Exhibit 13






                              FNB CORPORATION

                       ANNUAL REPORT TO STOCKHOLDERS

                                    2002
<PAGE>

                       INDEX TO ANNUAL REPORT TO STOCKHOLDERS


                                                                      Page


Selected Consolidated Financial Information                             1

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

Market Price and Dividend Data                                          9

Market Risks Related to Financial Instruments                          10

Management's Statement of Financial Responsibility                     13

Independent Auditors' Report on Consolidated Financial Statements      14

Consolidated Balance Sheets                                            15

Consolidated Statements of Income                                      16

Consolidated Statements of Comprehensive Income                        16

Consolidated Statements of Cash Flows                                  18

Consolidated Statements of Changes in Stockholders' Equity             21

Notes to Consolidated Financial Statements                             24
<PAGE>

<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
                                            Years Ended December 31,
                                     2002     2001(1)  2000     1999     1998
<S>                             <C>       <C>        <C>     <C>      <C>
Selected income statement data
   (in thousands):
     Interest income            $  59,618   47,850   42,017   37,563   34,931
     Interest expense              22,196   22,827   20,102   17,610   17,249

     Net interest income           37,422   25,023   21,915   19,953   17,682
     Provision for loan
        losses                      1,369    1,637    1,082    1,445    1,135
     Noninterest income            11,545    5,798    3,528    3,729    3,437
     Noninterest expense           31,282   19,900   15,073   13,964   12,396
     Income tax expense             5,225    2,550    2,454    1,946    1,657

     Net income                 $  11,091    6,734    6,834    6,327    5,931

Per share data:
     Basic earnings             $    1.93     1.54     1.61     1.50     1.41
     Diluted earnings                1.90     1.53     1.61     1.50     1.41
     Cash dividends declared          .68      .68      .66      .59      .54
     Book value                     16.52    14.96    12.37    11.25    10.57

Average shares outstanding
   (in thousands):
     Basic                          5,758    4,373    4,233    4,221    4,197
     Diluted                        5,833    4,404    4,233    4,221    4,197

Selected balance sheet data
   at year end
      (in thousands):
     Total securities           $ 163,283  182,164   97,167  101,375   95,584
     Loans, net of unearned
        income                    691,661  648,263  409,586  382,272  328,599
     Allowance for loan
        losses                      9,466    8,827    5,670    5,173    4,640
     Total assets                 992,431  954,450  539,231  516,906  461,916
     Deposits                     845,688  806,787  431,659  398,871  386,257
     Trust preferred               15,464   14,549        -        -        -
     Stockholders' equity          95,099   86,633   51,942   47,579   44,401

Selected ratios (in percentages):
     Return on average assets        1.16     1.04     1.32     1.30     1.34
     Return on average equity       12.36    11.67    13.77    13.75    14.00
     Dividend pay-out ratio         35.37    44.85    40.94    39.89    38.44
     Average equity to
        average assets               9.36     8.89     9.58     9.44     9.60
</TABLE>

Notes:
(1)  Includes effect of acquisitions.  See full discussion in footnote 22.

(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 (collectively, the
"Corporation").  This discussion should be read in connection with the
consolidated financial statements, statistical disclosures and other
financial information presented herein.  All amounts presented are in
thousands except per share and percentage data.

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 management's beliefs and assumptions, 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, among others, the
following possibilities: (1) competitive pressures among 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 and its subsidiaries are 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
its subsidiaries; and (7) adverse changes may occur in the securities
markets.

Mergers and Acquisitions

On March 23, 2001, First National Bank, the Corporation's wholly-owned
subsidiary, acquired two First Union Branches in southwest Virginia that were
merged into First National Bank.  In addition, on May 2, 2001, Southwest
Virginia Bankshares, Inc. and its subsidiary, Southwest Virginia Savings
Bank, F.S.B., Roanoke, Virginia, were acquired.  Southwest was renamed FNB-
Southwest, N.A. as a result of converting to a national bank charter on
October 10, 2001.  Salem Community Bankshares and its subsidiary, Salem Bank
and Trust, National Association, Salem, Virginia were acquired on December
31, 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."  The acquisitions were all recorded under the
"purchase" method of accounting; therefore, the results of their operations
are only included in the accompanying financial statements from the
respective dates of acquisition.  Results of operations of Salem Bank & Trust
were not included in the Corporation's 2001 Statement of Income as the
acquisition was effected at close of business on December 31, 2001.
<PAGE>   2

Sale of Bankcard Portfolio

In the second quarter, the Corporation sold its bankcard portfolio ($9.1
million in balances) and realized a pre-tax gain of $1,206 and an after-tax
gain of $796.  The bankcard portfolio was sold because the Corporation did
not have enough volume to achieve the desired level of profitability and
provide enough value added benefits for customers as compared to competing
credit card issuers.  The Corporation will continue to issue cards under the
FNB brand, but the cards will be serviced and managed by a high-volume card
issuer.  The Corporation will now deploy the realized gain on other more
profitable ventures while providing a more diverse and competitive credit
card product line to its customer base.

Proforma Financial Information

The following proforma financial information shows the effect of FNB
Corporation as of December 31, 2002 with the First Union branches, Salem
Community Bankshares, Inc., Southwest Virginia Savings Bank F.S.B. and the
effect of the bankcard sale adjusted to make it comparable with December 31,
2001.
<TABLE>
<CAPTION>
                                                    Dec 31, 2002
                                                        Less
                        Dec 31,    Acquisitions    Acquisitions     Dec 31,
                          2002       & Bankcard      & Bankcard        2001
<S>                   <C>          <C>             <C>              <C>
Net interest income   $ 37,422         10,115          27,307        25,023
Provision loan loss      1,369            941             428         1,637
Noninterest income      11,545          3,395           8,150         5,798
Noninterest expense     31,282          8,394          22,888        19,900
Income before taxes     16,316          4,175          12,141         9,284
Taxes                    5,225          1,713           3,512         2,550
Net income            $ 11,091          2,462           8,629         6,734
</TABLE>

Net Income

The per share earnings for prior years has been restated to reflect the
effect of the 6% stock dividend declared in January 2002.

Net income for 2002 was $11,091 compared to $6,734 for 2001 and $6,834 for
2000.  Excluding the bankcard sale and the impact of mergers, earnings on a
comparable basis were $8,629 or 28.1% over last year.  Basic earnings per
share for 2002 were $1.93 compared to $1.54 for 2001 and $1.61 for 2000.
Excluding the bankcard sale, basis earnings per share were $1.79 or 16.2%
over last year.  Net income was up due to an improved margin, improvement in
asset quality, the cessation of the amortization of goodwill (discussed
below) and higher volume generated in the secondary mortgage operation.  The
decline in net income from 2000 to 2001 was primarily due to a compressed net
interest margin resulting from an historic downward trend in interest rates
and higher expenses primarily related to a conversion to a new core
processor.

FAS 142 was adopted by the Corporation on January 1, 2002 and provides that
goodwill related to acquisitions that had been subject to periodic
amortization will no longer be amortized but be tested annually for
impairment.  In the fourth quarter 2002, an analysis was done to calculate
the amount of goodwill the Corporation would have incurred had the mergers
and acquisitions been done at that time.  Current premiums paid by peers for
branches and banks were used as the basis for the calculation.  The outcome
<PAGE>   3
was that the premiums paid would have been higher than the goodwill recorded
on the books; therefore, there was no impairment of goodwill.

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.  It is
referred to as "core deposit intangibles".  This premium was calculated by an
outside firm that specializes in these studies and will be amortized on an
accelerated basis over ten years.  Core deposit intangible amortization
amounted to $1,068 in 2002.  This amount will gradually decrease in the
coming years as the amortization is accelerated in the early years.

Net Interest Income

Net interest income provides approximately 80% of the revenue of the
Corporation.  Net interest income is the amount of interest earned on loans
and investments less the amount of interest paid on deposits and other
interest-bearing liabilities.  Net interest income before provision for loan
losses for 2002 was $37,422 compared to $25,023 in 2001.  Excluding the
impact of mergers and the bankcard sale, net interest income was $27,307 or
9.1% above last year.  This was due primarily to an improved margin largely
attributable to a drop in deposit costs relative to loan yields.  Net
interest income for 2001 of $25,023 increased 14.2% over the $21,915 for 2000
due to acquisitions, partially offset by a lower margin resulting from the
rapid decrease in interest rates experienced during 2001.

The net interest margin expanded 9 basis points from 4.28% in 2001 to 4.37%
in 2002.  However, the margin fell in late 2002 due in large part to the
unexpected 50 basis point reduction in rates by the Federal Reserve in
November.  The persistently low rates will likely result in the margin
remaining at or slightly below 2002 levels during the early months of 2003.
The margin widened in 2002 compared to 2001 primarily as a result of
aggressive downward pricing of deposit products and a change in the
composition of deposits to a higher percentage of low cost transaction
accounts and a lower percentage of higher cost certificate of
deposit/individual retirement account balances.  The average yield on loans
declined 123 basis points while interest-bearing deposit costs dropped a
much steeper 154 basis points.  The margin decreased from 4.70% in 2000 to
4.28% in 2001 principally due to acquisitions and a decrease of 475 basis
points in the prime rate during the year.

