VFGI Virginia Financial Grp. (MM)

The Parties (page 84)

Virginia Financial Group, Inc.

102 South Main Street

Culpeper, Virginia 22701

(540) 829-1633

VFG is a bank holding company organized under the laws of the Commonwealth of Virginia and is headquartered in Culpeper, Virginia. VFG is the holding company for Planters Bank & Trust Company of Virginia headquartered in Staunton; Second Bank & Trust headquartered in Fredericksburg; and Virginia Commonwealth Trust Company headquartered in Culpeper. VFG is a traditional community banking provider, offering a full range of business and consumer banking services including trust and asset management service via its trust company affiliate. VFG maintains a network of 35 branches serving a contiguous market through the Shenandoah Valley and central and north central Virginia. It also maintains five trust and investment service offices in the same markets. The common stock of VFG is traded on the NASDAQ Global Select Market under the symbol “VFGI.”

As of September 30, 2007, VFG had approximately $1.6 billion in assets, $1.2 billion in net loans, $1.2 billion in deposits, and shareholders’ equity of $159.2 million.

FNB Corporation

105 Arbor Drive

Christiansburg, Virginia 24068-0600

(540) 382-6042

FNB is a bank holding company organized under the laws of the Commonwealth of Virginia and is the holding company for First National Bank,

headquartered in Christiansburg, Virginia, which operates 27 full-service branches and two loan production offices. FNB offers a range of commercial and retail banking products and services as well as trust services and investment products. The common stock of FNB is traded on the NASDAQ Global Select Market under the symbol “FNBP.”

As of September 30, 2007, FNB had approximately $1.5 billion in assets, $1.1 billion in net loans, $1.3 billion in deposits, and shareholders’ equity of $180.8 million.

The Merger (page 32)

We are proposing a combination of our companies through a merger of equals transaction with the combined company operating under a new name that will be selected by our mutual agreement before completion of the merger. We refer to the company resulting from the merger as the “combined company.” The merger agreement also provides for the combination of VFG’s and FNB’s three banking subsidiaries into a single bank subsidiary under a new name that will be selected by our mutual agreement before completion of the merger. We refer to the bank resulting from the consolidation of the three banks as the “combined bank.” The merger agreement is attached to this proxy statement as Annex A . We encourage you to read the merger agreement, as it is the legal document that governs the merger.

Consideration to be Received in the Merger by FNB Shareholders (page 32)

In the proposed merger, FNB shareholders will receive 1.5850 shares of the common stock of the

combined company for each of their shares of FNB common stock outstanding on the effective date of the merger. The number of shares of the common stock in the combined company delivered for each share of FNB common stock in the merger is referred to as the “exchange ratio.” This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing. No fractional shares of combined company common stock will be issued in the merger. Instead, an FNB shareholder who would otherwise have received a fraction of a share will receive an amount of cash equal to the fraction of a share of combined company common stock to which such holder would otherwise be entitled, multiplied by the closing sale price per share of VFG common stock as reported on the NASDAQ Global Select Market on the trading day immediately preceding the completion of the merger.

VFG’s shareholders will continue to own their existing shares of VFG common stock. Each share of VFG common stock will represent one share of common stock in the combined company following the merger.

Treatment of FNB Stock Options and Other Stock-based Awards (page 66)

In the merger, all outstanding FNB stock options and other stock-based awards will be converted into stock options and stock-based awards of the combined company, entitling them to receive common stock of the combined company on the same terms and conditions as were in effect immediately prior to the completion of the merger, subject to any accelerated vesting as a result of the merger to the extent provided by the terms of the applicable FNB stock plan. The number of shares issuable under those options and awards, and, if applicable, the exercise prices for those options and awards, will be adjusted based on the exchange ratio.

Ownership of the Combined Company After the Merger (page 53)

The combined company will issue approximately              shares of common stock to FNB shareholders in the merger based on the number of shares of FNB common stock outstanding on             , 2007. At the completion of the merger, we

expect that there will be outstanding approximately              shares of common stock of the combined company, with current VFG shareholders owning approximately 47.8% of the combined company’s outstanding common stock, on a fully diluted basis, and current FNB shareholders owning approximately 52.2% of the combined company’s outstanding common stock, on a fully diluted basis.

