Exhibit 13


                              FNB CORPORATION

                       ANNUAL REPORT TO SHAREHOLDERS

                                    2006
<PAGE>

                     INDEX TO ANNUAL REPORT TO SHAREHOLDERS


                                                                      Page


Selected Consolidated Financial Information                             1

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

Market Price and Dividend Data                                         11

Performance Graph                                                      12

Market Risks Related to Financial Instruments                          14

Management's Annual Report on Internal Control Over Financial
Reporting                                                              17

Report of Independent Registered Public Accounting Firm on the
Consolidated Financial Statements                                      18

Report of Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting                                       19

Consolidated Balance Sheets                                            21

Consolidated Statements of Income and Comprehensive Income             22

Consolidated Statements of Cash Flows                                  24

Consolidated Statements of Changes in Shareholders' Equity             26

Notes to Consolidated Financial Statements                             29

Board of Directors and Corporate Executive Officers                    58
<PAGE>

<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
                                             Years Ended December 31,
                                  2006      2005      2004      2003     2002
<S>                         <C>         <C>        <C>       <C>      <C>
Selected income statement
  data
   (in thousands):
     Interest income        $   94,797    80,752    70,461    61,464   59,618
     Interest expense           40,289    29,202    22,660    19,935   22,196

     Net interest income        54,508    51,550    47,801    41,529   37,422
     Provision for loan
        losses                   1,737     2,564     3,046     2,158    1,369
     Noninterest income         15,194    16,264    14,349    15,678   11,545
     Noninterest expense        40,925    38,620    36,830    35,703   31,282
     Income tax expense          9,128     9,097     8,027     6,414    5,225

     Net income             $   17,912    17,533    14,247    12,932   11,091

Per share data:
     Basic earnings         $     2.44      2.40      1.96      2.03     1.93
     Diluted earnings             2.41      2.39      1.95      2.01     1.90
     Cash dividends declared       .82       .78       .74       .70      .68
     Book value                  23.60     21.94     20.63     19.57    16.52

Average shares outstanding
   (in thousands):
     Basic                       7,335     7,293     7,252     6,378    5,758
     Diluted                     7,419     7,350     7,320     6,445    5,833

Selected balance sheet data
   at year end
      (in thousands):
     Total securities       $  189,479   171,340   156,732   193,237  163,283
     Loans, net of unearned
        income               1,170,073 1,163,280 1,103,470   999,888  691,661
     Allowance for loan
        losses                  13,920    14,412    13,165    12,002    9,466
     Total assets            1,518,715 1,481,482 1,396,116 1,326,811  992,431
     Deposits                1,262,982 1,217,006 1,124,267 1,048,802  845,688
     Trust preferred            12,372    27,836    27,836    27,836   15,464
     Shareholders' equity      173,417   160,476   150,001   141,108   95,099

Selected ratios
   (in percentages):
     Return on average assets     1.19      1.22      1.04      1.14     1.16
     Return on average equity    10.81     11.35      9.82     11.26    12.36
     Dividend pay-out ratio      33.63     32.48     39.53     33.38    35.37
     Average equity to
        average assets           11.01     10.76     10.57     10.11     9.36
</TABLE>
<PAGE>   1
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATION


Our Business

FNB Corporation, a Virginia corporation, was organized in 1996 as a bank
holding company for First National Bank, a national banking association
formed in 1905.  As a result of mergers and acquisitions, FNB Corporation had
three banking subsidiaries (First National Bank, FNB Salem Bank and Trust,
National Association, and Bedford Federal Savings Bank, National Association)
at December 31, 2005.  In May 2006 FNB Salem Bank and Trust, National
Association and Bedford Federal Savings Bank, National Association, were
merged into First National Bank.  This merger resulted in FNB Corporation
having one banking subsidiary, First National Bank (together with FNB
Corporation, "FNB").

FNB provides a full complement of consumer and commercial banking services to
its primary service areas which include the New River Valley, consisting of
Montgomery County, Virginia and surrounding counties; the Roanoke Valley,
consisting of the Cities of Roanoke and Salem, and Roanoke County and
contiguous counties; and Central Virginia including the Cities of Bedford and
Lynchburg, and surrounding counties.  With an emphasis on personal service,
FNB offers a broad range of commercial and retail banking products and
services including checking, savings and time deposits, individual retirement
accounts, merchant bankcard processing, residential and commercial mortgages,
home equity loans, consumer installment loans, agricultural loans, small
business, and FHA and SBA guaranteed loans, commercial loans, lines and
letters of credit as well as trust services and investment products.  In
addition to its 27 branches, two loan production offices, telephone, and
online banking, FNB has over 50 ATMs located both on premises and in other
strategic positions within its primary market areas.

The following is a discussion of factors that significantly affected the
financial condition and results of operations of FNB.  This discussion should
be read in connection with the consolidated financial statements, statistical
disclosures and other financial information presented herein.  All amounts
presented in Management's Discussion and Analysis are in thousands except
share, per share data, percentages or as otherwise specified.

Forward-Looking Information

This report may contain forward-looking statements with respect to the
financial condition, results of operations and business of FNB.  These
forward-looking statements involve risks and uncertainties and are based on
the beliefs and assumptions of management of FNB, and on the information
available to management at the time that these disclosures were prepared.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are not limited
to, the following possibilities:  (1) competitive pressures between
depository and other financial institutions may increase significantly; (2)
competitors may have greater financial resources and develop products that
enable such competitors to compete more successfully than FNB; (3) changes in
the interest rate environment may reduce margins; (4) 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; (5) legislative or regulatory
<PAGE>   2
changes, including changes in accounting standards, may adversely affect the
businesses in which FNB is engaged; (6) FNB may not be able to achieve or
fully realize the expected operational efficiencies and related benefits and
savings from its subsidiary bank restructuring; and (7) adverse changes may
occur in the securities markets.

Critical Accounting Policies

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

FNB has developed appropriate policies and procedures for assessing the
adequacy of the allowance for loan losses, recognizing that this process
requires a number of assumptions and estimates with respect to its loan
portfolio.  FNB's assessments may be impacted in future periods by changes in
economic conditions, regulatory examinations and the discovery of information
with respect to borrowers that is not currently known.  For additional
discussion concerning FNB's allowance for loan losses and related matters,
see Note 1(f), "Allowance for Loan Losses," of the Notes to Consolidated
Financial Statements.

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

Under purchase accounting, FNB is required to record the assets acquired,
including identified intangible assets, and liabilities assumed at their fair
value, which in many instances involves estimates based on third party
valuations, such as appraisals, or internal valuations based on discounted
cash flow analyses or other valuation techniques.  The determination of the
useful lives of intangible assets is subjective.  In addition, purchase
acquisitions typically result in goodwill, which is subject to ongoing
periodic impairment testing based on the fair value of net assets acquired
compared to the carrying value of goodwill.  Changes in merger multiples, the
overall interest rate environment, or the continuing operations of the
acquisition targets could have a significant impact on periodic impairment
testing.  For additional discussion concerning FNB's valuation of intangible
assets, see Note (1)(h), "Summary of Significant Accounting Policies--
Goodwill and Other Intangible Assets" and Note 16, "Goodwill and Other
Intangibles," of the Notes to Consolidated Financial Statements.
<PAGE>   3

Overview

FNB is a bank holding company with over $1.5 billion in assets, operating
27 full-service branches and over 50 automated teller machines in a service
area reaching 150 contiguous miles in Virginia, from Wythe County in the
southwest to Bedford County eastward.  FNB is located in markets with major
universities, a large corporate research center and two major lakes that
attract visitors year-around.  The diverse industries in the markets
served by FNB provide many opportunities for growth in banking services.  In
addition, the universities provide stability over varying economic cycles.
FNB offers a full array of products and services which include basic banking,
trust, investment products, insurance and mortgage.

FNB reported record earnings for the year ended December 31, 2006.  On a
quarterly basis, however, earnings during the third and fourth quarter of
2006 fell behind 2005 results for the same periods.  The third and fourth
quarter 2006 improvements in net interest income when compared to the same
periods in 2005 were offset by a reduction in noninterest income from lower
secondary mortgage revenue and deposit-related fees and increases in
noninterest expense driven by a one-time charge associated with the
retirement of subordinated debt.  We anticipate that 2007 will present
further challenges.  In particular, pressure on the net interest margin is
expected as competition for loans and deposits intensifies.  However, FNB had
several major accomplishments in 2006 and several initiatives are planned or
in process that should build on those accomplishments and provide a
foundation for growth and strong earnings momentum in 2007 and beyond.

In 2006, FNB combined its three subsidiary banks into one, enabling FNB to
promote one brand and operate under a "line of business" organizational
structure in order to provide consistent and enhanced delivery of services.
FNB relocated one branch in the New River Valley market, opened an office in
Lynchburg, has plans to relocate another branch in the Central Virginia
market and will be building a branch in a high traffic area in the Roanoke
Valley.  These actions are being taken to grow by expanding into other
markets and to provide modern full-service facilities in convenient locations
for our customers.  In addition, FNB is committed to investing in technology
to provide better products and services and easier access to these products
and services.

Results of Operations

Net Income

Net income and basic earnings per share for 2006 were a record $17,912 and
$2.44, respectively.  This compares to $17,533 and $2.40 for 2005 and $14,247
and $1.96 for 2004.

Earnings for 2006 increased $379 from the prior year due primarily to higher
net interest income.  The increase in earnings from 2005 to 2006 would have
been greater by $768 were it not for two items-a favorable gain on an
exchange of real estate in 2005 ($524 after-tax) and a $244 after-tax expense
in 2006 of front-end debt acquisition costs related to the retirement of
expensive callable subordinated debt.

Earnings increased $3,286, or 23.1%, from 2004 to 2005 due to higher net
interest income, a lower provision for loan losses, higher net income from
fee lines of business, expense savings from the closing of the Hilton Head
<PAGE>   4
office in November 2004, a gain from an exchange of real estate related to
the relocation of the Forest branch in Bedford County ($524 after tax) and a
$429 favorable tax adjustment related to the amortization of core deposit
intangibles.

Net Interest Income

In 2006 net interest income provided 78% of the revenue of FNB.  Net
interest income is the amount of interest earned on interest-bearing assets
less the amount of interest paid on deposits and other interest-bearing
liabilities.

Net interest income before provision for loan losses was $54,508 in 2006
compared to $51,550 for 2005, an increase of $2,958 or 5.7%.  The net
interest margin increased from 3.94% in 2005 to 3.96% in 2006.

This improvement was due primarily to an increase in loan volume and deposit
balances and an improved margin.  Net interest income increased by $2,958
from 2005 to 2006 primarily due to growth of 5.1% in daily average earning
assets balances (loans and investments).  Additional income of $321 was
realized due primarily to an improved product mix as more expensive
borrowings were replaced by less-expensive deposits.  Daily average borrowing
balances declined from $110,676 in 2005 to $83,609 in 2006.

Net interest income before provision for loan losses was $51,550 for 2005
compared to $47,801 for 2004, an increase of $3,749 or 7.8%.  The net
interest margin increased from 3.85% in 2004 to 3.94% in 2005.

Net interest income increased from 2004 to 2005 primarily due to growth in
loans and deposits ($2,357), an increase in rates ($406) and a favorable
change in product mix ($986).  These changes also impacted the favorable
change in the net interest margin.

Provision for Loan Losses

The provision for loan losses was $1,737 for 2006, $2,564 for 2005 and $3,046
for 2004.  The provision for loan losses, when expressed as a percentage of
year-to-date average loans outstanding, was .15%, .23% and .29% for 2006,
2005 and 2004, respectively.  Net charge-offs were $2,229, $1,317 and $1,883
for 2006, 2005 and 2004, respectively.  Net charge-offs to average year-to-
date loans outstanding were .19%, .12% and .18% for 2006, 2005 and 2004,
respectively.

