   $ 42,624               -       42,624

      Core Deposit Intangibles
          Balance, December 31, 2002      5,872           1,068        4,804
              Additions Due to Bedford    3,060               -        3,060
              Amortizations                   -           1,193       (1,193)
          Balance, December 31, 2003      8,932           2,261        6,671
              Amortizations                   -           1,387       (1,387)
          Balance, December 31, 2004      8,932           3,648        5,284
      Total Goodwill and Other
          Intangible Assets            $ 51,556           3,648       47,908
</TABLE>

      In accordance with SFAS No. 142, the amortization expense for core
      deposit intangibles subject to amortization for each of the next five
      years from December 31, 2004 is as follows:


                              2005            $1,225
                              2006            $1,063
                              2007            $  900
                              2008            $  738
                              2009            $  575
<PAGE>   45

      SFAS No. 142 requires an annual impairment test to be applied to all
      goodwill and other indefinite-lived intangible assets.  The impairment
      test involves identifying separate reporting units based on the
      reporting structure of the Corporation, then assigning all assets and
      liabilities, including goodwill, to these units.  Goodwill is assigned
      based on the reporting unit benefiting from the factors that gave rise
      to the goodwill.  Each reporting unit is then tested for goodwill
      impairment by comparing the fair value of the unit with its book value,
      including goodwill.  If the fair value of the reporting unit is greater
      than its book value, no goodwill impairment exists.  However, if the
      book value of the reporting unit is greater than its determined fair
      value, goodwill impairment may exist and further testing is required to
      determine the amount, if any, of the actual impairment loss.  Any
      impairment loss is charged against income in the period in which the
      impairment is recognized.  The Corporation has completed its impairment
      tests of goodwill as of September 30, 2004 and 2003 and did not record
      an impairment loss as a result of either of these tests.

(17)  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

      The Corporation is a party to financial instruments with off-balance-
      sheet risk in the normal course of business to meet the financing needs
      of its customers.  The financial instruments include commitments to
      extend credit and standby letters of credit.  Those instruments
      involve, to varying degrees, elements of credit risk in excess of the
      amount recognized in the balance sheets.  The contract amounts of those
      instruments reflect the extent of involvement the Corporation has in
      particular classes of financial instruments.  Exposure to credit loss
      in the event of nonperformance by the other party to the financial
      instrument for commitments to extend credit and standby letters of
      credit is represented by the contractual amount of these instruments.
      The Corporation uses the same credit policies in making commitments
      and conditional obligations as it does for on-balance-sheet
      instruments.

      Except for unused home equity lines totaling $74,776 at December 31,
      2004, and $61,968 at December 31, 2003 (included in amounts below),
      the Corporation may or may not require collateral or other security
      to support the following financial instruments with credit risk:

<TABLE>
<CAPTION>
                                                 Contract Amounts
      December 31,                                 2004        2003
<S>                                          <C>          <C>
      Financial instruments whose contract
        amounts represent credit risk:
          Commitments to extend credit        $ 272,755     204,423
          Standby letters of credit              26,834      17,820
</TABLE>

      Commitments to extend credit are agreements to lend to a customer as
      long as there is no violation of any condition established in the
      contract.  Commitments generally have fixed expiration dates or other
      termination clauses and may require payment of a fee.  Since many of
      the commitments are expected to expire without being drawn upon, the
      total commitment amounts do not necessarily represent future cash
<PAGE>   46
      requirements.  The Corporation evaluates each customer's
      creditworthiness on a case-by-case basis.  The amount of collateral
      obtained, if deemed necessary by the Corporation upon extension of
      credit, is based on management's credit evaluation of the customer.
      Collateral held varies but may include securities, accounts
      receivable, inventory, property, plant and equipment, and income-
      producing commercial properties.

      Standby letters of credit are conditional commitments issued by the
      Corporation to guarantee the performance of a customer to a third
      party.  Those guarantees are primarily issued to support public and
      private borrowing arrangements, including commercial paper, bond
      financing and similar transactions.  The credit risk involved in
      issuing letters of credit is essentially the same as that involved
      in extending loans to customers.  Collateral held varies but may
      include securities, accounts receivable, inventory, property, plant
      and equipment, and income-producing properties.

