425

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: October 23, 2007

(Date of earliest event reported)

VIRGINIA FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

VIRGINIA	000-22283	54-1829288
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

102 SOUTH MAIN STREET, CULPEPER, VIRGINIA	22701
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (540) 829-1633

n/a

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

x Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On October 23, 2007, Virginia Financial Group, Inc. (“VFG”) issued a press release regarding its results of operations and financial condition for the quarter and nine months ended September 30, 2007. The text of the press release is included as Exhibit 99.1 to this report.

Item 8.01. Other Events

See attached press release, as Exhibit 99.1.

Additional Information About the VFG - FNB Transaction

In connection with the proposed merger between VFG and FNB Corporation (“FNB”), VFG filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 to register the shares of VFG common stock to be issued to the shareholders of FNB in the transaction. The registration statement included a preliminary joint proxy statement/prospectus, the definitive version of which will be mailed to the shareholders of VFG and FNB seeking their approval of the merger. In addition, each of VFG and FNB may file other relevant documents concerning the proposed merger with the SEC.

INVESTORS AND SECURITY HOLDERS OF FNB AND VFG ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT AND ANY OTHER DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT VFG, FNB AND THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of these documents (when available) through the website maintained by the SEC at http://www.sec.gov. Free copies of the joint proxy statement/prospectus (when available) also may be obtained by directing a request by telephone or mail to Virginia Financial Group, Inc., 1807 Seminole Trail, Suite 104, Charlottesville, Virginia 22901, Attention: Investor Relations (telephone: (434) 964-2217) or FNB Corporation, 105 Arbor Drive, P.O. Box 600, Christiansburg, Virginia 24068, Attention: Investor Relations (telephone: (540) 382-6042) or by accessing VFG’s website at http://www.vfgi.net under “SEC Filings and Other Documents” or FNB’s website at http://www.fnbonline.com under “Investor Relations/SEC Filings.” The information on VFG’s and FNB’s websites is not, and shall not be deemed to be, a part of this report or incorporated into other filings either company makes with the SEC.

VFG and FNB and certain of their respective directors and executive officers are participants in the solicitation of proxies from the shareholders of VFG and/or FNB in connection with the merger. Information about the directors and executive officers of VFG is set forth in the proxy statement for VFG’s 2007 annual meeting of shareholders filed with the SEC on March 28, 2007. Information about the directors and executive officers of FNB is set forth in the proxy statement for FNB’s 2007 annual meeting of shareholders filed with the SEC on March 30, 2007. Additional information regarding these participants in the proxy solicitation and their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Virginia Financial Group, Inc. press release dated October 23, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Virginia Financial Group, Inc.
By:	/s/ Jeffrey W. Farrar
	Jeffrey W. Farrar
	Executive Vice President and Chief Financial Officer

Date: October 23, 2007

EXHIBIT INDEX

Exhibit No.	Description
99.1	Virginia Financial Group, Inc. press release dated October 23, 2007.

EX-99.1

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE

Contact:

Jeffrey W. Farrar

Executive Vice President and CFO

(434) 964-2217

farrarj@vfgi.net

VIRGINIA FINANCIAL GROUP, INC.

ANNOUNCES THIRD QUARTER 2007 RESULTS AND MERGER

APPROVAL FROM FEDERAL RESERVE BOARD

Charlottesville, VA, October 23, 2007—Virginia Financial Group, Inc. (NASDAQ: VFGI) announced today that the Federal Reserve Board has approved its merger application with FNB Corporation. Approvals from the Virginia State Corporation Commission and stockholders of VFG and FNB are pending. The merger is expected to close late in the fourth quarter, subject to remaining approvals and other customary closing conditions.

“Receiving this Federal Reserve approval is a significant event that will assist us in moving ahead with the merger in a timely manner,” said O. R. Barham, Jr. President, and Chief Executive Officer of VFG. “Integration planning teams are making very good progress and we look forward to delivering the benefits of this merger to our shareholders, customers, and communities.”