Even though net charge-offs were higher in 2006 compared to 2005, the
provision was $827 below the prior year due to lower loan growth and an
improvement in our historical loss factors to more closely align them with
the risks inherent in our portfolio.

The provision was lower in 2005 than in 2004 primarily due to lower loan
growth and lower net charge-offs.

Noninterest Income

Noninterest income decreased $1,070 from 2005 to 2006 due primarily to an
$807 gain from an exchange of real estate related to the relocation of the
Forest branch in Bedford County in 2005.  In addition, service charge revenue
net of early redemption penalty fees on certificates of deposit declined $448
<PAGE>   5
and secondary market mortgage revenue was down $451.  Secondary market
mortgage production was down from $322,000 in 2005 to $286,000 in 2006.
These unfavorable variances were offset in part by higher merchant cardholder
transaction and debit card income ($370) and higher revenue generated by
FNB's interest in a small business investment corporation ($213).

Noninterest income increased $1,915 from 2004 to 2005.  This increase was due
primarily to an $807 gain from the exchange of real estate described above
and higher revenue from fee-based lines of business:  higher secondary market
mortgage revenue ($646), higher income from trust/sales of investment
products ($399) and higher merchant cardholder transaction and debit card
income ($239).  Secondary market mortgage loan production increased 37% from
2004 to 2005.

Noninterest Expense

Noninterest expense increased $2,305, or 6.0%, from 2005 to 2006.  This
increase was principally due to higher salaries and benefits ($1,856) due in
large part to merit increases and higher health care costs, incentives paid
throughout FNB for performance and expense due to the startup and expansion
of the private banking line of business in April 2005 (full year expense in
2006 compared to a partial year in 2005).  In addition, FNB expensed $375 of
front-end debt acquisition costs in order to retire expensive callable
subordinated debt.  Although not of a material nature in any one category,
there were unfavorable variances totaling $928 for postage, service charge
refunds, franchise tax, and merchant and debit card expenses due to higher
volume.  These expense increases were offset in part by lower miscellaneous
losses and charge-offs (losses on overdraft protection, fraudulent checks and
other miscellaneous losses) amounting to $521.  In addition expense relating
to the amortization of core deposit intangibles was $162 below the 2005
level.

Noninterest expense increased $1,790 or 4.9% from 2004 to 2005 due primarily
to higher salaries and benefits expense in the basic banking line of business
($964) which was largely the result of merit increases and incentives; higher
losses and charge-offs amounting to $539 due to overdraft protection losses,
fraudulent checks, a customer deposit adjustment and other miscellaneous
losses; the expansion of the private banking line of business ($365); higher
secondary market mortgage expense due to higher volume ($360) and expenses
associated with the branding project initiated in 2005 to promote FNB in a
consistent manner throughout all the markets FNB serves ($235).  These
increases were offset in part by savings of $721 from the closing of the
Hilton Head office in 2004.

Income Taxes

Income tax expense as a percentage of pre-tax income was 33.8%, 34.2% and
36.0% in 2006, 2005 and 2004, respectively.

The decrease in the effective tax rate from 2005 to 2006 was primarily due to
an unfavorable deferred tax adjustment of $163 taken in 2005.

The decrease in the effective tax rate from 2004 to 2005 was primarily due to
a favorable tax adjustment related to the amortization of core deposit
intangibles (2.2%) plus the elimination of the state tax accrual for Bedford
(.8%).  Bedford was converted from a savings and loan charter to a national
bank charter on December 10, 2004.  A bank in Virginia pays a franchise tax
<PAGE>   6
instead of state income taxes.

These favorable items were partially offset by an increase in taxes due to
lower nontaxable interest on securities and other nontaxable income (.7%).
Decisions as to which securities to purchase are based on taxable equivalent
yields for specific terms.  FNB has increased its investments in certain
taxable securities, which had higher yields than nontaxable securities when
measured on a taxable equivalent basis.

Balance Sheet

Cash and due from bank balances decreased $10,212, from $47,089 at December
31, 2005 to $36,877 at December 31, 2006.  These balances tend to fluctuate
considerably from day to day based on deposit inflows and outflows.  Average
daily balances for 2006 were $32,168 and for 2005 were $35,834.  The balance
of $36,877 at December 31, 2006 more closely approximates the 2005 and 2006
daily averages.

From 2005 to 2006, the growth of deposits ($45,976), the drop in cash and due
from bank balances ($10,212) and the increase in shareholders' equity
($12,941) over the growth in loans including mortgages held for sale
($17,048) provided an increase in liquid funds to FNB of $52,081.  This
excess liquidity was used primarily to reduce other borrowings/debt
($22,597), sell federal funds ($10,600) and invest in securities and other
investments ($18,139).

Mortgage loans held for sale balances increased from $8,234 at December 31,
2005 to $18,489.  Mortgage loan held for sale balances will fluctuate based
on the number of loans in the pipeline on any particular day.

Loan balances grew $6,793, or .6%, from $1,163,280 at December 31, 2005 to
$1,170,073 at December 31, 2006.  Most of the loan growth in 2006 occurred in
the real estate construction category.  Real estate mortgage loans declined
by $28,477 due to the discontinued Hilton Head operation ($6,147) and the
higher interest rate environment as consumers opted for fixed-rate loans
instead of adjustable-rate loans.  Most fixed-rate mortgage loans are sold
through the secondary market mortgage operation and are not held in the loan
portfolio because of the interest-rate risk inherent in loans with a long
maturity.  Run offs from the closed loan production office in Hilton Head,
South Carolina and the discontinued indirect lending (dealer) operation
amounted to $26,295.  The dealer operation was discontinued in the second
quarter of 2006 because profits were below expectations.    FNB is optimistic
about loan growth going forward due to the introduction of several new
products in our retail branch network offices combined with the recent hiring
of commercial account officers and a private banker to expand our presence in
the Roanoke Valley and Central Virginia markets.  Additionally, we intend to
place more emphasis on lending to operating companies as opposed to
commercial real estate lending.

Total deposits grew 3.8%, or $45,976, from $1,217,006 at December 31, 2005 to
$1,262,982 at December 31, 2006.  Most of this growth was in the higher-cost
time and certificates of deposit categories ($30,382).  Management continues
to emphasize the importance of cross-selling and developing core
relationships in order to grow lower-cost transaction account deposit
balances.  The commercial line of business is making an effort to obtain the
deposit accounts of existing as well as new commercial customers.
<PAGE>   7

Trust preferred subordinated debt balances declined $15,464 as a result of
the decision to pay off the expensive debt of FNB's subsidiary business
trust, FNB (VA) Statutory Trust I, on the first callable date of December 18,
2006.  This debt was priced at 3 month LIBOR plus 3.60% and was 8.99% on the
date it was paid off.  Trust preferred subordinated debt qualifies as Tier I
capital; however we determined that FNB's capital ratios will still be above
well-capitalized thresholds after the pay off.  Capital ratios are discussed
next under "Shareholders' Equity".

Shareholders' Equity

Shareholders' equity increased $12,941 from December 31, 2005 to December 31,
2006, primarily due to earnings of $17,912 which were partially offset by
cash dividends paid of $6,023.

Shareholders' equity increased $10,475 from December 31, 2004 to December 31,
2005, primarily due to earnings of $17,533 which were partially offset by
cash dividends paid of $5,695 and a decrease of $2,202 (from a $953 gain to a
$1,249 loss) in net tax effected unrealized gains on securities available-
for-sale resulting from an increase in interest rates.

All financial institutions are required to maintain minimum levels of
regulatory capital to be considered well-capitalized.  The Federal Reserve
and the Office of the Comptroller of the Currency ("OCC") have established
substantially similar risk-based capital standards for the financial
institutions they regulate.  Please see Note 13 of the Notes to Consolidated
Financial Statements, "Dividend Restrictions and Capital Requirements,"
for the detailed computation of these ratios.  Using the highest minimum
requirement of the above regulators, FNB is required to maintain a ratio of
total capital to risk-weighted assets of at least 10.0%.  At least half of
the total capital is required to be "Tier 1 capital", which consists
principally of common and certain qualifying preferred shareholders' equity
less certain intangibles and other adjustments.  The remainder, "Tier 2
capital", consists of a limited amount of subordinated and other qualifying
debt and a limited amount of the general loan loss reserve.  The minimum
requirement for Tier 1 capital to risk-weighted assets is 6.0%.  Total and
Tier 1 capital to risk-weighted assets ratios on a consolidated basis at
December 31, 2006, were 12.38% and 11.26%, respectively, exceeding minimum
requirements.  Management presently intends to maintain ratios in excess of
the minimum required 10.0% and 6.0% for Total and Tier 1 capital to risk-
weighted assets, respectively.

In addition, federal regulatory agencies have established minimum leveraged
capital guidelines to be considered well-capitalized for insured financial
institutions (Tier 1 capital to tangible assets).  These guidelines provide
for a minimum leveraged capital ratio of 5.0% for banks and their respective
holding companies that meet certain specified criteria, including that they
have the highest regulatory examination rating and are not contemplating
significant growth or expansion.  All other institutions are expected to
maintain a leverage ratio of at least 100 to 200 basis points above that
minimum.  The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.  The leverage ratio of FNB on a
consolidated basis at December 31, 2006 was 9.42%.

The affiliate bank was categorized as "well-capitalized" by the regulators
<PAGE>   8
under the regulatory framework for prompt corrective action based on their
latest notification in 2006.  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.  First
National Bank exceeded all three of these minimums as of December 31, 2006.
There are no conditions or events that management believes have changed the
category of the affiliate bank since December 31, 2006.

Past Due Loans and Nonperforming Assets

Loans 90 days or more past due at December 31, 2006 on which interest was
still accruing declined from $562 at December 31, 2005 to $362 at December
31, 2006.  Expressed as a percentage, these loans represent .03% and .05% of
total loans, net of unearned income outstanding at December 31, 2006 and
2005, respectively.  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 declined from $6,179 at December
31, 2005 to $5,711 at December 31, 2006.  Nonaccrual loans and other real
estate as a percentage of loans, net of unearned income plus other real
estate decreased from .53% at December 31, 2005 to .49% at December 31, 2006.

Allowance for Loan Losses

FNB identifies specific credit exposures through its ongoing analysis of the
loan portfolio and monitors general exposures from economic trends, market
values and other external factors.  FNB maintains an allowance for loan
losses, which management believes is adequate to absorb losses inherent in
the loan portfolio.  The allowance for loan losses decreased $492 to $13,920
or 1.19% of outstanding loans, net of unearned income at December 31, 2006,
from $14,412 or 1.24% of outstanding loans, net of unearned income at
December 31, 2005.  The decrease in the amount of the allowance for loan
losses was due principally to an improvement in our historical loss factors
to more closely align with the risks inherent in our portfolio.

The allowance for loan losses increased $1,247 to $14,412 or 1.24% of
outstanding loans, net of unearned income at December 31, 2005, from $13,165
or 1.19% of outstanding loans, net of unearned income at December 31, 2004.
The increase in the amount of the allowance for loan losses was due
principally to loan growth and to two problem loans.

The adequacy of the allowance for loan losses is calculated utilizing a
methodology that management believes to be sound and is reviewed on a
quarterly basis by executive management.  The methodology to calculate the
allowance for loan losses is as follows:

  1.  Pass rated credits (non-problem loans) are segregated into varying loan
      product types and a migration analysis is performed to arrive at
      historical charge-offs within these product types.  Based on this
      analysis, a loan loss reserve factor is assigned to each product type.
      The loan balances and the reserve factors are utilized to calculate the
      allowance for loan loss for these pass rated loans.
  2.  Commercial and commercial real estate loans that are on FNB's watch
      list, criticized list or classified list are segregated into real
      estate secured loans and non-real estate secured loans.  A migration
      analysis is performed on these two loan segments and their respective
<PAGE>   9
      problem loan status to arrive at historical charge-offs within these
      two loan segments.  Based on this analysis, a loan loss reserve factor
      is assigned to the respective loan segment and its problem credit
      classification.  The loan balances and the reserve factors are used to
      calculate the allowance for loan loss for these problem loans.
  3.  We perform an analysis of FNB's loan portfolio in terms of
      concentration on a quarterly basis.  Performance criteria are assigned
      to these various concentration segments.  FNB's primary concentration
      is in our commercial real estate portfolio, which includes acquisition
      and development loans, construction loans and income producing loans
      (apartments, office centers, shopping/strip centers, self storage,
      etc.).  Analysis of this portfolio segment, combined with current and
      forward-looking national/local economic trends/indicators is utilized
      in establishing a general allowance for loan losses within this
      concentration segment of the bank's portfolio.
  4.  Allowance for other loan categories, not specifically detailed above,
      is grouped into pools of risk based on past due severity.