      Commitments to extend credit and standby letters of credit are not
      reflected in the financial statements except to the extent of fees
      collected, which are generally reflected in income.  The fulfillment of
      these commitments would normally result in the recording of a loan at
      the time the funds are disbursed.

      The Corporation originates mortgage loans for sale to secondary
      market investors subject to contractually specified and limited
      recourse provisions.  In 2004, the Corporation originated $240,731
      and sold $236,048 of mortgage loans to investors, compared to $422,699
      originated and $452,481 of mortgage loans sold in 2003.  Every contract
      with each investor contains certain recourse language.  In general, the
      Corporation may be required to repurchase a previously sold mortgage
      loan if there is major noncompliance with defined loan origination or
      documentation standards, including fraud, negligence or material
      misstatement in the loan documents.  Repurchase may also be required if
      necessary governmental loan guarantees are canceled or never issued, or
      if an investor is forced to buy back a loan after it has been resold as
      a part of a loan pool.  In addition, the Corporation may have an
      obligation to repurchase a loan if the mortgagor has defaulted early
      in the loan term.  This potential default period ranges from six to
      twelve months after sale of a loan to the investor.  Historically,
      repurchases under these recourse provisions have been minimal.

(18)  CONCENTRATIONS OF CREDIT RISK

      The Corporation does a general banking business, serving the
      commercial, agricultural and personal banking needs of its customers
      in its trade territory, commonly referred to as the New River Valley
      and the Roanoke Valley, which consists of Montgomery, Roanoke and
      Bedford Counties and portions of adjacent counties in Virginia.
      Operating results are closely correlated with the economic trends
      within this area, which are, in turn, influenced by the area's large
      employers which include Virginia Polytechnic Institute and State
      University, Radford University, the Radford Arsenal, General Electric
      and Norfolk Southern.  Other industries include a wide variety of
      manufacturing concerns and agriculture-related enterprises.  The
      ultimate collectibility of the loan portfolios and the recovery of the
      carrying amounts of repossessed property are susceptible to changes in
<PAGE>   47
      the market conditions of this area.  The commercial portfolio is
      diversified with no significant concentrations of credit within a
      single industry.  The consumer loan portfolio included $105,922 and
      $108,339 of loans to individuals for household, family and other
      personal expenditures at December 31, 2004 and 2003, respectively.  The
      real estate mortgage portfolio consists primarily of loans secured by
      1-4 family residential properties.

(19)  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

      SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
      requires the Corporation to disclose estimated fair values of its
      financial instruments.  The following methods and assumptions were used
      to estimate the approximate fair value of each class of financial
      instrument for which it is practicable to estimate that value:

      (a)   Cash and Due from Banks and Federal Funds Sold

            The carrying amounts in the consolidated balance sheets are
            reasonable estimates of fair values.

      (b)   Securities

            The fair value of securities, except certain state and municipal
            securities is estimated based on bid prices published in
            financial newspapers or bid quotations received from securities
            dealers.  The fair value of certain state and municipal
            securities is not readily available through market sources other
            than dealer quotations, so fair value estimates are based on
            quoted market prices of similar instruments, adjusted for
            differences between the quoted instruments and the instruments
            being valued.

      (c)   Loans

            Fair values are estimated for portfolios of loans with similar
            financial characteristics.  Loans are segregated by type
            (commercial, mortgage, consumer, etc.), by interest rate terms
            (fixed and adjustable rate) and by performing and nonperforming
            categories.  The fair value of performing loans is calculated by
            discounting scheduled cash flows through the estimated maturity
            using estimated market discount rates that reflect the credit
            and interest rate risk inherent in the loan as well as estimates
            for operating expenses and prepayments.  The estimate of maturity
            is based on the Corporation's historical experience with
            repayments for each loan classification, modified, as required,
            by an estimate of the effect of current economic and lending
            conditions.