VFG also today reported its third quarter 2007 earnings of $4.3 million, down 14.7% from $5.1 million for the third quarter of 2006. Net income per diluted share was $0.40, down 14.9% from $0.47 for the same period in 2006. For the first nine months of 2007, net income was $12.9 million, down 12.8% from $14.8 million for the same period in 2006. Net income per diluted share was $1.19, down 12.5% from $1.36 for the first nine months of 2006.

O.R. Barham, Jr., President and CEO, commented “We are pleased with our earnings in the face of a difficult operating environment for banks during the quarter. The quarter saw some improvement in loan production in spite of continuing high levels of pre-payment activity. More importantly, a substantial portion of the loan growth for the period was to commercial and industrial clients, an area of focus for our lending platform. We had a very successful third quarter with our High Performance Checking Program, originating over 3,600 new DDA accounts with balances approaching $12 million. These accounts will continue to add balances and fee income in the future. Asset quality in general remains very good, although we did experience an increase in nonperforming assets and watch list credits which necessitated some additional loan loss provisioning for the quarter.”

Financial Performance

Net Interest Income

Net interest income amounted to $14.4 million for the third quarter of 2007, down $767 thousand or 5.1% compared with $15.2 million for the same quarter in 2006. The net interest margin for the third quarter of 2007 was 4.06%, down fifteen basis points when compared to 4.21% for the third quarter of 2006. Higher funding costs associated with competition for deposits in local markets and greater use of wholesale funding, coupled with a lower rate of growth in loans receivable and average earning assets, led to this decrease in net interest margin and revenues for the period.

On a sequential basis, the net interest margin was down seven basis points from the 4.13% for the second quarter (normalized for previously disclosed interest adjustment on a participation loan). This drop was due in most part to a drop in asset yields sequentially, with an average yield on assets of 6.87% for the third quarter of 2007, compared to 6.99% for the second quarter of 2007 and 6.78% for the third quarter of 2006. Loan yields were impacted by prepayment activity, the Federal Open Market Committee recent reduction of the Fed funds target rate which led to a fifty basis point decrease in the prime rate and an increase in non-accruals for the period. On a linked quarter basis, the average cost of interest bearing liabilities remained stable at 3.43% for the both the second and third quarters of 2007 and increased twenty-four basis points when compared to 3.19% for the third quarter of 2006.

The net interest margin for the nine month period ended September 30, 2007 was 4.11%, compared to 4.31% for the same period in 2006. Continuing pressures of a flat yield curve, loan prepayment activity, strong competition for deposits and increased use of wholesale funding contributed to this contraction.

Given that approximately 34% of VFG’s loan portfolio immediately repriced with the fifty basis point decrease in the prime rate during the third quarter, and the fact that VFG’s balance sheet is a slightly asset sensitive balance sheet, some additional margin contraction is anticipated in the fourth quarter.

Non-Interest Income

Total non-interest income was $4.3 million for both the second and third quarters of 2007 and up 4.7% compared with $4.1 million for the third quarter of 2006. Retail banking fee income increased $215 thousand or 12.0% to $2.0 million, compared to $1.8 million in the third quarter of 2006. The increase in retail banking fee income is attributable to increased NSF fees and debit card fee income, partly attributable to the High Performance Checking Account Program. Mortgage banking revenue amounted to $602 thousand, a decrease of $84 thousand or 12.2%, as compared to $686 thousand for the third quarter of 2006, and down sequentially $43 thousand or 6.7% from the second quarter of 2007. Revenues from trust and brokerage for the third quarter were $1.0 million, up $143 thousand or 15.9% compared to $897 thousand in the third quarter of 2006, and down sequentially $111 thousand or 9.6% from the second quarter of 2007. Fiduciary and brokerage assets under management were $617 million at September 30, 2007, down from $633 million at June 30, 2007. Included in other non-interest income during third quarter 2007 was income associated with an investment in bank owned life insurance of $135 thousand for the third quarter 2007 and $379 thousand for the nine month period, compared to $119 thousand in 2006 for each period, respectively.