Liquidity and Capital Resources

Liquidity is the ability to provide sufficient cash flow to meet financial
commitments and to fund additional loan demand or withdrawal of existing
deposits.  Liquidity trends are monitored monthly and projections are updated
quarterly and tested under multiple stress conditions.  FNB has in place an
action plan to ensure adequate liquidity should any of these stress scenarios
occur.

Liquidity improved in 2006 compared to 2005.  The net cash flow from
operations of $13,528 plus net cash flow provided from financing activities
of $17,779 (primarily from deposit growth) exceeded the growth in loans and
other miscellaneous non-earning assets, resulting in a net addition of liquid
funds in the form of cash and equivalents of $17,963.  The loan to deposit
ratio dropped from 95.6% at December 31, 2005 to 92.6% at December 31, 2006.

FNB's targeted key internal ratios are currently well within the guidelines
established by management (loans to funding sources are less than 80%,
pledged to total securities are less than 50%, external funding is less than
18% and core deposits to assets are greater than 60%).  Primary sources of
liquidity include customer-based deposits and cash generated by operations.
FNB has access to funding sources to meet anticipated liquidity needs in the
form of available borrowings from the Federal Home Loan Bank and Federal
funds lines (at December 31, 2006, these sources would provide $235,000 of
additional borrowing capacity), other external sources amounting to $12,000
(which could be increased by $60,000 through approval of the Asset/Liability
Committee), and the national CD market.  Testing of these sources through
periodic usage is performed to ensure availability when needed.

The only significant source of cash for the holding company is dividends from
its bank subsidiary.  The maximum amount of dividends that may be paid by
the 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 2007 dividends (unless prior regulatory approval is
obtained) to $15,744 plus year-to-date 2007 net profits as of the declaration
date.  This limitation had no effect on the liquidity of the holding company
in 2006 and it is not expected to have any material impact in 2007.  During
2006, the affiliate banks paid $14,497 in dividends to the holding company.
<PAGE>  10

Contractual Obligations

The following table summarizes FNB's contractual obligations at December 31,
2006, and the effect such obligations are expected to have on liquidity and
cash flow in future periods.  FNB also has line of credit commitments in the
normal course of business, most of which expire within twelve months, that
are excluded from this table (see Note 17 of the Notes to Consolidated
Financial Statements).

<TABLE>
<CAPTION>
                           Payments due by period

                                    Less                             More
                                    Than        1-3        3-5      Than 5
                         Total     1 Year      Years      Years      Years
<S>                   <C>         <C>        <C>        <C>        <C>
Federal Home Loan
 Bank Borrowings      $ 62,634     35,086(1)  22,397(1)   5,151(1)       -
Trust Preferred
 Securities             12,372          -          -          -     12,372
Operating Leases           864        392        372        100          -
Total Contractual
 Obligations          $ 75,870     35,478     22,769      5,251     12,372
</TABLE>

(1) Stated maturities or call options

The commitments in the above table for Federal Home Loan Bank borrowings and
Trust Preferred securities are for principal only and do not include interest
on the indebtedness.

Off-Balance Sheet Arrangements

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

Market Price and Dividend Data

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

The following table sets forth the amount of quarterly cash dividends
declared per share and the high and low sales prices of FNB's common stock
for each quarter during the two years ended December 31, 2006, as reported on
the Nasdaq Stock Market.  FNB expects that comparable cash dividends will
continue to be paid on a quarterly basis in the future.  See also "Liquidity
and Capital Resources" above and Note 13 of the Notes to Consolidated
Financial Statements for a discussion of restrictions on the ability of FNB's
banking subsidiary to pay dividends to the holding company.
<PAGE>  11

                                                      Dividends
    2006                High        Low               Per Share

First Quarter        $ 35.35       30.30                0.20
Second Quarter         37.30       32.05                0.20
Third Quarter          39.00       32.76                0.21
Fourth Quarter         43.15       35.80                0.21


                                                      Dividends
    2005                High        Low               Per Share

First Quarter        $ 29.16       25.34                0.19
Second Quarter         28.23       23.84                0.19
Third Quarter          29.30       27.09                0.20
Fourth Quarter         31.94       26.10                0.20


As of February 28, 2007, there were 1,772 holders of record of FNB
Corporation Common Stock.  On that date, the closing price of our common
stock on the Nasdaq Global Select Market was $36.15.

Performance Graph

The following graph compares the yearly cumulative total return to
shareholders of FNB's common stock over a five-year period (beginning on
December 31, 2001 and ending on December 31, 2006) to the returns of the
Nasdaq Stock Index and to an Independent Bank Index prepared by The Carson
Medlin Company.  This presentation assumes that $100 was invested in shares
of FNB and the two indices on December 31, 2001, and that dividends were
immediately reinvested in additional shares.  The graph plots the value of
the initial $100 investment at one-year intervals from December 31, 2001
through December 31, 2006.

The Nasdaq Stock Index is, in the opinion of management, a broad market index
that includes more stocks with market capitalization similar to that of FNB
than the Standard and Poor's 500 Stock Index.

The Independent Bank Index is, in the opinion of management, a more relevant
standard by which community bank holding companies should measure their own
performance because the peer group is comprised of companies that are closer
in size and style of doing business.  Furthermore, this index more closely
reflects the actual trading patterns of community bank stocks.

There can be no assurance that FNB's stock performance in the future will
continue with the same or similar trends depicted in the following graph.
<PAGE>  12


          [Graph included in Annual Report sent to shareholders]


                                    2001  2002  2003  2004  2005  2006
FNB CORPORATION                      100   129   165   162   180   249
INDEPENDENT BANK INDEX               100   124   168   193   199   230
NASDAQ STOCK INDEX                   100    69   103   113   115   126


*The Independent Bank Index is the compilation, prepared by The Carson Medlin
Company, of the total return to shareholders over the past five years of the
<PAGE>  13
following group of 28 independent community banks located in the southeastern
states of Alabama, Florida, Georgia, North Carolina, South Carolina,
Tennessee, Virginia, and West Virginia:  Auburn National Bancshares, Inc.;
United Security Bancshares, Inc.; TIB Financial Corp.; Seacoast Banking
Corp.; Centerstate Banks of Florida, Inc.; Fidelity Southern
Corp.; Southeastern Banking Corporation; Southwest Georgia Financial
Corp.; PAB Bankshares, Inc.; Uwharrie Capital Corp.; Four Oaks
Fincorp, Inc.; Bank of Granite Corp.; Carolina Trust Bank; FNB
Financial Services Corp.; BNC Bancorp; CNB Corporation; Peoples
Bancorporation, Inc.; Greer Bancshares Incorporated; Wilson Bank Holding
Company; First Pulaski National Corporation; National Bankshares, Inc.;
Monarch Financial Holding, Inc.; FNB Corporation; American National
Bankshares, Inc.; Central Virginia Bankshares, Inc.; Virginia Financial
Group; C&F Financial Corporation; and First Century Bankshares, Inc.

The total five-year return was calculated for each of the banks in the peer
group taking into consideration changes in stock price, cash dividends, stock
dividends, and stock splits since December 31, 2001.  The individual results
were then weighted by the market capitalization of each bank relative to the
entire peer group.  The total return approach and the weighting based upon
market capitalization is consistent with the preparation of the Nasdaq Stock
Index.

Market Risks Related to Financial Instruments

FNB 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 FNB's financial instruments is interest rate
risk; that is, the risk that net interest income and fair values of
securities held by FNB 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.  Conversely, an
increase in market interest rates will generally have the opposite effect.

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

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

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

        Maturity and re-pricing schedules of loans, investment securities and
        deposits, including the extent to which expected maturities of
<PAGE>  14
        interest sensitive assets align with those of interest sensitive
        liabilities ("sensitivity gap").

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

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

The table below reflects the outcome of these analyses at December 31, 2006.


                                     Hypothetical            Hypothetical
                                    Percent Change          Percent Change
      Change in Prime Rate           In Earnings          Market Value Equity
             3.00%                      -5.34%                  -8.07%
             2.00%                      -3.42%                  -5.47%
             1.00%                      -2.13%                  -2.74%
            -1.00%                      -1.16%                   1.64%
            -2.00%                      -4.91%                   1.57%
            -3.00%                      -9.20%                   0.91%


Earnings would be expected to fall by 5.34% in the first 12 months if rates
were to increase immediately by 300 basis points and expected to fall by
9.20% in the first 12 months if rates were to decrease immediately by 300
basis points.  Changes in earnings resulting from changes in interest rates
primarily impact net interest income.  Fee income generated from the sale of
mortgage loans in the secondary market would also be impacted.  As rates
rise, the volume of loans sold would be expected to decrease resulting in
<PAGE>  15
lowering fee income, while lower rates would be expected to result in higher
volume and increased income.  Market value of equity would decrease by 8.07%
if market rates were to rise by 300 basis points and increase by 0.91% if
market rates were to fall by 300 basis points.  All of these changes fall
below management's guideline maximums.

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

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 FNB'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 considers the most significant impact of inflation on financial
results to be changes in interest rates and FNB's ability to react to those
changes.  As discussed above, management attempts to measure, monitor and
control interest rate risk.
<PAGE>  16

               MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL
                         OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as such term is defined in
Rule 13a-15(f) under the Exchange Act).  Our internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that could
have a material effect on the financial statements.

Because of the inherent limitations in any internal control, no matter how
well designed, misstatements may occur and not be prevented or detected.
Accordingly, even effective internal control over financial reporting can
provide only reasonable assurance with respect to financial statement
preparation.  Further, the evaluation of the effectiveness of internal
control over financial reporting was made as of a specific date, and
continued effectiveness in future periods is subject to the risks that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies and procedures may decline.

Management conducted an evaluation of the effectiveness of our system of
internal control over financial reporting as of December 31, 2006 based on
the framework set forth in "Internal Control - Integrated Framework" issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its evaluation, management concluded that, as of December 31, 2006,
FNB's internal control over financial reporting was effective.

Our management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2006 has been audited by Brown,
Edwards & Company, L.L.P., an independent registered public accounting firm,
as stated in its attestation report which is included herein.
<PAGE>  17

BROWN,
EDWARDS &
COMPANY, L.L.P.
Certified Public Accountants


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
FNB Corporation
Christiansburg, Virginia


     We have audited the accompanying consolidated balance sheets of FNB
Corporation and Subsidiary as of December 31, 2006 and 2005, and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2006.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on the consolidated financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of FNB Corporation and Subsidiary as of December 31, 2006 and 2005, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of FNB
Corporation's internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 6, 2007 expressed an unqualified
opinion thereon.


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

Christiansburg, Virginia
February 6, 2007


        Providing Professional Business Advisory & Consulting Services

100 Arbor Drive, Suite 108   Christiansburg, VA 24073   540-381-9333
                 Fax:  540-381-8319   www.BEcpas.com
         Member:  SEC and Private Companies Practice Sections of
           American Institute of Certified Public Accountants
<PAGE>   18

BROWN,
EDWARDS &
COMPANY, L.L.P.
Certified Public Accountants


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


     We have audited management's assessment, included in the accompanying
Report of Management, that FNB Corporation maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria).  FNB Corporation's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting.  Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial
reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, evaluating management's
assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered
necessary in the circumstances.  We believe that our audit provides a
reasonable basis for our opinion.