            Fair value for significant nonperforming loans is based on
            estimated cash flows that are discounted using a rate
            commensurate with the risk associated with the estimated cash
            flows.  Assumptions regarding credit risk, cash flows and
            discount rates are judgmentally determined using available
            market information and specific borrower information.
<PAGE>   48

      (d)   Deposits

            The fair value of demand and savings deposits is the amount
            payable on demand.  The fair value of fixed maturity time
            deposits and certificates of deposit is estimated using the rates
            currently offered for deposits of similar remaining maturities.

      (e)   Federal Funds Purchased, Securities Sold Under Agreements to
            Repurchase and Other Borrowed Funds

            Rates currently available for debt with similar terms and
            remaining maturities are used to estimate fair value of existing
            debt.

      (f)   Commitments to Extend Credit and Standby Letters of Credit

            The only amounts recorded for commitments to extend credit and
            standby letters of credit are the deferred fees arising from
            these unrecognized financial instruments.  These deferred fees
            are not deemed significant at December 31, 2004 and 2003, and
            as such, the related fair values have not been estimated.

      The carrying amounts and approximate fair values of the Corporation's
      financial instruments are as follows:

<TABLE>
<CAPTION>
      December 31,                       2004                   2003

                                           Approximate            Approximate
                                Carrying   Fair        Carrying   Fair
                                Amounts    Values      Amounts    Values
<S>                          <C>          <C>        <C>        <C>
     Financial assets:
       Cash and due
         from banks          $   37,786      37,786     36,838      36,838
       Federal funds sold             -           -      1,200       1,200
       Securities available-
         for-sale               142,368     142,368    173,641     173,641
       Securities held-to-
         maturity                 3,939       4,036      9,674      10,009
       Loans, net of
         unearned income      1,103,470   1,096,893    999,888   1,011,678
           Total financial
             assets          $1,287,563   1,281,083  1,221,241   1,233,366

     Financial liabilities:
       Deposits              $1,124,267   1,079,828  1,048,802   1,021,932
       Federal funds
         purchased,
         securities sold
         under agreements
         to repurchase and
         other borrowed
         funds                  117,541     125,257    130,446     138,967
            Total financial
              liabilities    $1,241,808   1,205,085  1,179,248   1,160,899
</TABLE>
<PAGE>   49

      Fair value estimates are made at a specific point in time, based on
      relevant market information and information about the financial
      instrument.  These estimates do not reflect any premium or discount
      that could result from offering for sale at one time the Corporation's
      entire holdings of a particular financial instrument.  Because no
      market exists for a significant portion of the Corporation's financial
      instruments, fair value estimates are based on judgments regarding
      future expected loss experience, current economic conditions, risk
      characteristics of various financial instruments and other factors.
      These estimates are subjective in nature and involve uncertainties and
      matters of significant judgment and therefore cannot be determined
      with precision.  Changes in assumptions could significantly affect the
      estimates.

      Fair value estimates are based on existing on and off-balance-sheet
      financial instruments without attempting to estimate the value of
      anticipated future business and the value of assets and liabilities
      that are not considered financial instruments.  In addition, the tax
      ramifications related to the realization of the unrealized gains and
      losses can have a significant effect on fair value estimates and have
      not been considered in the estimates.
<PAGE>   50

(20)  PARENT COMPANY FINANCIAL INFORMATION

      Condensed financial information of FNB Corporation (the parent or
      holding company) is presented below:

<TABLE>
<CAPTION>
    Condensed Balance Sheets

                                       December 31, 2004    December 31, 2003
<S>                                    <C>                  <C>
    Assets
    Cash and due from banks                $   6,402                4,589
    Securities available-for-sale,
      at fair value                            1,779                1,829
    Other investments at cost                    836                  836
    Investment in subsidiary banks           161,649              161,644
    Other assets                               8,415                1,902
          Total assets                     $ 179,081              170,800
    Liabilities
    Other borrowed funds                   $  27,836               27,836
    Other liabilities                          1,144                1,556
    ESOP debt                                    100                  300
          Total liabilities                   29,080               29,692
    Stockholders' equity                     150,001              141,108
          Total liabilities and
            stockholders' equity           $ 179,081              170,800
</TABLE>