Directors and Executive Officers Following the Merger (page 57)

The combined company will be governed by a board of directors of up to 24 directors, with equal representation from FNB and VFG. The combined bank’s board of directors will also have equal representation from FNB and VFG. Current FNB president and chief executive officer William P. Heath, Jr. will serve as chairman of the board for the combined company. Current VFG president and chief executive officer O. R. Barham, Jr. will serve as president and chief executive officer for the combined company. Gregory W. Feldmann, current FNB chief operating officer and president and chief executive officer of FNB’s banking subsidiary, First National Bank, will serve as president and chief executive officer of the combined bank. Raymond D. Smoot, Jr., current chairman of the board of First National Bank, will serve as chairman of the board of the combined bank. Current VFG executive vice president and chief operating officer Litz H. Van Dyke will serve as executive vice president and chief operating officer for the combined company, and current VFG executive vice president and chief financial officer Jeffrey W. Farrar will serve as executive vice president and chief financial officer for the combined company.

Recommendation of the VFG Board of Directors (page 37)

The VFG board of directors has unanimously determined that the merger agreement and the merger and other transactions contemplated thereby are advisable and in the best interests of VFG and its shareholders. The VFG board of directors recommends that VFG shareholders vote “FOR” approval of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve any motion to adjourn or

postpone the special meeting to a later date or dates if necessary to solicit additional proxies to approve the merger agreement and the transactions contemplated thereby .

Recommendation of the FNB Board of Directors (page 40)

The FNB board of directors has determined that the merger agreement and the merger and other transactions contemplated thereby are in the best interests of FNB and its shareholders. The FNB board approved the merger by a 9 to 3 vote. The FNB board of directors recommends that FNB shareholders vote “FOR” approval of the merger agreement and the transactions contemplated thereby and “ FOR ” the proposal to approve any motion to adjourn or postpone the special meeting to a later date or dates if necessary to solicit additional proxies to approve the merger agreement and the transactions contemplated thereby.

Opinions of the Financial Advisors (pages 42 and 50)

VFG’s Financial Advisor

VFG engaged the firm of Sandler O’Neill + Partners, L.P. to review the proposed merger and provide a fairness opinion. Sandler O’Neill has given its opinion to the VFG board that, as of July 26, 2007 (the date the merger agreement was executed), the exchange ratio provided for in the merger agreement was fair from a financial point of view to VFG shareholders. A copy of the fairness opinion, setting forth the information reviewed, assumptions made, and matters considered by Sandler O’Neill, is attached to this proxy statement as Annex D . We encourage you to carefully read the entire opinion of Sandler O’Neill. The opinion of Sandler O’Neill has not been updated prior to the date of this proxy statement and does not reflect any change in circumstances after July 26, 2007. Sandler O’Neill’s opinion as to the fairness, from a financial point of view, of the exchange ratio to VFG was provided to the VFG board of directors in connection with its evaluation of the exchange ratio from a financial point of view, does not address any other aspect of the merger and does not constitute a recommendation to any shareholder as to how to vote or act with respect to the merger.

FNB’s Financial Advisor

FNB engaged the firm of Davenport & Company LLC to review the proposed merger and provide a fairness opinion. Davenport has given its opinion to the FNB board that, as of July 26, 2007 (the date the merger agreement was executed), the exchange ratio provided for in the merger agreement was fair from a financial point of view to FNB shareholders. A copy of the fairness opinion, setting forth the information reviewed, assumptions made, and matters considered by Davenport, is attached to this proxy statement as Annex E . We encourage you to carefully read the entire opinion of Davenport. The opinion of Davenport has not been updated prior to the date of this proxy statement and does not reflect any change in circumstances after July 26, 2007. Davenport’s opinion as to the fairness, from a financial point of view, of the exchange ratio to FNB was provided to the FNB board of directors in connection with its evaluation of the exchange ratio from a financial point of view, does not address any other aspect of the merger, and does not constitute a recommendation to any shareholder as to how to vote or act with respect to the merger.

Interests of Directors and Executive Officers in the Merger (page 60)

You should be aware that some of the directors and officers of VFG have interests in the merger that are different from, or are in addition to, the interests of VFG shareholders generally, and that some of the directors and officers of FNB have interests in the merger that are different from, or are in addition to, the interests of FNB shareholders generally. These different or additional interests include, among others, the designation of certain FNB and VFG directors and bank directors to be members of the boards of the combined company and the combined bank; continued employment and employment agreements for Messrs. Heath, Barham, Feldmann, Van Dyke, and Farrar, which include an increase in compensation to reflect the expanded business operations of the combined company; the vesting of all outstanding unvested equity awards for employees of both FNB and VFG and the directors of VFG at the time of the merger; the vesting of death benefit rights under VFG’s split dollar insurance program

(subject to divestment for cause as defined in that program); proposed employee benefits for those FNB and VFG employees who become employees of the combined company or one of its subsidiaries following the merger; existing change in control agreements covering certain FNB and VFG executive officers; and indemnification and insurance coverage for FNB’s and VFG’s directors and officers.