     A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.  A
company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements.  Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     In our opinion, management's assessment that FNB Corporation maintained
effective internal control over financial reporting as of December 31, 2006,
is fairly stated, in all material respects, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  Also, in our opinion, FNB
Corporation maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2006, based on the COSO criteria.


        Providing Professional Business Advisory & Consulting Services

100 Arbor Drive, Suite 108   Christiansburg, VA 24073   540-381-9333
                 Fax:  540-381-8319   www.BEcpas.com
         Member:  SEC and Private Companies Practice Sections of
           American Institute of Certified Public Accountants
<PAGE>  19

     We have also audited in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of FNB Corporation and Subsidiary as of December 31, 2006 and 2005,
and the related consolidated statements of income and comprehensive income,
changes in stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2006 and our report dated February 6, 2007,
expressed an unqualified opinion thereon.


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


Christiansburg, Virginia
February 6, 2007


        Providing Professional Business Advisory & Consulting Services

100 Arbor Drive, Suite 108   Christiansburg, VA 24073   540-381-9333
                 Fax:  540-381-8319   www.BEcpas.com
         Member:  SEC and Private Companies Practice Sections of
           American Institute of Certified Public Accountants
<PAGE>  20
<TABLE>
<CAPTION>
                                                   December 31, 2006 and 2005
CONSOLIDATED BALANCE SHEETS   (in thousands, except share and per share data)

ASSETS
                                                         2006           2005
<S>                                               <C>             <C>
Cash and due from banks                            $   36,877         47,089
Federal funds sold                                     10,600              -
Cash and cash equivalents                              47,477         47,089
Securities available-for-sale, at fair value          178,821        159,399
Securities held-to-maturity, at amortized cost
  (fair value approximated $1,585 and $2,626
   at December 31, 2006 & 2005, respectively)           1,583          2,608
Other investments at cost                               9,075          9,333
Mortgage loans held for sale                           18,489          8,234
Loans, net of unearned income                       1,170,073      1,163,280
Less allowance for loan losses                         13,920         14,412
          Loans, net                                1,156,153      1,148,868
Bank premises and equipment, net                       26,194         24,237
Other real estate owned                                   637            765
Goodwill                                               44,473         44,473
Core deposit intangibles                                2,996          4,059
Other assets                                           32,817         32,417
          Total assets                             $1,518,715      1,481,482


LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits
   Noninterest-bearing demand deposits             $  158,464        159,851
   Interest-bearing demand and savings deposits       447,928        430,947
   Time deposits                                      469,232        460,536
   Certificates of deposit of $100,000 and over       187,358        165,672
          Total deposits                            1,262,982      1,217,006
FHLB advances                                          62,634         62,998
Trust preferred                                        12,372         27,836
Other borrowings                                           45          6,814
Other liabilities                                       7,265          6,352
          Total liabilities                         1,345,298      1,321,006
Shareholders' equity
   Common stock, $5.00 par value.  Authorized
      25,000,000 shares; issued and outstanding
      7,348,823 shares in 2006 and 7,312,868
      in 2005                                          36,744         36,565
   Surplus                                             84,212         83,504
   Retained earnings                                   53,545         41,656
   Accumulated other comprehensive income (loss)       (1,084)        (1,249)
          Total shareholders' equity                  173,417        160,476
          Total liabilities and
             shareholders' equity                  $1,518,715      1,481,482
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>  21
<TABLE>
<CAPTION>
                                 Years Ended December 31, 2006, 2005 and 2004
                                        (in thousands, except per share data)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
                                                2006          2005       2004
<S>                                       <C>            <C>         <C>
Interest income:
    Interest and fees on loans             $  84,157        72,236     61,911
    Interest on securities:
        Taxable                                9,193         7,118      7,225
        Nontaxable                               325           448        700
    Interest on federal funds sold
      and short term investments               1,122           950        625
            Total interest income             94,797        80,752     70,461

Interest expense:
    Deposits                                  35,387        24,368     18,358
    Federal funds purchased
      and securities sold under agreements
      to repurchase                              117            93         80
    Debt                                       4,785         4,741      4,222
            Total interest expense            40,289        29,202     22,660
            Net interest income               54,508        51,550     47,801

Provision for loan losses                      1,737         2,564      3,046
            Net interest income after
              provision for loan losses       52,771        48,986     44,755

Noninterest income:
    Service charges on deposit
      accounts                                 5,742         6,318      6,147
    Origination fees on loans sold             3,326         3,777      3,131
    Other service charges and fees             2,167         1,794      1,631
    Trust/investment product sales revenue     1,411         1,429      1,029
    Other income                               2,521         2,946      2,396
    Securities gains (losses), net                27             -         15
            Total noninterest income          15,194        16,264     14,349

Noninterest expense:
    Salaries and employee benefits            21,808        19,952     19,065
    Occupancy and equipment
      expense, net                             5,790         5,941      5,864
    Cardholder/merchant processing               991           838        737
    Supplies expense                             957           907        845
    Telephone expense                            701           692        825
    Net other real estate owned expense          151           166        114
    Amortization of core deposit
      intangibles                              1,063         1,225      1,387
    Other expenses                             9,464         8,899      7,993
            Total noninterest expense         40,925        38,620     36,830

Income before income tax expense              27,040        26,630     22,274
Income tax expense                             9,128         9,097      8,027
            Net income                     $  17,912        17,533     14,247
</TABLE>
<PAGE>  22
<TABLE>
<CAPTION>
                                 Years Ended December 31, 2006, 2005 and 2004
                                        (in thousands, except per share data)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (Continued)
                                                2006         2005       2004
<S>                                         <C>        <C>          <C>
Other comprehensive income (loss),
    net of income tax expense (benefit):
      Gross unrealized gains (losses) on
        available-for-sale securities            490       (2,202)      (860)
         Less:  Reclassification adjustment
           for (gains) losses included in
           net income                            (27)           -        (15)
      Net underfunded post retirement
        benefits                                (298)           -          -
      Other comprehensive income (loss)          165       (2,202)      (875)

           Comprehensive income            $  18,077       15,331     13,372

           Basic earnings per share        $    2.44         2.40       1.96
           Diluted earnings per share      $    2.41         2.39       1.95
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>  23
<TABLE>
<CAPTION>
                                Years Ended December 31, 2006, 2005 and 2004

CONSOLIDATED STATEMENTS OF CASH FLOWS                          (in thousands)
                                                   2006       2005      2004
<S>                                           <C>        <C>        <C>
Cash flows from operating activities:
    Net income                                 $ 17,912     17,533    14,247
    Adjustments to reconcile net income to net
      cash provided by operating activities:
        Provision for loan losses                 1,737      2,564     3,046
        Depreciation and amortization of
          bank premises and equipment             2,391      2,532     2,668
        Amortization of core deposit
          intangibles                             1,063      1,225     1,387
        ESOP compensation                             -         60       233
        Stock awards compensation                   385        280       251
        Deferred income tax expense (benefit)      (203)      (992)     (100)
        Amortization of premiums and
          accretion of discounts, net               175        506       792
        Gain on sales of securities, net            (27)         -       (15)
        Loss (gain) on sale of fixed assets
          and other real estate                     102       (770)      (76)
        Net (increase) decrease in mortgage
          loans held for sale                   (10,255)     2,671    (4,683)
        Increase in other assets                   (665)    (3,005)     (816)
        Increase (decrease) in other liabilities    913        195    (2,148)
            Net cash provided by operating
              activities                       $ 13,528     22,799    14,786

Cash flows from investing activities:
    Proceeds from sales of securities
      available-for-sale                      $       -        676     9,676
    Proceeds from calls and maturities
      of securities available-for-sale           48,006     28,565    59,035
    Proceeds from calls and maturities
      of securities held-to-maturity              1,017      1,321     5,724
    Purchases of securities available-
      for-sale                                  (66,598)   (49,063)  (40,009)
    Net increase in loans                        (9,821)   (62,009) (107,191)
    Proceeds from sale of fixed assets
      and other real estate owned                   366      2,199     2,399
    Recoveries on loans previously
      charged off                                   509        363       483
    Bank premises and equipment
      expenditures                               (4,398)    (3,199)   (2,748)
            Net cash used in investing
              activities                       $(30,919)   (81,147)  (72,631)
</TABLE>
<PAGE>  24
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF                                     (in thousands)
CASH FLOWS (continued)

                                                   2006       2005      2004
<S>                                           <C>        <C>       <C>
Cash flows from financing activities:
    Net increase in deposits                   $ 45,976     92,739    75,465
    Net decrease in FHLB advances                  (364)   (23,382)  (10,166)
    Net decrease in Trust Preferred
      subordinated debt                         (15,464)         -         -
    Net (decrease) increase in other
      borrowings                                 (6,769)     3,489    (2,739)
    Principal payments on ESOP debt                   -        100       245
    Stock options exercised                         423        400       420
    Dividends paid                               (6,023)    (5,695)   (5,632)
            Net cash provided by
              financing activities             $ 17,779     67,651    57,593

Net increase (decrease) in cash and cash
  equivalents                                       388      9,303      (252)
Cash and cash equivalents at beginning
  of year                                        47,089     37,786    38,038

Cash and cash equivalents at end of year       $ 47,477     47,089    37,786
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>  25
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2006, 2005 and 2004
CHANGES IN SHAREHOLDERS' 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,
 2003            $ 36,170   82,252     (345)     21,203    1,828     141,108

Net income              -        -        -      14,247        -      14,247
Cash dividends,
 $0.74 per share        -        -        -      (5,632)       -      (5,632)
ESOP shares
 allocated upon
 loan repayment         -      233      245           -        -         478
Stock awards
 issued                50      205        -           -        -         255
Stock options
 exercised            155      265        -           -        -         420
Change in net
 unrealized gains
 (losses) on
 securities
 available-for-
 sale, net of
 tax effect of
 $(471)                 -        -        -           -     (875)       (875)

Balances at
 December 31,
 2004            $ 36,375   82,955     (100)     29,818      953     150,001
</TABLE>
<PAGE>  26
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2006, 2005 and 2004
CHANGES IN SHAREHOLDERS' 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       $      -         -        -      17,533        -     17,533
Cash dividends,
 $0.78 per share        -         -        -      (5,695)       -     (5,695)
ESOP shares
 allocated upon
 loan repayment         -        60      100           -        -        160
Stock awards
 issued                40       239        -           -        -        279
Stock options
 exercised            150       250        -           -        -        400
Change in net
 unrealized gains
 (losses) on
 securities
 available-for-
 sale, net of
 tax effect of
 $(1,186)                -         -        -           -  (2,202)    (2,202)

Balances at
 December 31,
 2005             $ 36,565    83,504        -      41,656  (1,249)  $160,476
</TABLE>
<PAGE>  27
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF       Years Ended December 31, 2006, 2005 and 2004
CHANGES IN SHAREHOLDERS' EQUITY     (in thousands, except share and per share
(continued)                          data)
                                                         Accumulated
                                                         Other
                                                         Compre-
                        Common              Retained     hensive
                        Stock    Surplus    Earnings     Income        Total
<S>                <C>          <C>        <C>         <C>          <C>
Net Income           $      -          -      17,912          -       17,912
Cash dividends,
 $0.82 per share            -          -      (6,023)         -       (6,023)
Stock awards
 issued                    70        394           -          -          464
Stock options
 exercised                109        314           -          -          423
Change in net
 unrealized gains
 (losses) on
 securities
 available-for-
 sale, net of
 tax effect of
 $249                       -          -           -        463          463
Change in net
 underfunded
 post retire-
 ment benefits,
 net of tax
 effect of
 $(160)                     -          -           -       (298)        (298)

Balances at
 December 31,
 2006                $ 36,744     84,212      53,545     (1,084)    $173,417
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>  28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  December 31, 2006
                                         (amounts in thousands, except share,
                                               per share and percentage data)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

      (a)   Consolidation

            The consolidated financial statements include FNB Corporation
            ("FNB") and its wholly-owned subsidiary.  Since May 19, 2006,
            the effective date of the merger of two of FNB's affiliate banks
            into its largest affiliate bank, FNB's primary subsidiary is
            First National Bank (referred to as the "Bank").  Prior to May
            19, 2006, FNB's primary subsidiaries were First National Bank,
            FNB Salem Bank and Trust, National Association, and Bedford
            Federal Savings Bank, National Association (also, collectively
            referred to as the "Bank").  Significant intercompany
            transactions and balances have been eliminated in consolidation.