<TABLE>
<CAPTION>
    Statements of Income
    Years Ended December 31,                    2004        2003        2002
<S>                                       <C>           <C>          <C>
    Income:
      Dividends from affiliate banks       $  14,396       6,835       6,021
      Interest on investments                    118         119         165
      Management fees                         14,581      13,015      11,382
      Miscellaneous income                        13          16           -
        Total income                          29,108      19,985      17,568
    Interest expense                           1,412       1,075         932
    Operating expenses                        14,842      13,671      12,618
        Total expenses                        16,254      14,746      13,550
    Income before income taxes and
      equity in undistributed net
      income of affiliate banks               12,854       5,239       4,018
    Applicable income tax provision
      (benefit)                                 (532)       (600)       (711)
                                              13,386       5,839       4,729
    Equity in undistributed net
      income of affiliate banks                  861       7,093       6,362
    Net income                             $  14,247      12,932      11,091
</TABLE>
<PAGE>   51

<TABLE>
<CAPTION>
     Statements of Cash Flows

                                                 2004        2003        2002
<S>                                        <C>          <C>         <C>
   Cash flows from operating activities:
     Net income                            $  14,247      12,932      11,091
     Adjustments to reconcile net income
       to net cash provided by operating
       activities:
         Equity in undistributed net
           income of affiliate banks            (861)     (7,093)     (6,362)
         ESOP compensation                       233         317         299
         Increase in other assets             (1,570)     (1,306)       (986)
         Increase (decrease) in other
           liabilities                          (412)        620         915
         Other, net                              751         765         207
           Net cash provided by operating
             activities                    $  12,388       6,235       5,164

   Cash flows from investing activities:
     (Purchase) sale of short term
       investments                         $       -           -      16,549
     Sales and maturities of debt
       securities                                  -         546         100
     Purchase of debt securities                   -        (490)          -
     Purchase of other investments
       at cost                                     -           -        (491)
     Cash payment for purchase of
       subsidiary                                  -     (11,516)    (13,550)
     Fixed assets sold to FNB
       Corporation from affiliates            (4,943)          -           -
           Net cash provided (used) in
             investing activities          $  (4,943)    (11,460)      2,608

   Cash flows from financing activities:
     Issuance of trust preferred
       debt                                        -      12,372           -
     Repurchase of FNB Corporation
       stock, net                          $       -         (94)     (1,692)
     Cash dividends paid on common
       stock                                  (5,632)     (4,317)     (3,923)
     Other, net                                    -        (304)          -
     Net cash provided (used) for
       financing activities                $  (5,632)      7,657      (5,615)

   Net increase in cash and cash
     equivalents                           $   1,813       2,432       2,157
   Cash and cash equivalents at
    beginning of year                          4,589       2,157           -
   Cash and cash equivalents at end
     of year                               $   6,402       4,589       2,157
</TABLE>
<PAGE>   52

(21)  INTERIM FINANCIAL INFORMATION (Unaudited)

      Consolidated quarterly results of operations were as follows:

<TABLE>
<CAPTION>
                                                 2004
                                           Three Months Ended
                              March 31   June 30   September 30   December 31
<S>                          <C>        <C>        <C>            <C>
      Interest income         $ 17,049    17,064         17,923        18,425
      Interest expense           5,288     5,453          5,822         6,097
      Net interest income       11,761    11,611         12,101        12,328
      Provision for loan
        losses                     637       903            753           753
      Noninterest income         3,198     3,914          3,570         3,667
      Noninterest expense        9,031     9,255          9,114         9,430
      Income before income
        tax expense              5,291     5,367          5,804         5,812
      Income tax expense         1,881     1,941          2,097         2,108
      Net income              $  3,410     3,426          3,707         3,704

      Basic earnings per
        share                 $   0.47      0.47           0.51          0.51
      Fully diluted earnings
        per share             $   0.47      0.47           0.51          0.50
</TABLE>

<TABLE>
<CAPTION>
                                                 2003
                                           Three Months Ended
                              March 31   June 30   September 30   December 31
<S>                          <C>        <C>       <C>            <C>
      Interest income         $ 14,148    13,846         16,142        17,328
      Interest expense           4,838     4,672          5,118         5,307
      Net interest income        9,310     9,174         11,024        12,021
      Provision for loan
        losses                     497       462            587           612
      Noninterest income         3,669     4,108          4,276         3,625
      Noninterest expense        8,080     8,383          9,297         9,943
      Income before income
        tax expense              4,402     4,437          5,416         5,091
      Income tax expense         1,397     1,431          1,856         1,730
      Net income              $  3,005     3,006          3,560         3,361