Non-interest Expense

Non-interest expense for the third quarter of 2007 amounted to $12.4 million, up $463 thousand or 3.9% from $11.9 million for the same period in 2006, and down sequentially $466 thousand or 3.6% from the second quarter of 2007. Compensation and benefits decreased $402 thousand or 5.7% sequentially from second quarter 2007 and $72 thousand or 1.0% compared to third quarter 2006, reflecting reductions

associated with five branch closings during the quarter and previous initiatives to improve efficiency. Marketing increases of $87 thousand or 22.1% sequentially, and $148 thousand or 44.6% as compared to the third quarter of 2006 are attributable to the previously announced High Performance Checking Account Program. Other expense increased $102 thousand or 5.6% from second quarter 2007, and $220 thousand or 12.56% compared to third quarter 2006, reflecting an increase in various fraud related losses ($198 thousand) incurred during the quarter in the normal course of business.

For the nine month period ended September 30, 2007, non-interest expense amounted to $37.5 million, an increase of $2.7 million or 7.7% over $34.9 million for the same period in 2006. This increase reflects incremental operating costs primarily in compensation, occupancy and supplies of $1.3 million associated with four branches and two loan production offices during 2006 and 2007, respectively. Additionally, the DDA account acquisition initiative mentioned previously contributed approximately $355 thousand to this increase during the nine month period. VFG’s efficiency ratio was 64.7% for the quarter, compared to 60.8% for the same quarter in 2006. For the nine month period ended September 30, 2007, the efficiency ratio was 65.0%, compared to 59.6% for the same period in 2006.

Loan Portfolio

Average loans for the third quarter were $1.20 billion, up $7.3 million or 0.6% from the third quarter of 2006, and down sequentially from $1.21 billion from the second quarter of 2007. Loans receivable at the end of the quarter were up $16.4 million or 1.4% for the quarter and up $6.3 million or 0.5% over the last twelve months. Loan growth has improved in the third quarter largely due to positive results from our new loan production office in Richmond, Virginia. The commercial and industrial segment of the portfolio increased $17.0 million or 17.0% sequentially from the second quarter of 2007. The real estate construction component of the portfolio increased $10.1 million or 4.7% from the second quarter of 2007. Commercial real estate continued to see accelerated payoff activity, with that component down $17.4 million or 3.3% sequentially. While pay-offs are consistent with market conditions, this decrease is also consistent with VFG’s strategy to improve the diversification in the loan portfolio.

Deposits and Borrowings

Average deposits for the third quarter were $1.20 billion, down $81.8 million or 6.4% from the third quarter of 2006, and down sequentially $42.8 million from the second quarter of 2007. Period end deposits were also down $62.9 million or 5.1% sequentially. Decreases were noted in each category. Average noninterest bearing deposits have decreased $31.1 million or 12.3% from the third quarter of 2006. Average certificates of deposits were down $17.6 million or 2.9% sequentially, with the average cost of such funding improving from 4.35% to 4.18% for the period. Average borrowings for the third quarter amounted to $203.5 million, an increase of $55.3 million or 37.3% compared to the same period in 2006, and up sequentially $30.6 million or 17.7% from the second quarter of 2007. If this trend of decrease in deposits and increased reliance on wholesale funding continues, the net interest margin could be negatively impacted in future quarters.

Capital

At both September 30, 2007 and 2006 VFG had total assets of $1.59 billion. Shareholder’s equity at September 30, 2007 was $159.2 million, an increase of $12.0 million or 8.2% compared to September 30, 2006. Shareholder’s equity represented 10.03% of total assets at September 30, 2007, while tangible equity capital represented 9.04% of tangible assets at September 30, 2007. Book value at September 30, 2007 was $14.74 per share, compared to $13.67 at September 30, 2006.

Asset Quality

VFG’s ratio of non-performing assets as a percentage of total assets amounted to 0.47% as of September 30, 2007, compared to 0.18% at September 30, 2006 and 0.20% at June 30, 2007. Net charge-offs as a percentage of average loans receivable amounted to 0.03% for the quarter ended September 30, 2007, compared to net recoveries of (0.02%) for the same period in 2006. At September 30, 2007, the allowance for loan losses was approximately two times the level of non-performing assets, while the allowance as a percentage of total loans amounted to 1.21%. VFG recorded a provision for loan losses of $200 thousand for the third quarter, compared to no provision for the three months ended September 30, 2006. The increase in non-performing assets and provision for loan losses is a result of a $4.1 million commercial credit that was put on nonaccrual status during the quarter coupled with a continuing decline in the real estate market conditions in VFG’s primary markets. For the nine month period, the provision for loan losses amounted to $365 thousand, compared to net charge-offs of $248 thousand for the period.