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 and at present, the company
has been slightly asset-sensitive which means that assets re-price more
quickly than liabilities.  Being in an asset-sensitive position favors an
expansion of the net interest margin in the near term should interest rates
rise.  This is more fully covered under the heading  "Market Risks Related
to Financial Instruments".

Provision for Loan Losses

The provision for loan losses was $1,369 for 2002, $1,637 for 2001 and $1,082
for 2000.  The provision for loan losses when expressed as a percentage of
year-to-date average loans outstanding was .21%, .36% and .28% for 2002, 2001
and 2000, respectively.  Net charge-offs were $730, $1,625 and $585 for 2002,
2001 and 2000, respectively.  Net charge-offs to average year-to-date loans
were .11%, .35% and .15% for 2002, 2001 and 2000 respectively-well below peer
averages.  Even though the provision and net charge-offs of the acquired
bank, Salem Bank and Trust, was included in the 2002 numbers and not 2001,
<PAGE>   4
the provision and net charge-offs were below 2001.  This was due in part to
the receipt of a $491 recovery in 2002 of a loan to a single commercial
customer and his related entities (with outstanding indebtedness to First
National Bank and FNB Salem Bank and Trust, N.A.) engaged in the nursing home
and extended care industry.  This loan was charged off in 2001.  The
provision for loan losses increased in 2001 compared to 2000 due to the large
charge-off discussed above plus higher consumer net charge-offs.  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 and service release fees on mortgage loans sold, other service
charges, investment group fees and commissions, sundry income and net
securities gains (losses) was $11,545, $5,798 and $3,528 for 2002, 2001 and
2000, respectively.  The $5,747 increase from 2001 to 2002 was due to the
bankcard sale and mergers ($3,395), higher mortgage revenue of $1,086 (volume
of 2.7 times over prior year) due to the low interest rate environment and
resultant high level of refinancing activity plus the establishment of a
wholesale mortgage operation, income from the purchase of bank owned life
insurance of $381 and higher service charge income of $569 due to volume and
a successful launch of a new overdraft privilege product introduced in
October 2002 amounting to approximately $380.  Management intends to continue
to commit further resources to develop noninterest income sources as a means
to reduce the impact of fluctuations in the net interest margin resulting
from changes in Federal Reserve policy.  The $2,270 increase in noninterest
income from 2000 to 2001 was primarily due to secondary mortgage activity,
acquisitions and higher securities gains.

The Corporation expects to build incremental future sources of noninterest
income through its association with Bankers Insurance, a five-agency
insurance company collectively owned by over 55 banks throughout Virginia.
In the fourth quarter, the Corporation opened the organization's first
financial services office in the new Roanoke/Salem market which houses the
Company's Insurance Specialist and an Investment Specialist.  Going forward,
the Corporation will strive to maintain a healthy balance of fee-generating
services with strong levels of loans and deposits.  In 2002, noninterest
revenue to total revenue was 20.8% compared to 17.6% in 2001.  This
combination should help deliver better than average returns in all economic
cycles.

Noninterest Expense

Noninterest expense consisting of salaries and employee benefits, occupancy
costs, cardholder processing costs, supplies and other operating expenses,
increased $11,382 from 2001 to 2002 and $4,827 from 2001 compared to 2000.
The $11,382 increase in noninterest expense in 2002 was primarily due to
mergers ($8,394), a full year of expense of the expanded secondary mortgage
operation including the opening of a wholesale mortgage operation in South
Carolina ($728), salary increases due to merit, higher incentives paid to all
employees as a result of record earnings, (the plan is self funding from
increased revenues and expense containment attributable to results documented
by the plan), the cost of a new core processor for a full year versus a
partial year in 2001, higher online banking expense due to higher volume and
expense relating to a profit performance study by an outside consultant.  The
recommendations resulting from this study are being implemented and will
enhance future earnings.
<PAGE>   5
The growth in expenses from 2000 to 2001 was due primarily to acquisitions
(the two First Union branches and Southwest Virginia Bankshares, Inc.) and
the cost of a new core data processing system which enables the Corporation
to support a multi-bank environment, provides improved operating efficiencies
and additional and more timely information to better serve our customers.  In
addition to acquisitions and the core processor, expenses were up due to
merit increases, staff adds and production incentives, cardholder expenses
due to volume, and communications and building maintenance costs.

Income Taxes

Income tax expense as a percentage of pre-tax net income was 32.0%, 27.5%,
and 26.4% in 2002, 2001 and 2000, respectively.  The large increase in the
effective income tax rate from 2001 to 2002 was due primarily to the non-
deductibility of the amortization of core deposit intangibles resulting from
the acquisition of Salem Community Bankshares.  In addition, nontaxable
interest on investment securities as a percentage of income before income
taxes continues to decline.

Decisions as to which securities to purchase are based on taxable equivalent
yields for specific durations.  The Corporation has increased its investment
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 at December 31, 2002, were $992,431 or 4.0%
over the $954,450 at December 31, 2001 due primarily to loan growth, growth
in mortgages held for sale and "Other Assets".

Loans grew $43,398 or 6.7%. from $648,263 at the end December 31, 2001 to
$691,661 at December 31, 2002.  Loan growth was 8.1% before the sale of the
$9,060 bankcard portfolio.  Loans growth was concentrated in the commercial
real estate category ($31,741) and consumer ($12,292) after taking into
account the bankcard sale.

Total securities declined by $18,881, from $182,164 at the end of 2001 to
$163,283 at December 31, 2002.  Nearly all instruments containing callable
features were, in effect, called during 2002 due to the low interest rate
cycle.  Proceeds were used, in part, to fund the additional loan growth over
deposits and debt, growth in mortgages held for sale and growth in other
assets.

Mortgage loans held for sale increased from $13,926 to $34,271 due to the
expansion of the secondary mortgage function and the high volume of mortgage
re-financings in the lower interest rate environment as discussed under
noninterest income above.  Management is investigating alternative wholesale
funding of these mortgage loans held for sale in 2003.

Goodwill increased $1,938 and core deposit intangible balances declined by
$2,696.  At December 31, 2001, core deposit intangibles were estimated at
$7,500 pending a core deposit study.  An outside firm specializing in
quantifying these intangibles completed this study and the difference was
reclassified to goodwill.  Other assets increased $8,451 due primarily to an
additional $10,800 investment in bank owned life insurance (BOLI), which has
a high taxable equivalent yield.

Total deposits at December 31, 2002, were $845,688, an increase of $38,901 or
4.8% over December 31, 2001.  Lower-cost noninterest-bearing demand deposits,
<PAGE>   6
interest-bearing demand and saving deposits increased a strong 15.6%.
Higher-cost certificate of deposit and individual retirement account balances
declined 3.2%.  Growth in the lower cost deposit categories contributed to
the favorable net interest margin increase discussed above under net interest
income.  Management has implemented a strategy of highlighting one particular
maturity for a certificate of deposit promotion with an above-market rate.
With rates expected to rise, this highlighted certificate of deposit has
recently had a longer maturity.

Long-term debt increased $5,713 from December 31, 2001 to December 31, 2002.
In December, the Corporation borrowed $5,000 for five years at a fixed rate
at 3.58% from the Federal Home Loan Bank (FHLB) to fund anticipated loan
growth and at a time that management believed was advantageous from an
interest-rate perspective.

Other liabilities declined by $14,707 due primarily to the payment of the
cash consideration to Salem Community Bankshares, which was recorded as a
liability at December 31, 2001.

Stockholders' Equity

Stockholders' equity was $95,099 at December 31, 2002, compared to $86,633 at
December 31, 2001, an increase of $8,466.  This increase was due primarily to
net income net of dividends ($7,152) plus an increase of $2,028 in net tax
effected unrealized gains on securities available for sale.  These items were
partially offset by net stock repurchases amounting to $1,682.

The $34,691 change in Stockholder's Equity from December 31, 2000 to 2001 was
due primarily to stock issued in the acquisition of Salem Community
Bankshares and Southwest Virginia Bankshares, Inc. ($30,893), net income for
the year less dividends on common stock declared ($3,714) and an $826
increase in net tax effected unrealized gains on securities available for
sale.

All financial institutions are required to maintain minimum levels of
regulatory capital.  The Federal Reserve and the Office of the Comptroller of
the Currency (OCC) have established substantially similar risk-based and
leveraged capital standards for the financial institutions they regulate.
Under the risk-based capital requirements of these regulatory agencies, the
Corporation is required to maintain a minimum ratio of total capital to risk-
weighted assets of at least 8%.  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.  Tier 1 and total capital to risk-weighted
assets ratios on a consolidated basis at December 31, 2002, were 10.4% and
11.6% respectively, exceeding minimum requirements.  Management presently
intends to maintain ratios in excess of 8.0% and 10.0% respectively for its
"Tier 1" and "Tier 2" capital.

In addition, federal regulatory agencies have established minimum leveraged
capital guidelines for insured financial institutions (Tier 1 capital to
tangible assets).  These guidelines provide for a minimum leveraged capital
ratio of 3% 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 maintain a leverage ratio of at least
100 to 200 basis points above that minimum.  The guidelines also provide that
<PAGE>   7
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, 2002 was 8.4%.