      (b)   Cash and Cash Equivalents

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

      (c)   Securities

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

               Debt securities which FNB has the positive intent and ability
               to hold to maturity are classified as held-to-maturity
<PAGE>  29
               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.
               FNB 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 shareholders' equity, net of the
               related income tax effect.

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

      (d)   Other Investments

            Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB")
            stock are the primary components of Other Investments.  These
            investments are recorded at cost and considered to be restricted,
            as FNB is required by these agencies to hold these investments
            and the only market for this stock is the issuing agency.  Other
            Investments have a carrying value of $9,075 and $9,333 at
            December 31, 2006 and 2005, respectively.

      (e)   Loans

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

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

            Mortgage loans held for sale are carried at the lower of
            aggregate cost or market value.  Gains or losses on sales of
            loans are recognized when control over these assets has been
            surrendered.
<PAGE>  30

      (f)   Allowance for Loan Losses

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

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

            Impaired loans are measured based on the present value of
            expected future cash flows discounted at the loan's effective
            interest rate or, as a practical expedient, at the loan's
            observable market price or the fair value of the collateral if
            the loan is collateral dependent.  A loan is considered impaired
            when, based on management's judgment, it is probable that FNB
            will not be able to collect 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, FNB
            does not separately identify individual consumer and residential
            loans for impairment disclosures.

      (g)   Business Combinations

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

      (h)   Goodwill and Other Intangible Assets

            Goodwill represents the excess of the cost of an acquisition over
            the fair value of the net assets acquired.  Other intangible
            assets represent purchased assets that also lack physical
            substance but can be distinguished from goodwill because of
            contractual or other legal rights or because the asset is capable
<PAGE>  31
            of being sold or exchanged either on its own or in combination
            with a related contract, asset or liability. On January 1, 2002,
            FNB adopted SFAS No. 142, "Goodwill and Other Intangible Assets."
            Under the provisions of SFAS No. 142, goodwill is no longer
            ratably amortized into the income statement over an estimated
            life, but rather is tested at least annually for impairment.
            Intangible assets that have finite lives continue to be
            amortized on an accelerated basis over 10 years.  Note 16
            includes a summary of goodwill and other intangible assets.

      (i)   Bank Premises and Equipment, Net

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

      (j)   Other Real Estate Owned

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

      (k)   Income Taxes

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

      (l)   Marketing and Advertising Costs

            Marketing and advertising costs are generally expensed as
            incurred and totaled $536, $744 and $622 for 2006, 2005 and 2004,
            respectively.

      (m)   Stock Compensation Plans

            On January 1, 2006, FNB adopted SFAS No. 123R, "Share-Based
            Payments."  FASB 123R superseded SFAS No. 123, "Accounting
            for Stock-Based Compensation," which set forth compensation
            recognition principles that are based on a fair value model.
            Prior to 2006, FNB had elected an alternative provided for under
            SFAS No. 123, which is to account for the activity under the 2000
<PAGE>  32
            Incentive Stock Plan using the intrinsic value method of
            accounting prescribed by Accounting Principles Board Opinion No.
            25, "Accounting for Stock Issued to Employees."  Accordingly,
            compensation cost was not recognized in the financial statements
            for grants of stock options as all options granted under the 2000
            Plan had an exercise price equal to the fair market value of the
            underlying stock at the date of grant.

            Compensation expense included in the accompanying Consolidated
            Statements of Income and Comprehensive Income related to stock
            grants under the 2000 Plan during 2005 and 2004 totaled $182 and
            $163, respectively, net of income taxes.  Had compensation cost
            for FNB's stock compensation plan been determined consistent with
            SFAS No. 123, net income and earnings per share would have been
            reduced to the pro forma amounts reflected below:

<TABLE>
<CAPTION>
            Years Ended December 31,                     2005      2004
<S>                                                  <C>        <C>
            Net Income, as reported                  $ 17,533    14,247

              Add:  Compensation expense related to
                stock grants included in net income,
                net of tax                                182       163

            Deduct:  Compensation expense related to
              stock plans using fair value accounting,
              net of tax                                  476       289

            Net Income, on a pro forma basis         $ 17,239    14,121

            Basic earnings per share -
                                 As reported            $2.40      1.96
                                 Pro forma               2.36      1.95

            Diluted earnings per share -
                                 As reported            $2.39      1.95
                                 Pro forma               2.35      1.93
</TABLE>

            For purposes of the pro forma calculation, compensation expense
            in 2004 was recognized on a straight-line basis over the vesting
            period of the grant.  In 2005, the decision was made to
            accelerate the vesting of options.  As a result of this decision,
            the total remaining fair value of employee options is included as
            compensation expense in the above table for 2005.  This amounts
            to an additional $211 over that which would have been reported
            had the vesting period not been accelerated.

      (n)   Earnings Per Share

            Basic earnings per share computations are based on the weighted
            average number of shares outstanding during each year: 7,335,405,
            7,293,148 and 7,251,588 in 2006, 2005 and 2004, respectively.
            Dilutive earnings per share reflects the additional common shares
            that would have been outstanding if dilutive potential common
            shares had been issued.  Potential common shares that may be
<PAGE>  33
            issued relate to unvested stock grants and outstanding options
            determined by the Treasury Method.

      (o)   Comprehensive Income

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

      (p)   Trust Assets

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

      (q)   Derivatives

            FNB originates residential real estate loans that are sold to
            various investors under "best efforts" contracts.  Under these
            best efforts contracts, FNB submits individual loan applications
            to investors for approval and commits to deliver the loans to the
            investor if the loans close.  Based on customer preference and
            the investor's approval, the rate quoted is "locked" for a
            specified number of days.  The customer receives the rate quoted
            contingent upon the loan closing within the lock period.  If the
            loan closes outside the lock period, FNB may request a lock
            extension from the investor for a flat fee not subject to
            interest rate fluctuations.  FNB does not issue written
            commitments to borrowers related to these loans.

            All loans are approved by the investor as to the quality, amount
            and rate prior to funding and are underwritten according to the
            standards of the investor.  Generally the price the investor will
            pay for the loan is established when the loan is approved by the
            investor.  Many of the contracts require the payment of a
            "pair-off" or net settlement fee in the event that an approved
            loan is closed but not subsequently delivered to the investor.
            The contracts that require the payment of a net settlement fee
            meet the definition of a derivative under SFAS No. 133,
            "Accounting for Derivative Instruments and Hedging Activities",
            which requires the recognition of a separate asset or liability
            in the financial statements related to the value of the
            commitment.

      (r)   Post-Retirement Benefits

            FNB adopted the provisions of SFAS No. 158, "Employers'
            Accounting for Defined Benefit Pension and Other Postretirement
            Plans" for the fiscal year ended December 31, 2006.  This
            statement requires recognition of the over-funded or under-funded
            status of defined benefit pension and post-retirement plans as an
            asset or liability, respectively, in the statement of financial
            position and recognition of changes in that funded status in
<PAGE>  34
            comprehensive income in the year in which changes occur.  When
            fully effective, SFAS 158 will require measurement of the funded
            status of a plan as of the date of the statement of financial
            position.  FNB recognized a liability of $458 for its under-
            funded post-retirement benefits as of December 31, 2006.

      (s)   Reclassification of Financial Statement Presentation

            Certain reclassifications have been made to the 2005 and 2004
            financial statements to conform with the 2006 financial statement
            presentation.  Such reclassifications had no effect on net income
            as previously reported.

(2)   RESTRICTIONS ON CASH

      Federal Reserve regulations require the Bank to maintain certain
      average balances as cash reserves.  The reserve requirements
      approximated $201 and $15,106 at December 31, 2006 and 2005,
      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, 2006 and 2005:

<TABLE>
<CAPTION>
                                        Gross        Gross        Approximate
                            Amortized   Unrealized   Unrealized   Fair
     December 31, 2006      Cost        Gains        Losses       Value
<S>                    <C>           <C>          <C>          <C>
      U.S. Treasury     $     150          -            (3)         147
      U.S. Government
         agencies and
         corporations      51,422         79          (652)      50,849
      Mortgage-backed     106,282        395        (1,121)     105,556
      States and
         political
         subdivisions      11,050        111           (91)      11,070
      Corporate            11,128        100           (29)      11,199
      Total AFS debt
         securities     $ 180,032        685        (1,896)     178,821
</TABLE>
<PAGE>  35
<TABLE>
<CAPTION>
                                        Gross        Gross        Approximate
                            Amortized   Unrealized   Unrealized   Fair
      December 31, 2005     Cost        Gains        Losses       Value
<S>                     <C>          <C>          <C>          <C>
      U.S. Treasury     $     150          -            (4)         146
      U.S. Government
         agencies and
         corporations      42,544          -          (901)      41,643
      Mortgage-backed      87,326        184        (1,374)      86,136
      States and
         political
         subdivisions      14,160        198           (98)      14,260
      Corporate            17,141        110           (37)      17,214
      Total AFS debt
         securities     $ 161,321        492        (2,414)     159,399
</TABLE>

      The amortized cost and approximate fair value of securities available-
      for-sale that were in a loss position at December 31, 2006 are shown
      below.

<TABLE>
<CAPTION>
                                       Gross Unrealized Losses
                                       Loss            Loss
                         Amortized     Position        Position        Fair
    December 31, 2006    Cost         < 12 Months    > 12 Months       Value
<S>                     <C>            <C>            <C>          <C>
    U.S. Treasury        $     150              -              3         147
    U.S. Government
       agencies and
       corporations         41,947             14            639      41,294
    Mortgage-backed         75,958            162            959      74,837
    States and
       political
       subdivisions          3,090              -             91       2,999
    Corporate                4,045              -             28       4,017

    Totals               $ 125,190            176          1,720     123,294
</TABLE>

      At December 31, 2006, the available-for-sale portfolio included 114
      individual investments for which the fair market value was less than
      amortized cost.  Management does not believe any individual unrealized
      loss as of December 31, 2006 represents an other-than-temporary
      impairment.  These unrealized losses are primarily attributable to
      changes in interest rates resulting from market fluctuations.  FNB
      has the ability to hold the securities contained in the previous table
      for the time necessary to recover the amortized cost.

      The amortized cost and approximate fair value of securities available-
      for-sale by contractual maturity are shown below.  Expected maturities
      may differ from contractual maturities because borrowers may have the
      right to call or prepay obligations with or without call or prepayment
      penalties.
<PAGE>  36
<TABLE>
<CAPTION>
                                                                 Approximate
                                                    Amortized       Fair
             December 31, 2006                         Cost         Value
<S>                                             <C>             <C>
         Due in one year or less                  $   7,577         7,550
         Due after one year through five years       47,425        47,041
         Due after five years through ten years      28,363        28,091
         Due after ten years                         96,667        96,139

            Totals                                $ 180,032       178,821
</TABLE>

      For the years ended December 31, 2006, 2005, and 2004, proceeds from
      sales of securities available-for-sale amounted to zero, $676 and
      $9,676, respectively.  Gross realized gains on securities available-
      for-sale were $27 and $64 and gross realized losses were zero and $52
      in 2006 and 2004, respectively.  There were no gross realized gains or
      losses on securities available-for-sale in 2005.  The tax benefit
      (provision) applicable to these net realized gains and losses amounted
      to $(10), zero and $(4) in 2006, 2005 and 2004, 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
      $51,813 at December 31, 2006 and $53,003 at December 31, 2005.