      Basic earnings per
        share                 $   0.52      0.52           0.53          0.47
      Fully diluted earnings
        per share             $   0.51      0.51           0.52          0.46
</TABLE>

(22)  STOCK COMPENSATION PLANS

      In 2000 the Corporation's shareholders approved the FNB Corporation
      2000 Incentive Stock Plan (the "Plan"), as previously adopted by the
      Board of Directors.  The Plan makes available up to 424,000 shares of
      common stock for awards to key employees and non-employee directors of
      the Corporation and its subsidiaries in the form of stock options,
      stock appreciation rights, and stock awards.  The Plan will expire in
<PAGE>   53
      2010, unless sooner terminated by the Board.  Any option terms not
      specified in the Plan such as exercise prices, expiration dates, and
      vesting provisions are set forth in an agreement governing each grant.
      A stock option may be either an incentive stock option within the
      meaning of Section 422 of the Internal Revenue Code or a non-qualified
      stock option.

      A summary of the status (shares in thousands) of the Corporation's
      stock option plan is presented below:

<TABLE>
<CAPTION>
                        ______2004______  ______2003______  ______2002______
                                 Weighted         Weighted          Weighted
                                 Average          Average           Average
                                 Exercise         Exercise          Exercise
                        Shares   Price    Shares  Price     Shares  Price
<S>                    <C>      <C>      <C>     <C>       <C>     <C>
    Outstanding at
      beginning of
      year                 259    $17.18     256   $15.87      218   $14.77
    Granted                 28     25.62      32    26.61       55    19.42
    Exercised              (31)    13.50     (15)   15.38      (17)   13.24
    Forfeited               (7)    17.13     (14)   16.91        -        -
    Outstanding at
      end of year          249    $18.59     259   $17.18      256   $15.87

    Options exer-
      cisable at
      year-end             161    $16.28     145   $14.94      134   $14.20
</TABLE>

      Information about stock options outstanding at December 31, 2004
      follows:


                                         Weighted
                                         Average          Weighted
       Range of                          Remaining        Average
       Exercise         Number           Contractual      Exercise
       Prices           Outstanding      Life             Price

     $13.17 - 13.17            29        0.8 years        $13.17
      15.39 - 17.36           141        5.9 years         15.90
      23.05 - 26.90            79        8.5 years         25.40
        Totals                249        6.3 years         18.59

      The weighted average fair value per share of options granted in 2004,
      2003 and 2002 amounted to $ 8.29, $ 6.02 and $ 4.37, respectively.  The
      fair values of stock options granted were estimated at the date of
      grant using the Black-Scholes option pricing model.  The Black-Scholes
      option pricing model was originally developed for use in estimating the
      fair value of traded options, which have different characteristics from
      the Corporation's employee stock options.  The model is also sensitive
      to changes in assumptions, which can materially affect the fair value
      estimate.  The following weighted-average assumptions were used to
      determine the fair value of options:
<PAGE>   54

      Years Ended December 31,       2004          2003         2002

      Dividend yield                 2.8%          2.5%         3.4%
      Expected life              10.0 years    10.0 years    10.0 years
      Expected volatility             30%           20%          20%
      Risk-free interest rate        4.8%          3.6%         5.1%


      Compensation cost for awards of stock under the Plan requiring no
      payment by the grantee is recorded at the effective date of the award
      and is measured by the market price of the stock awarded as of that
      date.  Such cost is amortized to expense over the period of service to
      which the award relates.

(23)  MERGERS AND ACQUISITIONS

      First National Bank, a wholly owned subsidiary of FNB Corporation,
      consummated the acquisition of two branch banking offices located in
      Pearisburg and Wytheville, Virginia from First Union National Bank
      on March 23, 2001.  The transaction was accounted for by the purchase
      method of accounting.  First National Bank assumed aggregate deposit
      liabilities of $74,289 in connection with the two branch acquisitions.
      Loans of $13,618 and building and equipment of $1,714 were acquired.
      Intangible assets of $5,002 were capitalized and include goodwill and
      other costs incurred directly related to the acquisition.