As of December 31, 2002, the affiliate banks were categorized as "well
capitalized" by the regulators under the regulatory framework for prompt
corrective action.  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 affiliate banks
exceeded all three of these minimums as of December 31, 2002.  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 past due 90 days and over at December 31, 2002 on which interest was
still accruing totaled $596 compared to $1,031 at December 31, 2001.
Expressed as a percentage these loans represent .09% and .16% of total loans
outstanding at December 31, 2002 and 2001, 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 $3,915 at December 31, 2002, compared to $4,235 at
December 2001.  Expressed as a percentage, nonaccrual loans and other real
estate represented .56% and .65% of total loans plus other real estate
outstanding at December 31, 2002 and 2001, respectively.  This decrease is
due primarily to the satisfactory settlement of nonaccrual loans amounting to
$650 related to a customer in the nursing home and assisted living industry.
Management does not anticipate any significant increase in these levels in
the coming year.

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 available to absorb losses inherent in
the loan portfolio.  The allowance for loan losses increased $639 to $9,466
or 1.37% of outstanding loans, net of unearned income at December 31, 2002,
from $8,827 or 1.36% of outstanding loans, net of unearned income at December
31, 2001.  The allowance for loan losses increased $3,157 to $8,827 at
December 31, 2001 due primarily to acquisitions.

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 the 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.
<PAGE>   8
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.  Ninety day liquidity projections are run quarterly under "most
likely", "potential" and "crises" scenarios.  Under all of these scenarios,
the Corporation had ample liquidity and the targeted ratios were well within
policy guidelines (loans to funding sources are less than 80%, pledged to
total securities are less than 50% and external wholesale funding is less
than 18% of total liabilities).

Funding sources primarily include customer-based core deposits and cash
generated by operations.  Another source of liquidity is additional
borrowings from the Federal Home Loan Bank of Atlanta.  The Corporation has
additional borrowing capacity of $84,000 under its existing agreement with
the FHLB as of December 31, 2002, based on the level of qualifying portfolio
mortgage loans available for pledging.  Should the need arise, secondary
sources of liquidity are available including $48,000 in unused fed funds
lines of credit and the ability to liquidate assets held for sale, primarily
investment securities.

The only significant source of cash for the holding company is dividends from
its bank subsidiaries in the form of dividends.  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 2003 dividends (unless prior
regulatory approval is obtained) to $10,522 plus year-to-date 2003 net
profits as of the declaration date.  This limitation had no effect on the
liquidity of the holding company in 2002 and it is not expected to have any
material impact in 2003.  During 2002, the affiliate banks paid $6,021 in
dividends to the holding company.

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
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 below, management attempts to measure,
monitor and control interest rate risk.

Market Price and Dividend Data

The following information reflects per share data for the periods indicated
relative to Common Stock trading values and dividends.  Both the trading
values and per share dividends in the tables below have been adjusted to
retroactively reflect the effects of a 6% stock dividend declared in January
2002.
<PAGE>   9
<TABLE>
<CAPTION>
                         Trading Value                 Dividends
    2002               High         Low                Per Share
<S>               <C>            <C>                  <C>
First Quarter      $  20.00       18.26                   0.17
Second Quarter        31.08       19.00                   0.17
Third Quarter         31.94       28.53                   0.17
Fourth Quarter        31.00       23.70                   0.17
</TABLE>
<TABLE>
<CAPTION>
                         Trading Value                 Dividends
    2001               High         Low                Per Share
<S>               <C>            <C>                  <C>
First Quarter      $  16.40       14.75                   0.17
Second Quarter        17.92       15.39                   0.17
Third Quarter         19.58       17.03                   0.17
Fourth Quarter        19.81       18.92                   0.17
</TABLE>

As of December 31, 2002, there were 1,509 holders of record of FNB
Corporation Common Stock.  On July 9, 2002, FNB Corporation was formally
named to the Russell 2000 stock index.  The Russell 2000 index is comprised
of the 3,000 largest U.S. corporations ranked in order of total market
capitalization (excluding from that group the 1000 largest companies).

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 senior 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 repricing schedules of loans, investment securities and
      deposits, including the extent to which expected maturities of interest
      sensitive assets align with that 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
<PAGE>  10
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, policies of the Asset Liability Committees permit purchases of a
limited amount of these instruments should they 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.

An important analytical technique used by management to manage interest rate
risk is "interest rate shock" 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
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 analyses such as static or dynamic gap.  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 a hypothetical increase or decrease in market
interest rates of up to 300 basis points within a 12 month period.
The table below reflects the outcome of these analyses at December 31, 2002.
Earnings would rise by 6.27% if rates were to increase by 300 basis points
over a 12-month period and fall by 7.65% if they were to fall by 300 basis
points within a 12-month period.  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 decline -1.19% if market rates were to rise by
300 basis points and decline by -.81% if market rates were to fall by 300
basis points.  A decline is occurring under both scenarios primarily due to
the loan category.  If rates rise, the value of loans decline.  If rates
fall, the value of the loan portfolio increases; however, customers tend to
pay the loans off.  All of these changes are within management's targets.

                            Hypothetical         Hypothetical
      Change in Prime       Percent Change       Percent Change
      Rate Over 12 Months   In Earnings          Market Value

            +3.00%              6.27%                -1.19%
            +2.00               4.38%                -1.22%
            +1.00               2.26%                 -.62%
            -1.00              -2.24%                 -.13%
            -2.00              -4.55%                 -.11%
            -3.00              -7.65%                 -.81%


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.
Management presently limits the investment of funds in callable securities to
limited circumstances.  Non-maturity deposits such as checking and savings
are assumed to mature over a 60-month period.  Rates on accounts that are
interest bearing are increased or decreased according to the pricing
<PAGE>  11
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.
<PAGE>  12


            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,
reviews the internal audit function and meets periodically with
representatives of Brown Edwards & Company, L.L.P., independent 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.





Samuel H. Tollison                                 Daniel A. Becker
President and Chief                                Senior Vice President and
   Executive Officer                                  Chief Financial Officer
FNB Corporation                                    FNB Corporation
<PAGE>  13


                         INDEPENDENT AUDITOR'S REPORT





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, 2002 and 2001, 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, 2002.  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 auditing standards
generally accepted in the United States of America.  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, 2002 and 2001, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.




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



January 31, 2003
<PAGE>  14
<TABLE>
<CAPTION>
                                                 December 31, 2002 and 2001
CONSOLIDATED BALANCE SHEETS   (in thousands, except share and per share data)
<S>                                                 <C>            <C>
ASSETS                                                   2002           2001
Cash and due from banks                             $  29,241         28,817
Federal funds sold                                     11,150          9,010
Short term investments                                      -         16,549
Securities available-for-sale, at fair value          141,888        146,337
Securities held-to-maturity, at amortized cost
  (fair value approximated $16,681 and $31,526
   at December 31, 2002 & 2001, respectively)          16,075         30,812
Other investments at cost                               5,320          5,015
Mortgage loans held for sale                           34,271         13,926
Loans:
   Commercial                                          76,665         75,705
   Consumer                                           133,304        130,072
   Real estate - commercial                           225,316        193,575
   Real estate - construction                          49,186         42,404
   Real estate - mortgage                             207,190        206,507
          Total loans, net of unearned income         691,661        648,263
Less allowance for loan losses                          9,466          8,827
          Loans, net                                  682,195        639,436
Bank premises and equipment, net                       23,201         22,732
Other real estate owned                                 1,001          1,420
Goodwill                                               21,735         19,797
Core deposit intangibles                                4,804          7,500
Other assets                                           21,550         13,099
          Total assets                              $ 992,431        954,450
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
   Noninterest-bearing demand deposits              $ 104,710         96,466
   Interest-bearing demand and savings deposits       291,391        246,103
   Time deposits                                      358,273        369,283
   Certificates of deposit of $100,000 and over        91,314         94,935
          Total deposits                              845,688        806,787
   Short term borrowings                                8,071          8,463
   Long term debt                                      38,531         32,818
   Other liabilities                                    5,042         19,749
          Total liabilities                           897,332        867,817
Stockholders' equity
   Common stock, $5.00 par value.  Authorized
      25,000,000 shares; issued and outstanding
      5,807,508 shares in 2002 and 5,539,117
      in 2001                                          29,038         27,696
   Surplus                                             51,289         47,481
   Unearned ESOP shares (49,490 and 75,556
      shares in 2002 and 2001, respectively)             (721)        (1,139)
   Retained earnings                                   12,588         11,718
   Accumulated other comprehensive income (loss)        2,905            877
          Total stockholders' equity                   95,099         86,633
          Total liabilities and
             stockholders' equity                   $ 992,431        954,450
</TABLE>
                 See accompanying notes to consolidated financial statements.