(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, 2006 and
      2005 are as follows:

<TABLE>
<CAPTION>
                                        Gross         Gross       Approximate
                           Amortized    Unrealized    Unrealized  Fair
      December 31, 2006    Cost         Gains         Losses      Value
<S>                     <C>          <C>            <C>         <C>
      Mortgage-backed     $     56             -            -           56
      States and
         political
         subdivisions        1,527             7           (5)       1,529

      Totals              $  1,583             7           (5)       1,585
</TABLE>
<TABLE>
<CAPTION>
                                        Gross         Gross       Approximate
                           Amortized    Unrealized    Unrealized  Fair
      December 31, 2005    Cost         Gains         Losses      Value
<S>                      <C>          <C>           <C>         <C>
      Mortgage-backed     $     85             1            -           86
      States and
         political
         subdivisions        2,523            22           (5)       2,540

      Totals              $  2,608            23           (5)       2,626
</TABLE>
<PAGE>  37

      Two held-to-maturity securities were in a loss position at December 31,
      2006.

      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, 2006                             Cost          Value
<S>                                             <C>            <C>
      Due in one year or less                     $    625           627
      Due after one year through five years            917           917
      Due after five years through ten years             2             2
      Due after ten years                               39            39

      Totals                                      $  1,583         1,585
</TABLE>

      There were no realized gains or losses on calls and maturities of
      securities held-to-maturity in 2006 and 2005.  Realized gains were $3
      and realized losses were zero on calls and maturities of securities
      held-to-maturity in 2004.  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 $902 and $1,105 at December 31, 2006 and 2005,
      respectively.

(5)   RELATED PARTY TRANSACTIONS

      In the ordinary course of business, FNB has granted loans to officers,
      directors and their affiliates as follows:

<TABLE>
<CAPTION>
                                        2006        2005
<S>                               <C>           <C>
      Beginning balance              $ 8,099       7,479
      New loans                        2,157       3,188
      Repayments                      (2,504)     (2,568)

      Ending balance                 $ 7,752       8,099
</TABLE>

      In addition, there were loans of $6,302 and $7,424 at December 31, 2006
      and 2005, respectively, which were endorsed by directors or had been
      made to companies in which directors had an equity interest.

      At December 31, 2006 and 2005, there were deposits from officers and
      directors of $9,006 and $9,286, respectively.
<PAGE>  38

(6)   LOANS AND ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
      At December 31, loans consisted of the following:
                                                         2006           2005
<S>                                                <C>               <C>
      Commercial                                    $  107,860        104,160
      Consumer                                         183,816        192,844
      Real estate - commercial                         289,300        291,015
      Real estate - construction                       229,147        186,834
      Real estate - mortgage                           359,950        388,427
             Total loans, net of unearned income     1,170,073      1,163,280
      Less allowance for loan losses                    13,920         14,412
             Loans, net                            $ 1,156,153      1,148,868
</TABLE>

      At December 31, 2006 and 2005, FNB had sold without recourse to
      financial institutions and other customers of FNB participations in
      various loans in the amount of $31,350 and $26,490, respectively.

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

<TABLE>
<CAPTION>
      Years Ended December 31,             2006        2005        2004
<S>                                   <C>          <C>         <C>
      Balance at beginning of year      $14,412      13,165      12,002
      Provisions for loan losses          1,737       2,564       3,046
      Loan recoveries                       509         363         483
      Loan charge-offs                   (2,738)     (1,680)     (2,366)
      Balance at end of year            $13,920      14,412      13,165
</TABLE>

      Nonperforming assets consist of the following:

<TABLE>
<CAPTION>
      December 31,                         2006        2005        2004
<S>                                   <C>           <C>        <C>
      Nonaccrual loans                  $ 5,074       5,414       3,534
      Other real estate owned               637         765       1,269
      Loans past due 90 days
        or more                             362         562         747

      Total nonperforming assets        $ 6,073       6,741       5,550
</TABLE>
<TABLE>
<CAPTION>
      December 31,                                     2006         2005
<S>                                               <C>           <C>
      Impaired loans without a valuation
        allowance                                  $      -            -
      Impaired loans with a valuation
        allowance                                     5,409        5,943
      Total impaired loans                         $  5,409        5,943
      Valuation allowance related to
        impaired loans                             $    449        1,305
</TABLE>
<PAGE>  39
<TABLE>
<CAPTION>
      Years Ended December 31,             2006        2005         2004
<S>                                    <C>          <C>          <C>
      Average investment in impaired
        loans                           $ 5,676       4,960        3,634
      Interest income recognized on
        impaired loans                  $   157         100           74
      Interest income recognized on a
        cash basis on impaired loans    $   170         111          146
</TABLE>

      There were no material commitments to lend additional funds to
      customers whose loans were classified as impaired at December 31, 2006.

(7)   BANK PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>
      December 31,                        2006          2005
<S>                                  <C>            <C>
      Land                            $  6,461         4,980
      Buildings                         20,500        19,260
      Furniture and equipment           18,862        20,150
      Leasehold improvements             1,105         1,202
                                        46,928        45,592
      Less accumulated depreciation
         and amortization              (20,734)      (21,355)

      Totals                          $ 26,194        24,237
</TABLE>

      Depreciation expense for the years ended December 31, 2006, 2005 and
      2004 amounted to $2,391, $2,532 and $2,668, respectively.

(8)   LEASING ACTIVITIES

      FNB's leasing activities consist of the leasing of land and buildings
      under agreements in which FNB 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, 2006:

         Year ending December 31:

                   2007                          $     392
                   2008                                252
                   2009                                120
                   2010                                 83
                   2011                                 17
                   Thereafter                            -

               Total minimum payments required   $     864
<PAGE>  40

      Rental commitments of less than one year are not included in the above
      schedule.  Rentals charged to operations under operating leases were
      $535, $512 and $494 for the years ended December 31, 2006, 2005 and
      2004, respectively.

(9)   DEPOSITS

      Time deposits and certificates of deposit of $100,000 and over as of
      December 31, 2006 mature as follows:

                   2007                          $ 372,459
                   2008                            205,658
                   2009                             36,431
                   2010                             18,572
                   2011                             23,470
                   Thereafter                            -
                                                 $ 656,590


(10)  SHORT TERM BORROWINGS AND LONG TERM DEBT

      Securities sold under agreements to repurchase (repurchase
      agreements) at December 31, 2006 totaled $45 and were collateralized
      by investment securities controlled by FNB with a book value of $1,998.
      The maximum amount of repurchase agreements outstanding during 2006 was
      $1,965, and the average amount outstanding during 2006 was $754.

      Advances from the FHLB were $62,634 and $62,998 on December 31, 2006
      and 2005, respectively.  The interest rates on the advances as of
      December 31, 2006 range from 2.74% to 7.26%.  The weighted cost of
      FHLB borrowing was 4.89% at December 31, 2006.  The advances are
      collateralized under a blanket floating lien agreement whereby FNB
      gives a blanket pledge of single family residential first mortgage
      loans amounting to $296,972 at December 31, 2006.  Of the total balance
      at December 31, 2006, $10,230, $20,096, $12,051 and $10,257 matures in
      2007, 2008, 2009 and 2010, respectively.  The remainder matures after
      2011.  FNB has additional borrowing capacity of $174,944 under its
      existing agreement with the FHLB at December 31, 2006.

      In 2001, FNB's subsidiary business trust, FNB (VA) Statutory Trust I,
      issued $15,464 face amount of trust preferred securities.  On December
      18, 2006, these trust preferred securities were redeemed.  The
      remaining unamortized issuance cost of $375 was charged to other
      expenses in 2006.

      In 2003, FNB's subsidiary business trust, FNB (VA) Statutory Trust II,
      issued $12,372 face amount of trust preferred securities which qualify
      as Tier 1 capital of FNB.  The trust preferred securities are callable
      at any time after five years from the issue date and are guaranteed by
      FNB on a subordinated basis.  The trust preferred securities are
      presented in FNB's consolidated balance sheets under the caption "Trust
      preferred."  FNB records distributions payable on the trust preferred
      securities as interest expense in its consolidated statements of income
      and comprehensive income.  The cost of issuance of the trust preferred
      securities was approximately $350.  This cost is being amortized over a
      thirty year period from the issue date.  The trust preferred securities
<PAGE>  41
      pay interest at a rate of 3 month LIBOR plus 3.10% subject to quarterly
      interest rate adjustments.  The interest rate was 8.47% on December 31,
      2006 and 7.62% on December 31, 2005.  The weighted cost of trust
      preferred financing was 8.47% at December 31, 2006 and 7.88% at
      December 31, 2005.

(11)  EMPLOYEE BENEFIT PLANS

      FNB sponsors an Employee Stock Ownership Plan ("ESOP" or the "Plan"),
      which covers all employees following the completion of one year of
      service and the attainment of age 21.  The ESOP invests substantially
      in stock of FNB.  ESOP compensation expense of $753, $718 and $733 was
      recorded for 2006, 2005 and 2004, respectively.

      ESOP shares as of December 31, 2006 consisted of 551,335 allocated
      shares.  There were no unreleased and unearned shares.

      FNB sponsors a 401(k) plan that covers substantially all employees who
      work at least 1,000 hours per year.  Participants have the option to
      have from 1% to 100% of their salary withheld on a pre-tax basis to be
      contributed to the plan as long as the amount does not exceed IRS
      guidelines.  FNB matches 200% of the participants' contributions up to
      1% of pay, plus 100% of contributions from 1% to 3% of pay.
      Participants may choose among several investment options comprised
      primarily of mutual funds, but there is no stock of FNB in the plan.
      Matching contributions totaled $601, $583 and $562 for 2006, 2005 and
      2004, respectively.

 (12)  INCOME TAXES

      Total income taxes are allocated as follows:

<TABLE>
<CAPTION>
      Years Ended December 31,             2006        2005        2004
<S>                                    <C>         <C>         <C>
      Income                            $ 9,128       9,097       8,027
      Shareholders' equity, for net
         unrealized gains and (losses)
         on securities available-for-
         sale recognized for financial
         reporting purposes                 249      (1,186)       (471)
      Shareholders' equity, for net
         underfunded post-retirement
         benefits                          (160)          -           -
      Totals                            $ 9,217       7,911       7,556
</TABLE>

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

<TABLE>
<CAPTION>
      Years Ended December 31,             2006        2005        2004
<S>                                 <C>           <C>         <C>
      Current                           $ 9,214      10,089       8,127
      Deferred                              (86)       (992)       (100)
      Total                             $ 9,128       9,097       8,027
</TABLE>
<PAGE>  42

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

<TABLE>
<CAPTION>
      Years Ended December 31,     2006            2005            2004

                                      Percent         Percent         Percent
                                      of              of              of
                                      Pretax          Pretax          Pretax
                              Amount  Income  Amount  Income  Amount  Income
<S>                        <C>       <C>     <C>     <C>    <C>      <C>
      Expected tax
        expense at
        statutory rate       $ 9,464   35.0%   9,321   35.0%   7,796   35.0%
      Increase (decrease)
         in taxes resulting
         from:
           Tax-exempt
             income             (427)  (1.6)    (458)  (1.7)    (561)  (2.4)
           Nondeductible
             interest
             expense              18    0.1       16    0.1       19    0.1
           Nondeductible
             intangibles
             amortization          -    0.0        -    0.0      485    2.2
           State income
             taxes                27    0.1       12    0.0      179    0.8
           Other                  46    0.2      206    0.8      109    0.3

      Reported tax expense
         at effective rate   $ 9,128   33.8%   9,097   34.2%   8,027   36.0%
</TABLE>

      The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and deferred tax liabilities are as
      follows:
<PAGE>  43

<TABLE>
<CAPTION>
      December 31,                                     2006        2005
<S>                                               <C>           <C>
      Deferred tax assets:
        Loans, principally due to allowance
          for loan losses and unearned fees         $ 4,872       5,044
        Accrued employee benefits due to accrual
          for financial reporting purposes in
          excess of actual contributions                550         441
        Accrued compensation benefits due to
          accrual for financial purposes in
          excess of deductible amounts                    -          57
        Securities, due principally to
          valuation allowance                           424         672
        Underfunded post retirement benefits            160           -
        Other                                           208         195
            Total gross deferred tax assets           6,214       6,409

      Deferred tax liabilities:
        Bank premises and equipment,
          due to differences in depreciation            627         784
        Investment securities, due to
          differences in discount accretion              91          41
        Prepaids, due to advance payments               690         286
        Amortizable goodwill                            701         584
        Purchase accounting adjustment                1,884       2,263
        Other                                            72         300
        Total gross deferred tax
              liabilities                             4,065       4,258
        Net deferred tax asset,
              included in other assets              $ 2,149       2,151
</TABLE>

(13)  DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS

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

      Under applicable federal laws, the Comptroller of the Currency (the
      "OCC") 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 2007 without the approval of
      the OCC are $15,744 plus year-to-date 2007 net profits as of the
      declaration date.