A joint compensation committee composed of directors of FNB and VFG, with the advice of an independent compensation consultant, and without the participation of the executives involved, determined the compensation, severance and change in control agreements for Messrs. Heath, Barham, Feldmann, Van Dyke, and Farrar, and the agreements were approved by the boards of FNB and VFG because they were commensurate with the duties and responsibilities of officers in positions of senior management at comparable financial institutions.

For a further discussion of interests of directors and executive officers in the merger, see “The Merger—Interests of Directors and Executive Officers in the Merger” beginning on page 60.

Material Federal Income Tax Consequences (page 66)

FNB shareholders generally will not recognize any gain or loss for U.S. federal income tax purposes as a result of the exchange of FNB common stock for shares of VFG common stock. FNB shareholders may, however, recognize gain or loss in connection with cash received for any fractional shares in the merger. This tax treatment may not apply to all shareholders. You should consult your own tax advisor for a full understanding of the merger’s tax consequences that are particular to you. You will not be obligated to exchange your shares of common stock unless we receive a legal opinion that the merger will be treated for federal income tax purposes as a reorganization within the meaning of section 368 of the Internal Revenue Code. This opinion, however, will not bind the Internal Revenue Service, which could take a different view.

FNB shareholders should retain records regarding their tax basis in shares exchanged and the shares they acquire from VFG in the merger.

The tax consequences of the merger to you may depend on your own situation. In addition, you may be subject to state, local or foreign tax laws that are not addressed in this proxy statement. You are urged to consult with your own tax advisor for a full understanding of the tax consequences of the merger to you.

No Appraisal Rights (page 70)

Under Virginia law, the shareholders of VFG and FNB are not entitled to appraisal rights in connection with the merger.

Regulatory Approvals (page 68)

We cannot complete the merger unless it is approved by the Federal Reserve Board and the Virginia State Corporation Commission.

On October 12, 2007, the Federal Reserve Board approved the application filed by VFG in connection with the merger. The Virginia State Corporation Commission approved VFG’s merger application on November 1, 2007.

Conditions to Completion of the Merger (page 72)

Our respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including the following:

Where the law permits, VFG and FNB could choose to waive a condition to its obligation to complete the merger even if that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.

Timing of the Merger (page 72)

We expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including after shareholder approvals are received at the special meetings of FNB and VFG and all required regulatory approvals are received. We currently expect to complete the merger by the end of 2007. However, it is possible that factors outside of either company’s control could require us to complete the merger at a later time or not to complete it at all.

The merger of the three banking subsidiaries of VFG and FNB is expected to occur in the first half of 2008.

No Solicitation of Other Offers (page 73)

We have each agreed that we will not directly or indirectly:

The merger agreement does not, however, prohibit either party from considering a bona fide acquisition proposal from a third party if certain specified conditions are met.

Termination of the Merger Agreement; Expenses (page 74)

The merger agreement may be terminated, and the merger abandoned, by us at any time before the merger is completed if both of our boards of directors vote to do so. In addition, the merger agreement may be terminated, and the merger abandoned, by either of our boards of directors if:

If the merger agreement is terminated and abandoned, it will become void and there will be no liability on the part of either of VFG or FNB or our respective subsidiaries, directors or officers, except that:

The Stock Option Agreements (page 79)

In connection with entering into the merger agreement, FNB and VFG entered into separate reciprocal stock option agreements, pursuant to which each company granted to the other a stock option to purchase up to 19.9% of its total outstanding common shares. Neither of these options is currently exercisable and, pursuant to the terms of the option agreements, will only become exercisable upon the occurrence of certain events relating to a third party acquisition proposal relating to the issuer of the shares covered by the respective option. Each company’s total realizable value under the option it has been granted is subject to a cap of $11.750 million. Under certain circumstances, each of the companies may be required to repurchase for cash the applicable option or the shares acquired pursuant to the exercise of such option.

The Special Meetings (pages 25 and 28)

The special meetings will be held as follows:

VFG Shareholders:                     , 2007             .m. local time, at             ,             , Virginia.

FNB Shareholders:                     , 2007             .m. local time, at             ,             , Virginia.

At the special meetings, the shareholders of each of VFG and FNB will be asked:

The board of directors of FNB recommends that FNB shareholders vote “FOR” both proposals, and the VFG board of directors recommends that VFG shareholders vote “FOR” both proposals.