<PAGE>  15
<TABLE>
<CAPTION>
                             Years Ended December 31, 2002, 2001 and 2000
                                        (in thousands, except per share data)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

                                                2002         2001       2000
<S>                                      <C>            <C>        <C>
Interest income:
    Interest and fees on loans             $  49,285       39,438     36,632
    Interest on securities:
        Taxable                                7,988        5,829      3,186
        Nontaxable                             1,527        1,850      2,100
    Interest on federal funds sold
      and short term investments                 818          733         99
            Total interest income             59,618       47,850     42,017
Interest expense:
    Interest on interest-bearing
      demand and savings deposits              3,225        3,683      3,966
    Interest on time deposits                 12,756       13,601      9,915
    Interest on certificates of
      deposit of $100,000 and over             4,070        4,195      3,348
    Interest on federal funds purchased
      and securities sold under
      agreements to repurchase                   111          271        437
    Interest on long term debt                 2,034        1,077      2,436
            Total interest expense            22,196       22,827     20,102
            Net interest income               37,422       25,023     21,915
Provision for loan losses                      1,369        1,637      1,082
            Net interest income after
              provision for loan losses       36,053       23,386     20,833
Noninterest income:
    Service charges on deposit
      accounts                                 3,418        1,714      1,362
    Loan origination fees                      2,894        1,298        197
    Other service charges and fees             1,828        1,687      1,411
    Other income                               1,908          868        610
    Gain on sale of bankcards                  1,206            -          -
    Securities gains (losses), net               291          231        (52)
            Total noninterest income          11,545        5,798      3,528
</TABLE>
<PAGE>  16
<TABLE>
<CAPTION>
                                Years Ended December 31, 2002, 2001 and 2000
                                        (in thousands, except per share data)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (Continued)
                                                2002         2001       2000
<S>                                         <C>         <C>        <C>
Noninterest expense:
    Salaries and employee benefits            16,231        9,952      7,924
    Occupancy and equipment
      expense, net                             5,130        3,571      2,628
    Cardholder/merchant processing               719          521        417
    Supplies expense                             860          685        440
    Telephone expense                            749          471        310
    Amortization of goodwill                       -          442          -
    Amortization of core deposit
      intangibles                              1,068            -          -
    Other expenses                             6,525        4,258      3,354
            Total noninterest expense         31,282       19,900     15,073
Income before income tax expense              16,316        9,284      9,288
Income tax expense                             5,225        2,550      2,454
            Net income                     $  11,091        6,734      6,834
Other comprehensive income (loss),
    net of income tax expense (benefit):
      Gross unrealized gains (losses) on
        available-for-sale securities          2,319        1,057        706
         Less: Reclassification adjustment
           for (gains) losses included in
           net income                           (291)        (231)        52
      Other comprehensive income               2,028          826        758

            Comprehensive income           $  13,119        7,560      7,592


            Basic earnings per share       $    1.93         1.54       1.61
            Diluted earnings per share     $    1.90         1.53       1.61
</TABLE>

                 See accompanying notes to consolidated financial statements.
<PAGE>  17
<TABLE>
<CAPTION>
                                Years Ended December 31, 2002, 2001 and 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS                          (in thousands)
                                                   2002       2001      2000
<S>                                          <C>          <C>       <C>
Cash flows from operating activities:
    Net income                                 $ 11,091      6,734     6,834
    Adjustments to reconcile net income to net
      cash provided by operating activities:
        Provision for loan losses                 1,369      1,637     1,082
        Depreciation and amortization of
          bank premises and equipment             2,455      1,882     1,339
        Amortization of goodwill                      -        436         -
        Amortization of core deposit
          intangibles                             1,068          -         -
        ESOP compensation                           299        418       373
        Stock awards compensation                   164         70        38
        Deferred income tax expense
          (benefit)                                  45       (259)     (147)
        Loss (gain) on sales of securities
          available-for-sale, net                  (291)      (231)       54
        Amortization of premiums and
          accretion of discounts, net             1,037        190       260
        Gain on calls of securities held-
          to-maturity, net                            -          -        (2)
        Gain on sale of other real
          estate and fixed assets                  (107)         -       (61)
        Gain on sale of bankcard portfolio       (1,206)         -         -
        Change in mortgage loans held
          for sale                              (20,345)   (10,008)     (652)
        Decrease (increase) in other assets       1,145       (660)     (658)
        Increase (decrease) in other
          liabilities                              (785)      (201)      232
            Net cash provided by
              operating activities               (4,061)         8     8,692
</TABLE>
<PAGE>  18
<TABLE>
<CAPTION>
                                Years Ended December 31, 2002, 2001 and 2000
CONSOLIDATED STATEMENTS OF                                     (in thousands)
CASH FLOWS (continued)

                                                   2002       2001      2000
<S>                                            <C>         <C>       <C>
Cash flows from investing activities:
    Net increase in federal funds sold           (2,140)    (1,850)   (3,450)
    Net decrease (increase) in short
      term investments                           16,549    (18,237)        -
    Proceeds from sales of securities
      available-for-sale                          5,718     30,366     5,094
    Proceeds from calls and maturities
      of securities available-for-sale           88,100     38,464    26,870
    Proceeds from calls and maturities
      of securities held-to-maturity             15,824      7,466     5,020
    Purchases of securities available-
      for-sale                                  (87,083)   (96,002)  (31,935)
    Purchases of securities held-to-
      maturity                                   (1,351)      (329)        -
    Acquisition of subsidiaries                       -     69,851         -
    Cash payment for purchase of Salem
      Community Bankshares                      (13,550)         -         -
    Sale of bankcard portfolio                   10,266          -         -
    Net (increase) decrease in loans            (55,839)     2,293   (27,966)
    Proceeds from sale of fixed assets
      and other real estate owned                 2,120        413       795
    Recoveries on loans previously
      charged off                                   918        365       286
    Bank premises and equipment
      expenditures                               (2,924)    (2,808)   (2,934)
    Investment in bank owned life insurance     (10,800)         -         -
            Net cash used in investing
              activities                        (34,192)    29,992   (28,220)
</TABLE>
<PAGE>  19
<TABLE>
<CAPTION>
                                Years Ended December 31, 2002, 2001 and 2000
CONSOLIDATED STATEMENTS OF                                     (in thousands)
CASH FLOWS (continued)
                                                   2002       2001      2000
<S>                                           <C>          <C>       <C>
Cash flows from financing activities:
    Net increase in deposits                   $ 38,901     19,144    32,788
    Net decrease in federal funds
      purchased                                       -          -   (13,635)
    Net increase (decrease) in
      securities sold under
      agreements to repurchase                     (392)    (2,171)    3,603
    Net increase (decrease) in other
      borrowed funds                              5,713    (25,608)   (5,162)
    Principal payments on ESOP debt                   -       (418)     (373)
    Repurchase of FNB Corporation stock, net     (1,682)    (1,388)     (871)
    Stock options exercised                          76          -         -
    Dividends paid                               (3,939)    (3,067)   (2,860)
            Net cash provided by
              financing activities               38,677    (13,508)   13,490

Net increase (decrease) in cash and
  due from banks                                    424     16,492    (6,038)
Cash and due from banks at beginning
  of year                                        28,817     12,325    18,363

Cash and due from banks at end of year         $ 29,241     28,817    12,325
</TABLE>
                 See accompanying notes to consolidated financial statements.
<PAGE>  20
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2002, 2001 and 2000
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,
 1999           $ 20,470   25,595   (1,747)      3,968     (707)     47,579

Net income             -        -        -       6,834        -       6,834
Cash dividends,
 $0.66 per share       -        -        -      (2,798)       -      (2,798)
ESOP shares
 allocated
 upon loan
 repayment             -        -      373           -        -         373
Stock awards
 issued               19       48        -           -        -          67
Repurchase and
 retirement of
 common stock       (265)    (606)       -           -        -        (871)
Change in net
 unrealized
 gains (losses)
 on securities
 available-
 for sale, net
 of tax effect
 of $391 and
 reclassification
 adjustments           -        -        -           -      758         758

Balances at
 December 31,
 2000           $ 20,224   25,037   (1,374)      8,004       51      51,942
</TABLE>
<PAGE>  21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF      Years Ended December 31, 2002, 2001 and 2000
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      $      -        -        -       6,734        -       6,734
Cash dividends,
 $0.68 per share       -        -        -      (3,020)       -      (3,020)
ESOP shares
 allocated
 upon loan
 repayment             -        -      418           -        -         418
Stock awards
 issued               28       62        -           -        -          90
Stock options
 exercised             1        3        -           -        -           4
Repurchase and
 retirement of
 common stock       (382)  (1,006)       -           -        -      (1,388)
Change in net
 unrealized
 gains (losses)
 on securities
 available-
 for-sale, net
 of tax effect
 of $426 and
 reclassification
 adjustments           -        -        -           -      826         826
Stock issued
 to purchase
 Southwest
 Virginia
 Savings Bank      1,464    3,497        -           -        -       4,961
Fair value of
 options
 resulting
 from merger           -      317        -           -        -         317
Unearned shares-
 Southwest
 Virginia Savings
 Bank ESOP
 at merger             -        -     (183)          -        -        (183)
Stock issued
 to purchase
 Salem Community
 Bankshares,
 Inc.              6,361   19,571        -           -        -      25,932

Balances at
 December 31,
 2001           $ 27,696   47,481   (1,139)     11,718      877      86,633
</TABLE>
<PAGE>  22
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF      Years Ended December 31, 2002, 2001 and 2000
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               -         -        -     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>
     See accompanying notes to consolidated financial statements.
<PAGE>  23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                December 31, 2002
                                                  (in thousands, except per
                                                   share and percentage data)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The reporting entity is comprised of FNB Corporation, a bank holding
      company, and its wholly owned subsidiaries (collectively the
     "Corporation").  The primary subsidiaries of FNB Corporation are First
      National Bank and FNB Salem Bank & Trust, N.A., collectively
      referred to as the "Bank".  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.  Actual results could differ significantly from
      those estimates.