      FNB is subject to various regulatory capital requirements administered
      by the federal banking agencies.  Failure to meet minimum capital
      requirements can trigger certain mandatory--and possibly additional
      discretionary--actions by regulators that, if undertaken, could have a
      direct material effect on FNB'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"), FNB must meet specific capital guidelines that involve
<PAGE>  44
      quantitative measures of assets, liabilities, and certain off-balance-
      sheet items as calculated under regulatory accounting practices.  FNB'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 FNB 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, 2006,
      that FNB meets all capital adequacy requirements to which it is
      subject.  The table below sets forth the ratios for FNB and the Bank
      individually and on a consolidated basis for December 31, 2006 and
      2005.

      Based on  the most recent regulatory notification received in 2006, the
      Bank was categorized as well-capitalized under the regulatory framework
      for prompt corrective action (Section 38 of the FDI ACT).  To be
      categorized as well-capitalized, minimum total risk-based capital, Tier
      1 risk-based capital, and Tier 1 leverage ratios as set forth in the
      table below must be maintained.  There are no conditions or events
      since that notification that management believes have changed the
      institution's categories.

<TABLE>
<CAPTION>
      As of December 31, 2006:
                                                 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     $152,951   12.4%   98,678    8.0%     N/A
         First National
          Bank             142,894   11.7%   97,705    8.0%  122,132   10.0%
      Tier 1 Capital
        (to Risk Weighted
         Assets)
         Consolidated      139,031   11.3%   49,215    4.0%     N/A
         First National
           Bank            128,974   10.5%   49,133    4.0%   73,699    6.0%
      Tier 1 Capital
        (to Average Assets)
         Consolidated      139,031    9.4%   59,162    4.0%     N/A
         First National
           Bank            128,974    8.8%   58,625    4.0%   73,281    5.0%
</TABLE>
<PAGE>  45

<TABLE>
<CAPTION>
      As of December 31, 2005:
                                                 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     $154,095   12.6%   97,838    8.0%     N/A
         First National
          Bank              72,539   11.2%   51,814    8.0%   64,767   10.0%
         FNB Salem Bank
          & Trust           38,037   10.8%   28,176    8.0%   35,219   10.0%
         Bedford Federal
          Savings Bank      26,298   11.7%   17,982    8.0%   22,477   10.0%
      Tier 1 Capital
        (to Risk Weighted
         Assets)
         Consolidated      140,137   11.4%   49,171    4.0%     N/A
         First National
           Bank             64,970   10.0%   25,988    4.0%   38,982    6.0%
         FNB Salem Bank
           & Trust          33,623    9.5%   14,157    4.0%   21,236    6.0%
         Bedford Federal
          Savings Bank      24,323   10.8%    9,009    4.0%   13,513    6.0%
      Tier 1 Capital
        (to Average Assets)
         Consolidated      140,137    9.9%   56,621    4.0%     N/A
         First National
           Bank             64,970    8.5%   30,574    4.0%   38,218    5.0%
         FNB Salem Bank
           & Trust          33,623    8.9%   15,111    4.0%   18,889    5.0%
         Bedford Federal
          Savings Bank      24,323    8.6%   11,313    4.0%   14,141    5.0%
</TABLE>

(14)  SUPPLEMENTAL CASH FLOW INFORMATION

      FNB paid $39,503, $28,664 and $26,216 for interest and $10,016, $8,814
      and $9,139 for income taxes in 2006, 2005 and 2004, respectively.
      Noncash investing activities included $287, $237 and $863 of loans
      transferred to other real estate owned in 2006, 2005 and 2004,
      respectively.

(15)  COMMITMENTS AND CONTINGENCIES

      FNB 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
      FNB's consolidated results of operations or financial position.
<PAGE>  46

(16)  GOODWILL AND OTHER INTANGIBLES

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

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

<TABLE>
<CAPTION>
                                        Gross                        Net
                                        Carrying    Accumulated      Carrying
                                        Amount      Amortization     Amount
<S>                                  <C>          <C>             <C>
      Goodwill Subject to
        Amortization                   $      -               -            -
      Goodwill Not Subject to
        Amortization
          Balance, December 31, 2003     42,623               -       42,623
              Additions/Impairment            -               -            -
          Balance, December 31, 2004   $ 42,623               -       42,623
              Addition due to deferred
                tax adjustment
                relating to core
                deposit intangibles       1,850               -        1,850
          Balance, December 31, 2005   $ 44,473               -       44,473
              Additions/Impairment            -               -            -
          Balance, December 31, 2006   $ 44,473               -       44,473


      Core Deposit Intangibles
          Balance, December 31, 2003      8,932           2,261        6,671
              Amortization                    -           1,387       (1,387)
          Balance, December 31, 2004      8,932           3,648        5,284
              Amortization                    -           1,225       (1,225)
          Balance, December 31, 2005      8,932           4,873        4,059
              Amortization                    -           1,063       (1,063)
          Balance, December 31, 2006      8,932           5,936        2,996
      Total Goodwill and Other
          Intangible Assets at
          December 31, 2006            $ 53,405           5,936       47,469
</TABLE>
<PAGE>  47

      In accordance with SFAS No. 142, the amortization expense for core
      deposit intangibles subject to amortization for each of the next five
      years from December 31, 2006 is as follows:


                              2007            $  900
                              2008               738
                              2009               575
                              2010               413
                              2011               250


      SFAS No. 142 requires an annual impairment test to be applied to all
      goodwill and other indefinite-lived intangible assets.  The impairment
      test involves identifying separate reporting units based on the
      reporting structure of FNB, then assigning all assets and liabilities,
      including goodwill, to these units.  The impairment test for 2006 was
      modified responsive to the change in corporate structure.  FNB has
      completed its impairment tests of goodwill during 2006 and 2005 and did
      not record an impairment loss as a result of either of these tests.

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

      FNB 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 FNB has in particular
      classes of financial instruments.  Exposure to credit loss in the event
      of nonperformance by the other party to the financial instrument for
      commitments to extend credit and standby letters of credit is
      represented by the contractual amount of these instruments.  FNB 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 $88,104 at December 31,
      2006, and $84,230 at December 31, 2005 (included in amounts below),
      FNB may or may not require collateral or other security to support the
      following financial instruments with credit risk:

<TABLE>
<CAPTION>
      December 31,                            2006                2005
                                         Fixed   Variable    Fixed   Variable
<S>                                 <C>         <C>        <C>      <C>
      Financial instruments whose
        contract amounts represent
        credit risk:
          Commitments to extend
            credit                   $  61,845    229,916   64,096    240,436
          Standby letters of credit     37,003      1,964   30,049      2,846
</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
<PAGE>  48
      the commitments are expected to expire without being drawn upon, the
      total commitment amounts do not necessarily represent future cash
      requirements.  FNB evaluates each customer's creditworthiness on a
      case-by-case basis.  The amount of collateral obtained, if deemed
      necessary by FNB 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 FNB
      to guarantee the performance of a customer to a third party.  Those
      guarantees are primarily issued to support public and private borrowing
      arrangements, including commercial paper, bond financing and similar
      transactions.  The credit risk involved in issuing letters of credit is
      essentially the same as that involved in extending loans to customers.
      Collateral held varies but may include securities, accounts receivable,
      inventory, property, plant and equipment, and income-producing
      properties.

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

      FNB originates mortgage loans for sale to secondary market investors
      subject to contractually specified and limited recourse provisions.  In
      2006, FNB originated $285,671 and sold $276,064 of mortgage loans to
      investors, compared to $322,035 originated and $325,882 of mortgage
      loans sold in 2005.  Every contract with each investor contains certain
      recourse language.  In general, FNB may be required to repurchase a
      previously sold mortgage loan if there is major noncompliance with
      defined loan origination or documentation standards, including fraud,
      negligence or material misstatement in the loan documents.  Repurchase
      may also be required if necessary governmental loan guarantees are
      canceled or never issued, or if an investor is forced to buy back a
      loan after it has been resold as a part of a loan pool.  In addition,
      FNB may have an obligation to repurchase a loan if the mortgagor has
      defaulted early in the loan term.  This potential default period ranges
      from six to twelve months after sale of a loan to the investor.
      Historically, repurchases under these recourse provisions have been
      minimal.

(18)  CONCENTRATIONS OF CREDIT RISK

      FNB does a general banking business, serving the commercial,
      agricultural and personal banking needs of its customers in its trade
      territory, commonly referred to as the New River Valley and the Roanoke
      Valley, which consists of Montgomery, Roanoke and Bedford Counties and
      portions of adjacent counties in Virginia.  Operating results are
      closely correlated with the economic trends within this area, which
      are, in turn, influenced by the area's large employers which include
      Virginia Polytechnic Institute and State University, Radford
      University, the Radford Arsenal, General Electric and Norfolk Southern.
      Other industries include a wide variety of manufacturing concerns and
      agriculture-related enterprises.  The ultimate collectibility of the
      loan portfolios and the recovery of the carrying amounts of repossessed
<PAGE>  49
      property are susceptible to changes in the market conditions of this
      area.  The commercial portfolio has a concentration in commercial real
      estate, however there is no significant concentrations of credit within
      a single industry.  Real estate construction loans comprise 19.6% of
      total loans and are due primarily to residential development activity
      in local markets.  The consumer loan portfolio included $96,527 and
      $109,948 of loans to individuals for household, family and other
      personal expenditures at December 31, 2006 and 2005, respectively.  The
      real estate mortgage portfolio consists primarily of loans secured by
      1-4 family residential properties.

(19)  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

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

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

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

      (b)   Securities

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

      (c)   Loans

            Fair values are estimated for portfolios of loans with similar
            financial characteristics.  Loans are segregated by type
            (commercial, mortgage, consumer, etc.), by interest rate terms
            (fixed and adjustable rate) and by performing and nonperforming
            categories.  The fair value of performing loans is calculated by
            discounting scheduled cash flows through 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 FNB'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 subjectively determined using available
            market information and specific borrower information.
<PAGE>  50

      (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, 2006 and 2005, and
            as such, the related fair values have not been estimated.