      On May 1, 2001, Southwest Virginia Savings Bank FSB ("SVSB") of
      Roanoke, Virginia, was merged with FNB Corporation in a business
      combination accounted for by the purchase method of accounting.  At the
      merger date, SVSB had $56,588 in net loans, $93,268 in total assets and
      $76,299 in total deposits.  The shareholders of SVSB received 293
      shares of FNB Corporation common stock and cash of $3,530 in connection
      with the merger.  Excess cost over net assets acquired equaled $962 and
      has been allocated to goodwill.  SVSB's results of operations have been
      included in the financial statements from the merger date.

      On December 31, 2001, Salem Community Bankshares, Inc. ("SCB") of
      Salem, Virginia, was merged with FNB Corporation in a business
      combination accounted for by the purchase method of accounting.  At
      the merger date, SCB had $170,813 in net loans, $257,971 in total
      assets and $205,307 in total deposits.  The shareholders of SCB
      received 1,272 shares of FNB Corporation common stock and cash of
      $12,937 in connection with the merger.  Excess cost over net tangible
      assets acquired equaled $21,441, and $5,873 has been allocated to core
      deposit intangible with the remaining $14,568 recorded as goodwill.

      Southwest Virginia Savings Bank, FSB was renamed FNB Southwest, N.A.,
      as a result of converting to a national bank charter on October 10,
      2001. FNB Southwest, N.A., and Salem Bank and Trust, N.A., merged on
      May 6, 2002, into a single charter with the name "FNB Salem Bank and
      Trust, National Association".

      On August 1, 2003, Bedford Bancshares, Inc. ("Bedford") of Bedford,
      Virginia, was merged with FNB Corporation in a business combination
      accounted for by the purchase method of accounting.  At the merger
      date, Bedford had $236,410 in loans, net of unearned income, $273,931
      in total assets and $185,387 in total deposits.  The shareholders of
<PAGE>   55
      Bedford received 1,403 shares of FNB Corporation common stock,
      valued at average market price of $26.60 per share and cash of $11,516
      for total consideration of $49,283 in connection with the merger.  The
      carrying value of loans and deposits were adjusted to fair market
      values of $240,951 and $185,387, respectively.  The excess cost over
      net tangible assets acquired was $23,962 of which $3,059 was allocated
      to core deposit intangible with the remaining $20,889 recorded as
      goodwill.  The fair market value adjustments are being amortized over
      the life of the related asset or liability, and the core deposit
      intangible is being amortized on an accelerated method over 10 years
      based on a life study of existing deposits.

      The following unaudited proforma financial information shows the effect
      of the Bedford acquisition as if the transaction had been consummated
      on January 1, 2003:


                                         As Reported       Proforma

       Net interest income                $ 41,529          46,966
       Provision for loan losses             2,158           2,347
       Noninterest income                   15,678          16,692
       Noninterest expense                  35,703          41,559
       Income before taxes                  19,346          19,752
       Income taxes                          6,414           6,907
       Net income                         $ 12,932          12,845

       Average shares outstanding            6,378           7,196
       Basic earnings per share             $ 2.03            1.79


(24)  SEGMENT INFORMATION

      The Corporation operates two business segments:  community banking and
      mortgage banking.  These segments are primarily identified by the
      products and services offered and the channels through which they are
      offered.  The banking segment consists of full-service banks that offer
      customers traditional banking products and services through various
      delivery channels.  The Corporation's mortgage banking segment consists
      of mortgage brokerage facilities that originate and sell mortgage
      products.  The accounting policies for each of the business segments
      are the same as those of the Corporation described in Note 1.
      Information for 2004, 2003 and 2002 for each of the segments is
      included below.
<PAGE>   56