      Material estimates that are particularly susceptible to significant
      changes in the near term relate to the determination of the allowance
      for loan losses and the valuation of other real estate owned acquired
      in connection with foreclosures or in satisfaction of loans.  In
      connection with the determination of the allowance for loan losses and
      the valuation of other real estate owned, management obtains
      independent appraisals for significant properties.

      Management believes that the allowance for loan losses and the
      valuation of other real estate owned are adequate.  While management
      uses available information to recognize loan losses and write-downs of
      other real estate owned, future additions to the allowance and write-
      downs of other real estate owned might be necessary based on changes in
      economic conditions.  In addition, various regulatory agencies, as an
      integral part of their examination process, periodically review the
      allowance for loan losses and valuation of other real estate owned.
      Such agencies may require the Bank to recognize additions to the
      allowance for loan losses and additional write-downs of other real
      estate owned based on their judgments of information available to them
      at the time of their examination.

      The following is a summary of the more significant accounting
      policies.

      (a)   Consolidation

            The consolidated financial statements include the accounts of FNB
            Corporation, a bank holding company, and its wholly owned
            subsidiaries.  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.
<PAGE>  24
      (c)   Securities

            The Corporation follows the provisions of Statement of Financial
            Accounting Standards 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.

               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)   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 loans
            outstanding times the applicable interest rates.  Interest on
            installment loans is recognized on methods which 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 the 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.  Loans sold are removed from the
            accounts and any realized gain or loss is recorded.

      (e)   Allowance for Loan Losses

            The allowance for loan losses is established as losses are
            estimated to have occurred through a provision for loan losses
<PAGE>  25
            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.

      (f)   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.

      (g)   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 the lower of the
            recorded investment in the loan or 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.

      (h)   Income Taxes

            Deferred tax assets and liabilities are recognized for the future
            tax consequences attributable to differences between the
<PAGE>  26
            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.

      (i)   Stock Compensation Plans

            Statement of Financial Accounting Standards (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 Plan using the accounting prescribed by
            Accounting Principles Board Opinion No. 25, "Accounting for Stock
            Issued to Employees."  Under Opinion No. 25, compensation cost is
            not recognized in the financial statements except to the extent
            of the excess, if any, of the market price of the  underlying
            stock over the exercise price of the stock option at the date of
            grant.

            In order to reflect such events as stock dividends, stock splits,
            recapitalizations, mergers, consolidations, or reorganizations by
            the Corporation, the number of shares subject to each outstanding
            grant, the exercise price, and the aggregate number of shares
            from which grants or awards may be made may be adjusted.

            Compensation cost for awards of stock 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.

      (j)   Net Income Per Share

            Net income per share computations are based on the weighted
            average number of shares outstanding during each year (5,758,490,
            4,373,138 and 4,232,885 in 2002, 2001 and 2000, respectively, as
            restated).  The weighted average shares outstanding do not
            include average unearned shares held by the Employee Stock
            Ownership Plan (ESOP) totaling 58,874, 82,402 and 94,338 shares
            for 2002, 2001 and 2000, respectively.  The shares held by the
            ESOP are not considered outstanding for net income per share
            calculations until the shares are released.

      (k)   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.
<PAGE>  27
      (l)   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.

      (m)   Recent Accounting Developments

            In December 2002, The FASB issued Statement of Financial
            Accounting Standards ("FAS") No. 148 - "Accounting for Stock-
            Based Compensation - Transition and Disclosure - an amendment of
            FASB Statement No. 123 (Accounting for Stock-Based
            Compensation)".  The purpose of the statement is to i) enable
            companies that choose to adopt the fair value based method to
            report the full effect of employee stock options in their
            financial statements immediately upon adoption and ii) make
            available to investors more frequent disclosure about the cost of
            employee stock options.  The changes provide three methods of
            transition for companies that voluntarily adopt the fair value
            method of recording expenses relating to employee stock options.
            In addition, the statement requires more prominent disclosures
            about the cost of stock-based employee compensation and an
            increase in the frequency of those disclosures to include
            publication in quarterly financial statements.  Currently,
            companies are not required to present stock option disclosures in
            interim financial statements.  The disclosures required in annual
            financial statements are required for fiscal years ending after
            December 15, 2002.  The disclosures to be  provided in interim
            financial information are required as of the first interim period
            beginning after December 15, 2002, with earlier application
            encouraged.

            In October 2002, the FASB issued Statement of Financial
            Accounting Standards ("FAS") No. 147 - "Acquisitions of Certain
            Financial Institutions".  This new Standard, which became
            effective October 1, 2002, provides interpretive guidance on the
            application of the purchase method to acquisitions of financial
            institutions.  Accordingly, the requirement to amortize any
            excess of the fair value of liabilities assumed over the fair
            value of tangible and identifiable intangible assets acquired as
            an unidentifiable intangible asset no longer applies to
            acquisitions within the  scope of this Statement.  In addition,
            this Statement amends FASB Statement No. 144, Accounting for the
            Impairment or Disposal of Long-Lived Assets, to include in its
            scope long-term customer-relationship intangible assets of
            financial institutions such as depositor- and borrower-
            relationship intangible assets and credit cardholder intangible
            assets.  Consequently, those intangible assets are subject to the
            same undiscounted cash flow recoverability test and impairment
            loss recognition and measurement provisions that Statement 144
            requires for other long-lived assets that are held and used.
            Upon adopting FAS No. 147, which is effective October 1, 2002,
            goodwill reported as subject to amortization arising from a
            branch acquisition that constitutes a business, as defined by FAS
            147, will be presented on a restated basis, whereby the
            amortization expense recorded will be reversed.  The Corporation
            has determined that the First Union branch acquisitions meet the
            definition of a business and accordingly recorded no amortization
            of goodwill related to this transaction in 2002.
<PAGE>  28
            In June 2002, the FASB issued Statement 146 - "Accounting for
            Costs Associated with Exit or Disposal Activities".  This
            Statement is not anticipated to have a material impact on the
            Corporation.

            In April 2002, the FASB issued Statement 145.  This Statement
            rescinds FASB Statement No. 4, Reporting Gains and Losses from
            Extinguishment of Debt, and an amendment of that Statement, FASB
            Statement No. 64, Extinguishments of Debt Made to Satisfy
            Sinking-Fund Requirements.  Statement 145 is not expected to have
            a material impact on the Corporation's financial position or
            results of operations.

            On June 29, 2001, the FASB approved Statements of Financial
            Accounting Standards No. 141, Business Combinations (Statement
            141) and No. 142, Goodwill and Other Intangible Assets (Statement
            142).  These Statements significantly change the accounting for
            business combinations, goodwill, and intangible assets.
            Statement 141 eliminated the pooling-of-interests method of
            accounting for business combinations except for qualifying
            business combinations that were initiated prior to July 1, 2001.
            The requirements of Statement 141 were effective for any business
            combination  accounted for by the purchase method that was
            completed after June 30, 2001.  The combined effect of the
            purchase accounting transactions completed since the
            implementation of FAS No. 141 did not have a material impact on
            the Corporation's consolidated financial condition or
            consolidated results of operations.

            FASB Statement 142 superseded APB Opinion No. 17, Intangible
            Assets.  Under Statement 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 Statements 142 and
            147 do not impose limits.

            Effective January 1, 2002, the corporation ceased amortization of
            certain goodwill in accordance with FASB Statement 142.  The
            impact on earnings and earnings per share for the years ended
            December 31, 2002, 2001, and 2000 is presented below and included
            with the presentation of the impact of Statements 142.
<PAGE>  29
<TABLE>
<CAPTION>
                                                     For the Year Ended:
                                                  2002       2001       2000
<S>                                          <C>          <C>        <C>
            Reported net income               $ 11,091      6,734      6,834
            Add back:
              Goodwill amortization, net of
                tax, subject to FASB 142             -        306          -
            Adjusted net income               $ 11,091      7,040      6,834

            Basic earnings per share:
              Reported net income per share   $   1.93       1.54       1.61
              Add back:
                Goodwill amortization, net
                  of tax, subject to FASB
                  142                                -        .07          -
              Adjusted net income per share   $   1.93       1.61       1.61

            Diluted earnings per share:
              Reported net income per share   $   1.90       1.53       1.61
              Add back:
                Goodwill amortization, net
                  of tax, subject to FASB
                  142                                -        .07          -
              Adjusted net income per share   $   1.90       1.60       1.61
</TABLE>

            In accordance with the disclosure requirements of FASB Statement
            142, the following information is presented regarding intangibles
            subject to amortization and those not subject to amortization.
<TABLE>
<CAPTION>
                                               As of December 31, 2002
                                         Gross                       Net
                                         Carrying    Accumulated     Carrying
                                         Amount      Amortization    Amount
<S>                                    <C>         <C>             <C>
            Goodwill subject to
              amortization             $        -               -           -
            Goodwill not subject to
              amortization                 21,735               -      21,735
            Total goodwill                 21,735               -      21,735
            Core deposit intangibles
              subject to amortization       5,872           1,068       4,804
            Total goodwill and other
              intangible assets        $   27,607           1,068      26,539
</TABLE>
<PAGE>  30
<TABLE>
<CAPTION>
                                               As of December 31, 2001
                                         Gross                       Net
                                         Carrying    Accumulated     Carrying
                                         Amount      Amortization    Amount
<S>                                   <C>         <C>             <C>
            Goodwill subject to
              amortization             $   20,239             442      19,797
            Goodwill not subject to
              amortization                      -               -           -
            Total goodwill                 20,239             442      19,797
            Core deposit intangibles
              subject to amortization       7,500               -       7,500
            Total goodwill and other
              intangible assets        $   27,739             442      27,297
</TABLE>

            In accordance with FASB Statement 142, the amortization expense
            for core deposit intangibles subject to amortization for each of
            the next 5 years from December 31, 2002 is as follows:


                                      2003            $961
                                      2004            $854
                                      2005            $748
                                      2006            $641
                                      2007            $534


            FASB Statement 142 requires a transitional impairment test to be
            applied to all goodwill and other indefinite-lived intangible
            assets within the first six months after adoption.  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 determined with
            this transitional test would be reported as a change in
            accounting principle.  The Corporation has completed its
            transitional impairment test of goodwill and did not record an
            impairment loss as a result of this test.  Also, no impairment
            loss was recorded as a result of the year end impairment test.