      The carrying amounts and approximate fair values of FNB's financial
      instruments are as follows:
<PAGE>  51

<TABLE>
<CAPTION>
      December 31,                       2006                   2005

                                           Approximate            Approximate
                                Carrying   Fair        Carrying   Fair
                                Amounts    Values      Amounts    Values
<S>                          <C>         <C>         <C>        <C>
     Financial assets:
       Cash and due
         from banks          $   36,877      36,877     47,089      47,089
       Federal funds sold        10,600      10,600          -           -
       Securities available-
         for-sale               178,821     178,821    159,399     159,399
       Securities held-to-
         maturity                 1,583       1,585      2,608       2,626
       Other investments          9,075       9,075      9,333       9,333
       Mortgage loans held
         for sale                18,489      18,489      8,234       8,234
       Loans, net of
         unearned income      1,170,073   1,149,371  1,163,280   1,144,346
           Total financial
             assets          $1,425,518   1,404,818  1,389,943   1,371,027

     Financial liabilities:
       Deposits              $1,262,982   1,219,277  1,217,006   1,163,974
       Federal funds
         purchased,
         securities sold
         under agreements
         to repurchase and
         other borrowed
         funds                   75,051      75,285     97,648      99,994
            Total financial
              liabilities    $1,338,033   1,294,562  1,314,654   1,263,968
</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 FNB's entire
      holdings of a particular financial instrument.  Because no market
      exists for a significant portion of FNB'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>  52

(20)  PARENT COMPANY FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
    Condensed Balance Sheets

                                       December 31, 2006    December 31, 2005
<S>                                  <C>                   <C>
    Assets
    Cash and due from banks                $   2,367                9,358
    Securities available-for-sale,
      at fair value                              889                1,011
    Other investments at cost                    372                  836
    Investment in subsidiary bank            175,662              170,259
    Other assets                               9,023                8,301
          Total assets                     $ 188,313              189,765
    Liabilities
    Other borrowed funds                   $  12,372               27,836
    Other liabilities                          2,524                1,453
          Total liabilities                   14,896               29,289
    Shareholders' equity                     173,417              160,476
          Total liabilities and
            shareholders' equity           $ 188,313              189,765
</TABLE>

<TABLE
<CAPTION>
    Statements of Income
    Years Ended December 31,                    2006        2005        2004
<S>                                       <C>          <C>         <C>
    Income:
      Dividends from affiliate bank        $  14,497       9,409      14,396
      Interest on investments                    115         111         118
      Management fees                         19,833      18,020      14,581
      Miscellaneous income                         9           7          13
        Total income                          34,454      27,547      29,108
    Interest expense                           2,362       1,911       1,412
    Operating expenses                        19,919      18,545      14,842
        Total expenses                        22,281      20,456      16,254
    Income before income taxes and
      equity in undistributed net
      income of affiliate bank                12,173       7,091      12,854
    Applicable income tax provision
      (benefit)                                 (799)       (638)       (532)
                                              12,972       7,729      13,386
    Equity in undistributed net
      income of affiliate bank                 4,940       9,804         861
    Net income                             $  17,912      17,533      14,247
</TABLE>
<PAGE>  53

<TABLE>
<CAPTION>
     Statements of Cash Flows

                                                2006        2005        2004
<S>                                       <C>           <C>         <C>
   Cash flows from operating activities:
     Net income                            $  17,912      17,533      14,247
     Adjustments to reconcile net income
       to net cash provided by operating
       activities:
         Equity in undistributed net
           income of affiliate bank           (4,940)    (10,804)       (861)
         ESOP compensation                         -          60         233
         (Increase) decrease in other
           assets                               (722)        114      (1,570)
         Increase (decrease) in other
           liabilities                         1,071         309        (412)
         Other, net                              591         689         751
           Net cash provided by operating
             activities                    $  13,912       7,901      12,388

   Cash flows from investing activities:
     Sales and maturities of securities
       available-for-sale                  $     584         750           -
     Fixed assets sold to FNB
       Corporation from affiliate                  -           -      (4,943)
           Net cash provided by (used in)
             investing activities          $     584         750      (4,943)

   Cash flows from financing activities:
     Decrease in trust preferred
       subordinated debt                   $ (15,464)          -           -
     Cash dividends paid on common
       stock                                  (6,023)     (5,695)     (5,632)
     Net cash used for financing
       activities                          $ (21,487)     (5,695)     (5,632)

   Net (decrease) increase in cash and
     cash equivalents                      $  (6,991)      2,956       1,813
   Cash and cash equivalents at
    beginning of year                          9,358       6,402       4,589
   Cash and cash equivalents at end
     of year                               $   2,367       9,358       6,402
</TABLE>
<PAGE>  54

(21)  INTERIM FINANCIAL INFORMATION (Unaudited)

      Consolidated quarterly results of operations are presented below.
      Amounts presented for 2005 have been reclassified where appropriate
      to conform to the presentation used for 2006.  The reclassifications
      did not have an impact on net income.

<TABLE>
<CAPTION>
                                                 2006
                                           Three Months Ended
                              March 31   June 30   September 30   December 31
<S>                         <C>         <C>       <C>            <C>
      Interest income         $ 22,306    23,274         24,403        24,814
      Interest expense           8,949     9,782         10,563        10,995
      Net interest income       13,357    13,492         13,840        13,819
      Provision for loan
        losses                     364       623            354           396
      Noninterest income         3,833     3,965          3,815         3,581
      Noninterest expense        9,782    10,219         10,254        10,670
      Income before income
        tax expense              7,044     6,615          7,047         6,334
      Income tax expense         2,370     2,241          2,383         2,134
      Net income              $  4,674     4,374          4,664         4,200

      Basic earnings per
        share                 $   0.64      0.60           0.64          0.57
      Fully diluted earnings
        per share             $   0.63      0.59           0.63          0.56
</TABLE>

<TABLE>
<CAPTION>
                                                 2005
                                           Three Months Ended
                              March 31   June 30   September 30   December 31
<S>                          <C>        <C>       <C>            <C>
      Interest income         $ 18,748    19,584         20,830        21,590
      Interest expense           6,375     7,024          7,727         8,076
      Net interest income       12,373    12,560         13,103        13,514
      Provision for loan
        losses                     646       726            466           726
      Noninterest income         4,174     3,875          4,191         4,024
      Noninterest expense        9,463     9,475          9,635        10,047
      Income before income
        tax expense              6,438     6,234          7,193         6,765
      Income tax expense         2,420     2,190          2,313         2,174
      Net income              $  4,018     4,044          4,880         4,591

      Basic earnings per
        share                 $   0.55      0.56           0.67          0.63
      Fully diluted earnings
        per share             $   0.55      0.55           0.66          0.62
</TABLE>

(22)  STOCK COMPENSATION PLANS

      In 2006 FNB's shareholders approved the FNB Corporation 2006 Incentive
      Stock Plan (the "2006 Plan"), as previously adopted by the Board of
      Directors, replacing the stock incentive plan approved by shareholders
<PAGE>  55
      in 2000 (the "2000 Plan", collectively, "FNB's Plans").  Awards
      outstanding under the 2000 Plan as of May 9, 2006 remain outstanding in
      accordance with their terms.  The 2006 Plan makes available up to
      464,191 shares of common stock (700,000 common shares minus the number
      of common shares represented by outstanding awards under the 2000 Plan
      on May 9, 2006) for awards to key employees and non-employee directors
      of FNB and its subsidiary in the form of stock options, stock
      appreciation rights, and stock awards.  In addition, options that were
      outstanding on, and which expire or are otherwise terminated at any
      time after May 9, 2006, will be available for awards under the 2006
      Plan.  The 2006 Plan will expire in 2016, unless sooner terminated by
      the Board.  Any option terms not specified in the 2006 Plan such as
      exercise prices, expiration dates, and vesting provisions are set forth
      in an agreement governing each grant.  A stock option may be either an
      incentive stock option within the meaning of Section 422 of the
      Internal Revenue Code or a non-qualified stock option.  There were no
      options issued under the 2006 Plan at December 31, 2006.

      A summary of the status (shares in thousands) of stock options under
      FNB's Plans is presented below:

<TABLE>
<CAPTION
                               2006             2005              2004
                                 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               237    $19.79     249   $18.59      259   $17.18
      Granted                -         -      19    25.05       28    25.62
      Exercised            (21)    19.36     (30)   13.32      (31)   13.50
      Forfeited              -         -      (1)   14.26       (7)   17.13
      Outstanding at
        end of year        216    $19.83     237   $19.79      249   $18.59

      Options exer-
        cisable at
        year-end           216    $19.83     237   $19.79      161   $16.28
</TABLE>

      Information about stock options outstanding under FNB's Plans at
      December 31, 2006 follows:


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

        $15.39 - 16.58           108        3.7 years        $15.57
         17.36 - 17.36            16        5.1 years         17.36
         23.05 - 26.90            92        6.9 years         25.31
           Totals                216        5.1 years         19.83
<PAGE>  56

      The weighted average fair value per share of options granted in 2005
      and 2004 amounted to $6.87 and $8.29, respectively.  The fair values of
      stock options granted were estimated at the date of grant using the
      Black-Scholes option pricing model.  The Black-Scholes option pricing
      model was originally developed for use in estimating the fair value of
      traded options, which have different characteristics from FNB's
      employee stock options.  The model is also sensitive to changes in
      assumptions, which can materially affect the fair value estimate.  The
      following weighted-average assumptions were used to determine the fair
      value of options:

<TABLE>
<CAPTION>
      Years Ended December 31,                2005         2004
<S>                                        <C>          <C>
      Dividend yield                          3.0%         2.8%
      Expected life                       10.0 years    10.0 years
      Expected volatility                      27%          30%
      Risk-free interest rate                 4.2%         4.8%
</TABLE>

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

 (23)  RECENT ACCOUNTING DEVELOPMENTS

      In June 2006, the FASB issued Interpretation No. 48, "Accounting for
      Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109."  This statement clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise's financial statements in
      accordance with SFAS No. 109, "Accounting for Income Taxes."  The
      effective date of this statement is for fiscal years beginning after
      December 15, 2006.  Management has determined that adoption of this
      statement will not have an impact on FNB's financial statements.

      In September 2006, the FASB issued SFAS No. 157, "Fair Value
      Measurements" ("SFAS 157").  SFAS 157 defines fair value, establishes a
      framework for measuring fair value, and expands disclosures about fair
      value methods.  SFAS 157 does not require any new fair value
      measurements.  Instead, it provides for increased consistency and
      comparability in fair value measurements and for expanded disclosure
      surrounding the fair value measurements.  SFAS 157 is effective for
      fiscal years beginning after November 15, 2007.  The adoption of SFAS
      157 is not expected to have a material effect on FNB's financial
      statements.

      There were various other accounting standards and interpretations
      issued during 2006, none of which are expected to have a material
      impact on FNB's financial position, operations or cash flows.
<PAGE>  57

Board of Directors

Kendall O. Clay                           F. Courtney Hoge
Attorney, Kendall O. Clay, P.C.           Insurance and Financial Planning,
                                            New York Life

Glen C. Combs                             Steven D. Irvin
Retired, formerly Vice President,         Senior Vice President and Director
  Acosta Sales                              of Sales,
                                            Bankers Insurance, L.L.C.

Douglas Covington                         Harold K. Neal
Retired, formerly President,              Retired, formerly President and
  Radford University                        Chief Executive Officer of
                                            Bedford Bancshares, Inc. and
                                            Bedford Federal Savings Bank

Beverley E. Dalton                        Raymond D. Smoot, Jr.
Owner, English Construction Company       Chief Operating Officer and
                                            Secretary/Treasurer,
                                            Virginia Tech Foundation, Inc.

Daniel D. Hamrick                         Charles W. Steger
Attorney, Daniel D. Hamrick, P.C.         President, Virginia Polytechnic
                                            Institute and State University

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

Corporate Executive Officers

William P. Heath, Jr.                     William B. Littreal
President and Chief Executive Officer     Executive Vice President

Daniel A. Becker                          Kay O. McCoy
Executive Vice President and Chief        Executive Vice President and
  Financial Officer                         Director of Retail Banking

David W. DeHart                           Woody B. Nester
Market President (New River Valley) and   Executive Vice President and
  Director of Commercial Banking            Chief Systems Officer

Gregory W. Feldmann                       D. W. Shilling
Chief Operating Officer, Market           Market President (Central Virginia)
  President (Roanoke Valley), and
  Director of Wealth Management

Keith J. Houghton
Executive Vice President and Chief
  Risk Officer