Merger with FNB Corporation

VFG announced the signing of an agreement to combine in a merger of equals transaction with FNB Corporation on July 26, 2007 to create the largest independent bank holding company headquartered in the Commonwealth of Virginia. VFG and FNB have received approval of the merger from the Federal Reserve Board. Approvals from the Virginia State Corporation Commission and Stockholders of VFG and FNB are pending. The merger process is expected to be completed late in the fourth quarter of 2007. Additionally, merger and integration teams have been formed and are making significant progress on specific initiatives related to the combination and integration of the two companies.

In connection with the proposed merger, VFG filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 on September 21, 2007 to register the shares of VFG common stock to be issued to the shareholders of FNB. The registration statement included a joint proxy statement/prospectus which will be sent to the shareholders of VFG and FNB seeking their approval of the merger. In addition, each of VFG and FNB may file other relevant documents concerning the proposed merger with the SEC.

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT VFG, FNB AND THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of these documents through the website maintained by the SEC at http://www.sec.gov. Free copies of the joint proxy statement/prospectus also may be obtained by directing a request by telephone or mail to Virginia Financial Group, Inc., 1807 Seminole Trail, Suite 104 Charlottesville, Virginia 22901, Attention: Investor Relations (telephone: (434) 964-2217) or by accessing VFG’s website at http://www.vfgi.net under “SEC Filings and Other Documents”. The information on VFG’s website is not, and shall not be deemed to be, a part of this release or incorporated into other filings either company makes with the SEC.

VFG and FNB and their directors and certain of their executive officers are participants in the solicitation of proxies from the shareholders of VFG and/or FNB in connection with the merger. Information about the directors and executive officers of VFG is set forth in the proxy statement for VFG’s 2007 annual meeting of shareholders filed with the SEC on March 28, 2007. Information about the directors and executive officers of FNB is set forth in the proxy statement for FNB’s 2007 annual meeting of shareholders filed with the SEC on March 30, 2007. Additional information regarding these participants in the proxy solicitation and their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy.

About VFG

VFG is the holding company for Planters Bank & Trust Company of Virginia – in Staunton; Second Bank & Trust – in Fredericksburg and Virginia Commonwealth Trust Company – in Culpeper. The Company 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. The organization maintains a network of thirty-five branches and two loan production offices serving Northern, Central and Southwest Virginia. It also maintains five trust and investment service offices in its markets.

Non-GAAP Financial Measures

This report refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income excluding gains or losses on securities, fixed assets and foreclosed assets. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible, because other companies may calculate the efficiency ratio differently. Such information is not in accordance with generally accepted accounting principles (GAAP) and should not be construed as such. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. VFG, in referring to its net income, is referring to income under generally accepted accounting principles, or “GAAP.”