      (n)   Reclassification

            Certain reclassifications have been made to prior years amounts
            to conform to the 2002 presentation.
<PAGE>  31
(2)   RESTRICTIONS ON CASH

      Federal reserve regulations require the Bank to maintain certain
      average balances as cash reserves.  The reserve requirements
      approximated $7,748 and $5,343 at December 31, 2002 and 2001,
      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, 2002 and 2001:
<TABLE>
<CAPTION>
                                        Gross        Gross        Approximate
                            Amortized   Unrealized   Unrealized   Fair
      December 31, 2002     Cost        Gains        Losses       Value
<S>                     <C>           <C>          <C>          <C>
      U.S. Government
         agencies and
         corporations    $  15,733        501             -       16,234
      Mortgage-backed       75,602      2,014             -       77,616
      States and
         political
         subdivisions       21,547        522           (95)      21,974
      Corporate             24,604      1,473           (13)      26,064
      Total AFS debt
         securities      $ 137,486      4,510          (108)     141,888
</TABLE>
<TABLE>
<CAPTION>
                                        Gross        Gross        Approximate
                            Amortized   Unrealized   Unrealized   Fair
      December 31, 2001     Cost        Gains        Losses       Value
<S>                     <C>           <C>          <C>          <C>
      U.S. Treasury      $     500          3             -          503
      U.S. Government
         agencies and
         corporations       51,263        187          (566)      50,884
      Mortgage-backed       38,622        375          (241)      38,756
      States and
         political
         subdivisions       23,202        268          (168)      23,302
      Corporate             31,422      1,470             -       32,892
      Total AFS debt
         securities      $ 145,009      2,303          (975)     146,337
</TABLE>

      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>  32
<TABLE>
<CAPTION>
                                                              Approximate
                                                 Amortized       Fair
      December 31, 2002                            Cost         Value
<S>                                           <C>            <C>
      Due in one year or less                  $   4,775         4,904
      Due after one year through five years       39,486        41,385
      Due after five years through ten years      25,732        26,373
      Due after ten years                         67,493        69,226

      Totals                                   $ 137,486       141,888
</TABLE>

      For the year ended December 31, 2002, 2001, and 2000, proceeds from
      sales of securities available-for-sale amounted to $5,718, $30,366 and
      $5,094, respectively.  Gross realized gains on securities available-
      for-sale were $290 in 2002, $357 in 2001 and were not material in 2000.
      Gross realized losses on securities available-for-sale were $19, $126
      and $54 in 2002, 2001 and 2000, respectively.  The tax benefit
      (provision) applicable to these net realized gains and losses amounted
      to $92, $79 and $(18), 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
      $51,306 at December 31, 2002 and $31,240 at December 31, 2001.

(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, 2002 and
      2001 are as follows:
<TABLE>
<CAPTION>
                                        Gross         Gross       Approximate
                           Amortized    Unrealized    Unrealized  Fair
      December 31, 2002    Cost         Gains         Losses      Value
<S>                      <C>          <C>           <C>         <C>
      Mortgage-backed     $    259            14            -          273
      States and
         political
         subdivisions       15,816           593           (1)      16,408

      Totals              $ 16,075           607           (1)      16,681
</TABLE>
<TABLE>
<CAPTION>
                                        Gross         Gross       Approximate
                           Amortized    Unrealized    Unrealized  Fair
      December 31, 2001    Cost         Gains         Losses      Value
<S>                      <C>          <C>           <C>         <C>
      U.S. Government
         agencies and
         corporations     $  6,331            36            -        6,367
      Mortgage-backed          376            13            -          389
      States and
         political
         subdivisions     $ 24,105           669           (4)      24,770

      Totals              $ 30,812           718           (4)      31,526
</TABLE>
<PAGE>  33
      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, 2002                             Cost          Value
<S>                                             <C>           <C>
      Due in one year or less                     $  5,655         5,727
      Due after one year through five years          9,549        10,044
      Due after five years through ten years           739           774
      Due after ten years                              132           136

      Totals                                      $ 16,075        16,681
</TABLE>

      Realized gains were $44 and realized losses were $24 on calls and
      maturities of securities held-to-maturity in 2002 and were not material
      in 2001 or 2000.  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 $7,493 and $15,107 at December 31, 2002 and 2001,
      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 $5,396 in
      2002 and $5,424 in 2001.  During 2002, new direct loans to officers and
      directors amounted to $1,453 and repayments amounted to $1,481.  In
      addition, there were loans of $2,767 and $3,441 at December 31, 2002
      and 2001, respectively, which were endorsed by directors or had been
      made to companies in which directors had an equity interest.

      At December 31, 2002 and 2001, there were deposits from officers and
      directors of $5,786 and $4,526, respectively.

(6)   LOANS AND ALLOWANCE FOR LOAN LOSSES

      At December 31, 2002 and 2001, the Corporation had sold without
      recourse to financial institutions and other customers of the
      Corporation participations in various loans in the amount of $26,920
      and $42,466, respectively.

      A summary of the changes in the allowance for loan losses (including
      allowances for impaired loans) follows:
<PAGE>  34
<TABLE>
<CAPTION>
      Years Ended December 31,             2002        2001        2000
<S>                                    <C>          <C>         <C>
      Balance at beginning of year      $ 8,827       5,670       5,173
      Reserve acquired through merger         -       2,956           -
      Provisions for loan losses          1,369       1,637       1,082
      Additional reserve for branch
        loans purchased                       -         188           -
      Loan recoveries                       941         365         286
      Loan charge-offs                   (1,671)     (1,989)       (871)
      Balance at end of year            $ 9,466       8,827       5,670
</TABLE>

      Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
      December 31,                     2002        2001        2000
<S>                               <C>           <C>         <C>
      Nonaccrual loans              $ 2,914       2,815       2,391
      Other real estate owned         1,001       1,420         281
      Loans past due 90 days
        or more                         596       1,031         410

      Total nonperforming assets    $ 4,511       5,266       3,082
</TABLE>
<TABLE>
<CAPTION>
      December 31,                             2002         2001
<S>                                      <C>             <C>
      Impaired loans without a valuation
        allowance                          $    355            -
      Impaired loans with a valuation
        allowance                             3,100        3,506
      Total impaired loans                 $  3,455        3,506
      Valuation allowance related to
        impaired loans                     $    857          753
</TABLE>
<TABLE>
<CAPTION>
      Years Ended December 31,              2002      2001      2000
<S>                                    <C>         <C>       <C>
      Average investment in impaired
        loans                            $ 2,764     2,297     3,548
      Interest income recognized on
        impaired loans                   $    32        16        17
      Interest income recognized on a
        cash basis on impaired loans     $    32        16        17
</TABLE>

      There were no material commitments to lend additional funds to
      customers whose loans were classified as impaired at December 31, 2002.

(7)   BANK PREMISES AND EQUIPMENT

      Bank premises and equipment are stated at cost less accumulated
      depreciation and amortization as follows:
<PAGE>  35
<TABLE>
<CAPTION>
      December 31,                        2002          2001
<S>                                 <C>            <C>
      Land                            $  3,571         3,121
      Buildings                         17,841        17,499
      Furniture and equipment           18,391        16,882
      Leasehold improvements               610           568
                                        40,413        38,070
      Less accumulated depreciation
         and amortization              (17,212)      (15,338)

      Totals                          $ 23,201        22,732
</TABLE>
      Depreciation expense for the years ended December 31, 2002, 2001 and
      2000 amounted to $2,455, $1,882 and $1,339, 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, 2002:

         Year ending December 31:

             2003                            $  200
             2004                               200
             2005                               176
             2006                               101
             2007                                20
             Thereafter                          23

         Total minimum payments required     $  720

      Rental commitments of less than one year are not included in the above
      schedule.  Rentals charged to operations under operating leases were
      $335, $101 and $118 for the years ended December 31, 2002, 2001 and
      2000, respectively.