<TABLE>
<CAPTION>
 December 31, 2004

                         Community  Mortgage             Elimi-
                         Banking    Banking     Parent   nations       Total
<S>                   <C>          <C>         <C>      <C>          <C>
 Net interest income  $   48,075      1,020     (1,294)         -      47,801
 Provision for loan
   losses                  2,919        127          -          -       3,046
 Net interest income
   after provision
   for loan losses        45,156        893     (1,294)         -      44,755
 Other income             11,212      3,124     14,594    (14,581)     14,349
 Other expenses           33,524      3,045     14,842    (14,581)     36,830
 Income (loss)
   before income
   taxes                  22,844        972     (1,542)         -      22,274
 Income tax
   (benefit)               8,219        340       (532)         -       8,027
 Net income           $   14,625        632     (1,010)         -      14,247
 Average assets       $1,341,499     36,328    173,902   (179,478)  1,372,251
</TABLE>

<TABLE>
<CAPTION>
December 31, 2003

                         Community  Mortgage             Elimi-
                         Banking    Banking     Parent   nations       Total
<S>                   <C>          <C>         <C>      <C>          <C>
 Net interest income  $   41,596        889       (956)         -      41,529
 Provision for loan
   losses                  2,158          -          -          -       2,158
 Net interest income
   after provision
   for loan losses        39,438        889       (956)         -      39,371
 Other income              9,541      6,121     13,031    (13,015)     15,678
 Other expenses           31,659      3,388     13,671    (13,015)     35,703
 Income (loss)
   before income
   taxes                  17,320      3,622     (1,596)         -      19,346
 Income tax
   (benefit)               5,783      1,231       (600)         -       6,414
 Net income           $   11,537      2,391       (996)         -      12,932
 Average assets       $1,111,474     25,318    138,943   (139,692)  1,136,043
</TABLE>
<PAGE>   57

<TABLE>
<CAPTION>
 December 31, 2002

                         Community  Mortgage             Elimi-
                         Banking    Banking     Parent   nations       Total
<S>                   <C>          <C>         <C>      <C>           <C>
 Net interest income  $   37,851        338       (767)         -      37,422
 Provision for loan
   losses                  1,369          -          -          -       1,369
 Net interest income
   after provision
   for loan losses        36,482        338       (767)         -      36,053
 Other income              8,801      2,744     11,382    (11,382)     11,545
 Other expenses           28,274      1,772     12,618    (11,382)     31,282
 Income (loss)
   before income
   taxes                  17,009      1,310     (2,003)         -      16,316
 Income tax
   (benefit)               5,491        445       (711)         -       5,225
 Net income            $  11,518        865     (1,292)         -      11,091
 Average assets        $ 941,760     15,040    107,279   (104,789)    959,290
</TABLE>

(25)  RECENT ACCOUNTING DEVELOPMENTS

      In December 2003, the FASB revised Interpretation No. 46,
      "Consolidation of Variable Interest Entities" issued in January 2003
      ("FIN 46"), which addresses consolidation by business enterprises of
      variable interest entities ("VIEs") that either: (1) do not have
      sufficient equity investment at risk to permit the entity to finance
      its activities without additional subordinated financial support, or
      (2) have equity investors that lack an essential characteristic of a
      controlling financial interest.  FIN 46 (R) introduced a new scope
      exception for certain types of entities that qualify as a "business" as
      defined in FIN 46 (R), revised the method of calculating expected
      losses and residual returns for determination of the primary
      beneficiary and included new guidance for assessing variable interests.
      No new consolidation was required as a result of applying FIN 46 or FIN
      46 (R).  FNB Corporation is the primary beneficiary of FNB Trust (the
      "Trust"), a VIE bearing a $27.836 million liability for trust preferred
      securities.  In accordance with GAAP principles, the Trust has been
      included in the Corporation's consolidated financial statements since
      its formation in 2001.  As a result, the implementation of FIN 46 (R)
      did not have and is not expected to have a significant impact on the
      financial condition or results of operations of the Corporation.