Record Dates; Votes Required (pages 25-26 and 28-29)

You can vote at the VFG special meeting of shareholders if you owned VFG common stock at the close of business on                     , 2007. On that date, VFG had              shares of common stock outstanding and entitled to vote. For each proposal presented at the special meeting, you can cast one vote for each share of VFG common stock you owned on the record date.

You can vote at the FNB special meeting of shareholders if you owned FNB common stock at the close of business on                     , 2007. On that date, FNB had              shares of common stock outstanding and entitled to vote. For each proposal presented at the special meeting, you can cast one vote for each share of FNB common stock you owned on the record date.

Approval of the merger agreement and the transactions contemplated thereby requires the affirmative vote of at least a majority of the shares outstanding on the respective record dates for the special meetings, for each company.

Approval of any motion to adjourn or postpone the special meetings requires the affirmative vote of at least a majority of the company’s shares represented at its special meeting, whether or not a quorum is present.

Both VFG’s and FNB’s boards of directors recommend that their respective shareholders vote “FOR” approval of the merger.

Voting by VFG and FNB Directors and Executive Officers (pages 26 and 29)

As of                     , 2007, the record date for the VFG special meeting, directors and executive officers of VFG and their affiliates owned and are entitled to vote              shares of VFG common stock, or approximately     % of the total voting power of the shares of VFG common stock outstanding on that date. Each of VFG’s directors and executive officers has agreed, subject to several conditions, to vote his or her shares of VFG common stock in favor of the merger.

As of             , 2007, the record date for the FNB special meeting, directors and executive officers of FNB and their affiliates owned and are entitled to vote              shares of FNB common stock, or approximately     % of the shares of FNB common stock outstanding on that date. All of FNB’s executive officers and nine of FNB’s directors (who collectively owned and are entitled to vote              shares of FNB common stock or approximately     % of the shares of FNB common stock outstanding as of the record date) have agreed, subject to several conditions, to vote their shares of FNB common stock in favor of the merger.

Three of FNB’s directors (who collectively owned and are entitled to vote              shares of FNB common stock or approximately     % of the shares of FNB common stock outstanding as of the record date) have not agreed to vote their shares in favor of the merger agreement, and have indicated that they intend to vote their shares against the merger.

Recent Developments (page 70)

On August 24, 2007, a shareholder of FNB filed an application in the Circuit Court of Montgomery County, Virginia seeking an order compelling FNB to provide her with certain lists of the shareholders of FNB which were not maintained or required to be maintained by FNB. Prior to the hearing on the application, the parties reached agreement and an order was entered by the court embodying the agreement. The court has denied the shareholder’s

request to be reimbursed for her costs and reasonable counsel’s fees in connection with the matter.

On August 27, 2007, FNB was notified of the formation of a group calling itself the “FNB Corporation Shareholders Committee” to oppose the merger between FNB and VFG. The committee is composed of the directors of FNB who voted against the proposed merger and certain other shareholders.

On August 28, 2007, the board of directors of First National Bank, the banking subsidiary of FNB, adopted a resolution, by vote of 12 to 1, in support of the proposed merger between FNB and VFG.

On July 26, 2007, Kendall O. Clay and Daniel D. Hamrick, two directors of FNB, in their capacities as shareholders, delivered a letter to FNB making demands under the shareholders derivative provisions of the Virginia Stock Corporation Act.

The demand challenged the process followed by the board in reviewing strategic options available to FNB and in approving the merger with VFG.

On September 27, 2007, the FNB board appointed a special committee consisting of three disinterested directors to review and evaluate the allegations made in the demand. The special committee has conducted that review and evaluation with the assistance of the Roanoke, Virginia law firm of Woods Rogers PLC and Keefe, Bruyette & Woods Inc., a leading national investment banking firm which specializes in financial institutions.

On October 24, 2007, the special committee delivered a letter to Messrs. Clay and Hamrick advising them that the special committee had completed its review and evaluation, with the assistance of these independent professionals, of the demands which had been made by Messrs. Clay and Hamrick and, as a result, the special committee had concluded, in good faith on the basis of that review and evaluation, that the pursuit of their demands was not in the best interest of FNB and rejected their demands on behalf of FNB.

Market Prices and Share Information (page 83)

VFG common stock is listed on the NASDAQ Global Select Market under the symbol “VFGI.” FNB common stock is also listed on the NASDAQ Global Select Market, under the symbol “FNBP.” The following table sets forth the closing sale prices per share of VFG common stock and FNB common stock in each case as reported on the NASDAQ Global Select Market on July 25, 2007, the last trading day before we announced the signing of the merger agreement, and on             , 2007, the last practicable trading day before the distribution of this proxy statement.

            , 2007