(9)   DEPOSITS

      Time deposits and certificates of deposit of $100,000 and over as of
      December 31, 2002 mature as follows:


         2003          $ 227,418
         2004            135,766
         2005             37,281
         2006             10,922
         2007             37,272
         Thereafter          928
                       $ 449,587
<PAGE>  36
(10)  SHORT TERM BORROWINGS AND LONG TERM DEBT

      Securities sold under agreements to repurchase (repurchase
      agreements) at December 31, 2002 totaled $8,071 and were collateralized
      by investment securities controlled by the Corporation with a book
      value of $13,427.  The maximum amount of repurchase agreements
      outstanding during 2002 was $9,285 and the average amount outstanding
      during 2002 was $7,808.

      Advances from the Federal Home Loan Bank of Atlanta (FHLB) were $23,067
      and $18,269 on December 31, 2002 and 2001, respectively.  The interest
      rates on the advances as of December 31, 2002 range from 3.6 to 7.3
      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 $142,513
      at December 31, 2002.  Of the total balance at December 31, 2002, $16,
      $245 and $5,000 matures in 2003, 2006 and 2007, respectively.  The
      remainder matures after 2007.  The Corporation has additional borrowing
      capacity of $84,000 under its existing agreement with the FHLB at
      December 31, 2002.

      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%,
      4.98% at December 31, 2002 and 5.48% at December 31, 2001.  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 FNB Salem Bank & Trust shareholders.
      The loan proceeds are treated as capital of FNB Corporation for
      regulatory purposes.

(11)  EMPLOYEE BENEFIT PLAN

      The Corporation sponsors a leveraged Employee Stock Ownership Plan
      (ESOP), which covers all employees following the completion of one year
      of service and attainment of age 21.  FNB Salem Bank & Trust employees
      will participate beginning January 1, 2003.  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 hold 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 $593, $418 and $373 was recorded for 2002, 2001
      and 2000, respectively.
<PAGE>  37
      ESOP shares as of December 31, 2002 consisted of 661,204 allocated
      shares and 49,490 unreleased and unearned shares.  Based on quoted
      trading and bid prices, the fair value of the unreleased and unearned
      shares at December 31, 2002 was $23.73 per share.

      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 up to 12% of their salary withheld on a
      pre-tax basis to be contributed to the plan.  The Corporation matches
      100% of the first 3% of the participants' contributions.  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 $235, $174 and $151 for 2002, 2001 and
      2000, respectively.

      FNB Salem Bank & Trust employees will participate in the Corporation's
      401(k) plan beginning January 1, 2003.  During 2002 the employees of
      FNB Salem Bank & Trust participated in the 401(k) plan previously
      sponsored by Salem Community Bankshares, Inc.  Matching contributions
      to that plan were $134 for the year ended December 31, 2002.

(12)  INCOME TAXES

      Total income taxes are allocated as follows:
<TABLE>
<CAPTION>
      Years Ended December 31,             2002        2001        2000
<S>                                   <C>          <C>         <C>
      Income                            $ 5,225       2,550       2,454
      Stockholders' equity, for net
         unrealized gains and losses
         on securities available-for-
         sale recognized for financial
         reporting purposes               1,045         426         391

      Totals                            $ 6,270       2,976       2,845
</TABLE>

      The components of federal income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
      Years Ended December 31,             2002        2001        2000
<S>                                    <C>          <C>         <C>
      Current                           $ 5,180       2,809       2,601
      Deferred                               45        (259)       (147)

      Total                             $ 5,225       2,550       2,454
</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:
<PAGE>  38
<TABLE>
<CAPTION>
      Years Ended December 31,     2002            2001            2000
<S>                        <C>     <C>      <C>    <C>      <C>    <C>
                                      Percent         Percent         Percent
                                      of              of              of
                                      Pretax          Pretax          Pretax
                              Amount  Income  Amount  Income  Amount  Income
      Expected tax
        expense at
        statutory rate       $ 5,547   34.0%   3,157   34.0%   3,158   34.0%
      Increase (decrease)
         in taxes resulting
         from:
           Tax-exempt
             interest           (519)  (3.2)    (734)  (7.9)    (863)  (9.3)
           Nondeductible
             interest
             expense             174    1.1      102    1.1      113    1.2
           Other, net             23    0.1       25    0.3       46    0.5

      Reported tax expense
         at effective rate   $ 5,225   32.0%   2,550   27.5%   2,454   26.4%
</TABLE>

      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,                                   2002        2001
<S>                                             <C>          <C>
      Deferred tax assets:
        Loans, principally due to allowance
          for loan losses and unearned fees       $ 2,737       2,072
      Accrued employee benefits due to accrual
        for financial reporting purposes in
        excess of actual contributions                261         224
      Other                                           180         108
            Total deferred tax assets               3,178       2,404
      Deferred tax liabilities:
        Bank premises and equipment,
          due to differences in depreciation          631         351
        Securities, due principally to
          valuation allowance                       1,497         593
        Investment securities, due to
          differences in discount accretion            73          93
        Prepaids, due to advance payments             178         149
        Other                                         618          88
        Total gross deferred tax
              liabilities                           2,997       1,274
        Net deferred tax asset,
              included in other assets            $   181       1,130
</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 to date
      of income for the holding company has been dividends from the Bank.
      Regulatory agencies limit the amount of funds that may be transferred
<PAGE>  39
      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 2003 without the approval of the
      Comptroller are $10,522 plus year-to-date 2003 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,
      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, 2002, that the
      Corporation meets all capital adequacy requirements to which it is
      subject.  The table below sets forth the ratios for the Banks and on a
      consolidated basis for December 31, 2002 and 2001.

      As of December 31, 2002, the most recent notification from the Office
      of 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).  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 institution's category.

      As of December 31, 2001 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>  40
<TABLE>
<CAPTION>
      As of December 31, 2002:
                                                 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     $ 90,379   11.6%   62,330    8.0%     N/A
         First National
          Bank              55,641   11.0%   40,466    8.0% $ 50,583   10.0%
         FNB Salem Bank
          & Trust           30,453   11.2%   21,752    8.0%   27,190   10.0%
      Tier 1 Capital
        (to Risk Weighted
         Assets)
         Consolidated       81,117   10.4%   31,199    4.0%     N/A
         First National
           Bank             49,768    9.8%   20,313    4.0%   30,470    6.0%
         FNB Salem Bank
           & Trust          27,056   10.0%   10,822    4.0%   16,234    6.0%
      Tier 1 Capital
        (to Average Assets)
         Consolidated       81,117    8.4%   38,627    4.0%     N/A
         First National
           Bank             49,768    7.9%   25,199    4.0%   31,499    5.0%
         FNB Salem Bank
           & Trust          27,056    8.2%   13,198    4.0%   16,498    5.0%
</TABLE>
<PAGE>  41
<TABLE>
<CAPTION>
      As of December 31, 2001:
                                                 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     $ 81,609   11.2%   58,292    8.0%     N/A
         First National
           Bank             50,111   11.0%   36,444    8.0% $ 45,555   10.0%
         FNB Salem Bank
           & Trust          21,659   11.0%   15,752    8.0%   19,690   10.0%
      Tier 1 Capital
        (to Risk Weighted
         Assets)
         Consolidated       73,007   10.0%   29,203    4.0%     N/A
         First National
           Bank             44,396    9.7%   18,308    4.0%   27,461    6.0%
         FNB Salem Bank
           & Trust          19,493    9.9%    7,876    4.0%   11,814    6.0%
      Tier 1 Capital
        (to Average Assets)
         Consolidated       73,007    7.9%   36,966    4.0%     N/A
         First National
           Bank             44,396    7.5%   23,678    4.0%   29,597    5.0%
         FNB Salem Bank
           & Trust          19,493    9.2%    8,475    4.0%   10,594    5.0%
</TABLE>

(14)  SUPPLEMENTAL CASH FLOW INFORMATION

      The Corporation paid $22,027, $23,353 and $19,785 for interest and
      $4,660, $2,839 and $2,790 for income taxes in 2002, 2001 and 2000,
      respectively.  Noncash investing activities included $906, $932 and
      $252 of loans transferred to other real estate owned in 2002, 2001
      and 2000, 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.

(16)  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
<PAGE>  42
      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 $43,638 at December 31,
      2002, and $37,959 at December 31, 2001 (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,                                 2002        2001
<S>                                          <C>          <C>
      Financial instruments whose contract
        amounts represent credit risk:
          Commitments to extend credit        $ 128,919     110,120
          Standby letters of credit              14,672       7,299
</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
      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, standby letters of credit and financial
      guarantees written 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 2002, the Corporation originated $236,300
      and sold $215,955 to investors, compared to $126,473 originated and
      $116,465 sold in 2001.  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
<PAGE>  43
      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.

(17)  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 and Roanoke
      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 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 $93,431 and
      $101,282 of loans to individuals for household, family and other
      personal expenditures at December 31, 2002 and 2001, respectively.  The
      real estate mortgage portfolio consists primarily of loans secured by
      1-4 family residential properties.

(18)  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

      Statement of Financial Accounting Standards 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.
<PAGE>  44
      (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.