      In March 2004, the FASB's Emerging Issues Task Force ("EITF") reached
      consensus on EITF 03-01, "The Meaning of Other-than-Temporary
      Impairment and its Application to Certain Investments."  EITF 03-01
      requires that unrealized losses on investment securities that are
      deemed other-than-temporary be recorded as an adjustment to operations.
      The guidance applies to certain debt and equity securities within the
      scope of SFAS No. 115.  EITF 03-01 provides that investments that have
      declined in value due to credit concerns or to changes in the interest
      rate environment and/or sector spreads must be recorded as other-than-
      temporarily impaired, unless the investor can demonstrate the positive
      ability and intent to hold such securities until a forecasted recovery
      of fair value or until maturity of the security.  EITF 03-01 requires
<PAGE>   58
      separate disclosure related to unrealized losses for securities that
      have been in an unrealized loss position for a period of less than
      twelve months and for those that have been in an unrealized loss
      position for a period greater than twelve months, for financial
      statements issued for years ending after December 15, 2003.  The loss
      recognition provisions of other-than-temporary losses under EITF 03-01
      were to be effective September 30, 2004, however, the FASB issued FASB
      Staff Position EITF 03-01-1, which deferred the effective date until
      further implementation guidance could be established.  Management will
      continue to monitor changes in the guidance and evaluate the impact of
      initial adoption on the financial condition and results of operations
      of the Corporation.

      In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-Based
      Payment (Revised 2004)" ("SFAS 123 (R)").  SFAS 123 (R) replaces SFAS
      123 and supercedes APB Opinion Number 25.  This standard requires all
      entities to recognize compensation expense in an amount equal to the
      grant date fair value of stock options and other share-based payments.
      Public entities (other than those filing as small business issuers)
      will be required to apply SFAS 123 (R) as of the first interim or
      annual reporting period that begins after June 15, 2005.  This
      statement is to be applied using a modified version of prospective
      application.  Compensation expense is required to be recorded (as
      previous awards continue to vest) for the unvested portion of
      previously granted awards that remain outstanding at the date of
      adoption.  In addition, the Corporation may elect to adopt SFAS 123 (R)
      by adjusting previously issued financial statements on a basis
      consistent with the amounts of the expense previously calculated and
      reported in the pro forma disclosures that had been required by SFAS
      No. 123.  Management has not completed its evaluation of the effect of
      adoption of SFAS 123 (R), but believes that the effect will be
      consistent with the application in its pro forma disclosures that had
      been required by SFAS No. 123.
<PAGE>   59

Board of Directors

Kendall O. Clay                          Steven D. Irvin
Attorney, Kendall O. Clay, P.C.          Senior Vice President and Director
                                           of Sales,
                                         Bankers Insurance, L.L.C.

Hugh H. Bond                             Harold K. Neal
Associate Real Estate Broker,            Retired President and Chief
Scott & Bond, Inc.                         Executive Officer of Bedford
                                           Bancshares, Inc. and Bedford
                                           Federal Savings Bank

Douglas Covington                        Raymond D. Smoot, Jr.
President, Radford University            Chief Operating Officer and
                                           Secretary/Treasurer,
                                         Virginia Tech Foundation, Inc.

Beverley E. Dalton                       Charles W. Steger
Owner, English Construction Company      President, Virginia Polytechnic
                                           Institute and State University

Daniel D. Hamrick                        Carl E. Tarpley, Jr.
Attorney, Daniel D. Hamrick, P.C.        Retired President and Chief
                                           Executive Officer,
                                         FNB Salem Bank & Trust, N.A.

William P. Heath, Jr.                    Jon T. Wyatt
President and Chief Executive Officer,   President, Sign Systems, Inc.
FNB Corporation

F. Courtney Hoge
Insurance and Financial Planning,
New York Life


Corporate Executive Officers

William P. Heath, Jr.                    Kay O. McCoy
President and Chief Executive Officer    Executive Vice President and
                                           Retail Executive

Daniel A. Becker                         Duane E. Mink
Executive Vice President and Chief       Executive Vice President and
  Financial Officer                        General Counsel

Gregory W. Feldmann                      R. Bruce Munro
President and Chief Executive Officer,   President and Chief Executive
FNB Salem Bank & Trust, N.A.               Officer,
                                         First National Bank

Keith J. Houghton                        Woody B. Nester
Executive Vice President and Chief       Executive Vice President and
  Risk Officer                             Chief Systems Officer
<PAGE>   60