      (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, 2002 and 2001, 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:
<PAGE>  45
<TABLE>
<CAPTION>
      December 31,                       2002                   2001

                                           Approximate            Approximate
                                Carrying   Fair        Carrying   Fair
                                Amounts    Values      Amounts    Values
<S>                           <C>        <C>         <C>        <C>
      Financial assets:
        Cash and due
          from banks           $ 29,241      29,241     28,817      28,817
        Federal funds sold       11,150      11,150      9,010       9,010
        Short term investments        -           -     16,549      16,549
        Securities available-
          for-sale              141,888     141,888    146,337     146,337
        Securities held-to-
          maturity               16,075      16,681     30,812      31,526
        Loans, net of
          unearned income       691,661     708,819    648,263     660,084

            Total financial
              assets           $890,015     907,779    879,788     892,323


      Financial liabilities:
        Deposits               $845,688     838,640    806,787     816,149
        Federal funds
          purchased,
          securities sold
          under agreements
          to repurchase and
          other borrowed
          funds                  46,602      48,286     41,281      42,199
             Total financial
               liabilities     $892,290     886,926    848,068     858,348
</TABLE>

      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>  46

(19)  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, 2002    December 31, 2001
<S>                                   <C>                  <C>
      Assets
      Cash and due from banks              $   2,157                    -
      Short term investments                       -               16,549
      Securities available-for-sale,
        at fair value                          2,384                2,456
      Other investments at cost                  491                    -
      Investment in subsidiary banks         106,235               97,876
      Other assets                             1,031                   45
            Total assets                   $ 112,298              116,926
      Liabilities
      Other borrowed funds                 $  15,464               14,549
      Other liabilities                        1,101               14,938
      ESOP debt                                  634                  806
            Total liabilities                 17,199               30,293
      Stockholders' equity                    95,099               86,633
            Total liabilities and
              stockholders' equity         $ 112,298              116,926
</TABLE>
<TABLE>
<CAPTION>
      Statements of Income
      Years Ended December 31,                   2002        2001        2000
<S>                                        <C>          <C>         <C>
      Income:
        Dividends from affiliate banks      $   6,021       5,785       3,257
        Interest on investments                   165         178         233
        Management fees                        11,382*      1,156         327
        Miscellaneous income                        -           8           -
          Total income                         17,568       7,127       3,817
      Operating expenses                       13,550*      1,471         646
      Income before income taxes and
        equity in undistributed net
        income of affiliate banks               4,018       5,656       3,171
      Applicable income tax provision
        (benefit)                                (711)          -           -
                                                4,729       5,656       3,171
      Equity in undistributed net
        income (loss) of affiliate banks        6,362       1,078       3,663
      Net income                            $  11,091       6,734       6,834
</TABLE>
      *  Large increase due to centralizing support operations in the holding
         company and billing related expenses back to the affiliate banks in
         the form of a management fee.
<PAGE>  47
<TABLE>
<CAPTION>
      Statements of Cash Flows

                                                 2002        2001        2000
<S>                                       <C>           <C>        <C>
      Cash flows from operating
      activities:
        Net income                          $ 11,091       6,734       6,834
        Adjustments to reconcile net
          income to net cash provided by
          operating activities:
            Equity in undistributed net
              loss (income) of affiliate
              banks                           (6,362)     (1,078)     (3,663)
            ESOP compensation                    299        (418)       (373)
            Decrease (increase) in other
              assets                            (986)         64           5
            Increase (decrease) in other
              liabilities                        915           -           -
            Other, net                           207      (2,298)      1,330
              Net cash provided by
                operating activities        $  5,164       3,004       4,133

      Cash flows from investing
      activities:
        (Purchase) sale of short term
          investments                       $ 16,549     (16,549)          -
        Sales and maturities of debt
          securities                             100       4,522         100
        Purchase of debt securities                -      (1,118)       (564)
        Purchase of other investments
          at cost                               (491)          -           -
        Cash payment for purchase of Salem
          Community Bankshares               (13,550)          -           -
              Net cash provided (used) in
                investing activities        $  2,608     (13,145)       (464)

      Cash flows from financing
      activities:
        Issuance of trust preferred
          debt                                     -      14,549           -
        Repurchase of FNB Corporation
          stock, net                        $ (1,692)     (1,388)       (871)
        Cash dividends paid on common
          stock                               (3,923)     (3,020)     (2,798)
        Net cash provided (used) for
          financing activities              $ (5,615)     10,141      (3,669)

      Net increase (decrease) in cash
        and cash equivalents                $  2,157           -           -
      Cash and cash equivalents at
       beginning of year                           -           -           -
      Cash and cash equivalents at end
        of year                             $  2,157           -           -
</TABLE>
<PAGE>  48
(20)  INTERIM FINANCIAL INFORMATION (Unaudited)

      Consolidated quarterly results of operations were as follows:
<TABLE>
<CAPTION>
                                                 2002
                                           Three Months Ended
                              March 31   June 30   September 30   December 31
<S>                         <C>        <C>       <C>            <C>
      Interest income         $ 15,224    14,844         15,167        14,383
      Interest expense           5,803     5,511          5,550         5,332
      Provision for loan
        losses                     466       316            224           363
      Noninterest income         2,173     3,474          2,517         3,381
      Noninterest expense        7,279     7,683          8,046         8,274
      Income before income
        tax expense              3,849     4,808          3,864         3,795
      Income tax expense         1,265     1,571          1,186         1,203
      Net income              $  2,584     3,237          2,678         2,592

      Basic earnings per
        share                 $   0.45      0.56           0.47          0.45
      Fully diluted earnings
        per share             $   0.44      0.55           0.46          0.44
</TABLE>
<TABLE>
<CAPTION>
                                                 2001
                                           Three Months Ended
                              March 31   June 30   September 30   December 31
<S>                         <C>        <C>       <C>            <C>
      Interest income         $ 11,073    12,445         12,425        11,907
      Interest expense           5,497     6,048          6,017         5,265
      Provision for loan
        losses                     370       285            285           697
      Noninterest income         1,114     1,257          1,516         1,911
      Noninterest expense        4,004     4,868          5,217         5,811
      Income before income
        tax expense              2,316     2,501          2,422         2,045
      Income tax expense           626       670            659           595
      Net income              $  1,690     1,831          1,763         1,450

      Basic earnings per
        share                 $   0.40      0.42           0.40          0.33
      Fully diluted earnings
        per share             $   0.40      0.42           0.39          0.32
</TABLE>

(21)  STOCK COMPENSATION PLANS

      In 2000 the Corporation's stockholders 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
      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
<PAGE>  49
      meaning of Section 422 of the Internal Revenue Code or a non-qualified
      stock option.
<TABLE>
<CAPTION>
      Years Ended December 31,                 2002        2001        2000
<S>                                      <C>           <C>         <C>
      Net income            As reported    $ 11,091       6,734       6,834
                            Pro forma        10,978       6,651       6,810

      Earnings per share    As reported    $   1.93        1.54        1.61
                            Pro forma          1.91        1.52        1.61

      Earnings per share--  As reported    $   1.90        1.53        1.61
        assuming dilution   Pro forma          1.88        1.51        1.61
</TABLE>

      The fair value of each option grant is estimated on the date of grant
      using the Black-Scholes option-pricing model with the following
      weighted-average assumptions:
<TABLE>
<CAPTION>
      Years Ended December 31,       2002           2001           2000
<S>                               <C>            <C>            <C>
      Dividend yield                  3.4%           3.5%           4.1%
      Expected life                  10.0 years     10.0 years      9.8 years
      Expected volatility              20%            20%            20%
      Risk-free interest rate         5.1%           5.1%           6.0%
</TABLE>

      A summary of the status (shares in thousands) of the Corporation's
      stock option plan is presented below:
<TABLE>
<CAPTION>
                               2002              2001              2000
                                 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                218    $14.77      77    $15.51        -        -
      Granted                55     19.42      61     15.87       77   $15.51
      Roll options -
        SW Virginia
        Bankshares            -         -      81     13.26        -        -
      Exercised             (17)    13.24       -         -        -        -
      Forfeited               -         -      (1)    15.57        -        -
      Outstanding at
        end of year         256    $15.87     218    $14.77       77   $15.51

      Options exer-
        cisable at
        year-end            134    $14.20     100    $13.68        -        -
      Weighted-average
        fair value of
        options granted
        during the year   $4.37             $3.19              $4.11
</TABLE>
<PAGE>  50
(22)  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 292,775
      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 1,272,153 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".

(23)  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 2002 for each of the segments is included below.
      Information for the mortgage banking segment is not material for years
      prior to 2001 and the consolidated financial information for 2000, as
      reported, is reflective of the community banking segment.
<PAGE>  51
<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>
<TABLE>
<CAPTION>
      December 31, 2001

                            Community   Mortgage            Elimi-
                            Banking     Banking    Parent   nations     Total
<S>                       <C>         <C>        <C>      <C>         <C>
      Net interest income  $ 24,782          92       149         -    25,023
      Provision for loan
        losses                1,637           -         -         -     1,637
      Net interest income
        after provision
        for loan losses      23,145          92       149         -    23,386
      Other income            4,696       1,094     1,086    (1,078)    5,798
      Other expenses         18,910         704     1,364    (1,078)   19,900
      Income (loss)
        before income
        taxes                 8,931         482      (129)        -     9,284
      Income tax
        (benefit)             2,386         164         -         -     2,550
      Net income           $  6,545         318      (129)        -     6,734
      Average assets       $638,977       6,348    62,117   (57,842)  649,600
</TABLE>
<PAGE>  52