Caution Regarding Forward-Looking Statements

In addition to historical information, this press release contains forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from historical results, or those anticipated. When we use words such as “believes”, “expects”, “anticipates” or similar expressions, we are making forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. VFG wishes to caution the reader that factors, such as those listed below, in some cases have affected and could affect VFG’s actual results, causing actual results to differ materially from those in any forward looking statement. These factors include: (i) expected cost savings from VFG’s acquisitions and dispositions, (ii) competitive pressure in the banking industry or in VFG’s markets may increase significantly, (iii) changes in the interest rate environment may reduce margins, (iv) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration, (v) changes may occur in banking legislation and regulation (vi) changes may occur in general business conditions and (vii) changes may occur in the securities markets. Please refer to VFG’s filings with the Securities and Exchange Commission for additional information, which may be accessed at www.vfgi.net.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	For the Three Months Ended						Percent Increase (Decrease)
	9/30/2007			9/30/2006
INCOME STATEMENT
Interest income—taxable equivalent	$	25,250		$	25,246		0.02	%
Interest expense		10,312			9,582		7.62	%
Net interest income—taxable equivalent		14,938			15,664		-4.63	%
Less: taxable equivalent adjustment		536			495		8.28	%
Net interest income		14,402			15,169		-5.06	%
Provision for loan and lease losses		200			—		N/A
Net interest income after provision for loan and lease losses		14,202			15,169		-6.37	%
Noninterest income		4,257			4,065		4.72	%
Noninterest expense		12,388			11,926		3.87	%
Provision for income taxes		1,748			2,239		-21.93	%
Net income	$	4,323		$	5,069		-14.72	%
PER SHARE DATA
Basic earnings	$	0.40		$	0.47		-14.89	%
Diluted earnings	$	0.40		$	0.47		-14.89	%
Shares outstanding		10,795,097			10,771,272
Weighted average shares -
Basic		10,794,322			10,771,661
Diluted		10,816,799			10,856,835
Dividends paid on common shares	$	0.16		$	0.15
PERFORMANCE RATIOS
Return on average assets		1.10	%		1.27	%	-13.39	%
Return on average equity		10.96	%		13.88	%	-21.04	%
Return on average realized equity (A)		10.88	%		13.75	%	-20.87	%
Net interest margin (taxable equivalent)		4.06	%		4.21	%	-3.50	%
Efficiency (taxable equivalent) (B)		64.71	%		60.77	%	6.48	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	14,495		$	14,043
Provision for loan losses		200			—
Charge-offs		(188	)		(88	)
Recoveries		110			357
Net (charge-offs) recoveries		(78	)		269
End of period	$	14,617		$	14,312
Non-performing assets:
Non-accrual loans	$	7,487		$	2,757
Loans 90+ days past due and still accruing		—			—
Foreclosed assets		—			123
Troubled debt restructurings		—			—
Total non-performing assets	$	7,487		$	2,880
to total assets:		0.47	%		0.18	%
to total loans plus foreclosed assets:		0.62	%		0.24	%
Allowance for loan losses to total loans		1.21	%		1.19	%
Net charge-offs (recoveries)	$	78		$	(269	)
Net charge-offs (recoveries) to average loans outstanding		0.03	%		(0.02	)%

NOTES:

(A) Excludes the effect on average stockholders’ equity of unrealized gains (losses) that result from changes in market values of securities and other comprehensive pension expense.

(B) Excludes gains or losses on securities, fixed assets and foreclosed assets.

(C) Individual amounts shown above are calculated from actual, not rounded amounts in the thousands, which appear above.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	For the Nine Months Ended						Percent Increase (Decrease)
	9/30/2007			9/30/2006
INCOME STATEMENT
Interest income—taxable equivalent	$	76,348		$	71,847		6.26	%
Interest expense		31,054			25,112		23.66	%
Net interest income—taxable equivalent		45,294			46,735		-3.08	%
Less: taxable equivalent adjustment		1,621			1,459		11.10	%
Net interest income		43,673			45,276		-3.54	%
Provision for loan and lease losses		365			610		-40.16	%
Net interest income after provision for loan and lease losses		43,308			44,666		-3.04	%
Noninterest income		12,420			11,503		7.97	%
Noninterest expense		37,529			34,862		7.65	%
Provision for income taxes		5,317			6,535		-18.64	%
Net income	$	12,882		$	14,772		-12.79	%
PER SHARE DATA
Basic earnings	$	1.19		$	1.37		-13.14	%
Diluted earnings	$	1.19		$	1.36		-12.50	%
Shares outstanding		10,795,097			10,771,272
Weighted average shares -
Basic		10,792,268			10,769,170
Diluted		10,817,731			10,851,158
Dividends paid on common shares	$	0.48		$	0.45
PERFORMANCE RATIOS
Return on average assets		1.09	%		1.27	%	-14.17	%
Return on average equity		11.19	%		13.88	%	-19.38	%
Return on average realized equity (A)		11.12	%		13.74	%	-19.07	%
Net interest margin (taxable equivalent)		4.11	%		4.31	%	-4.64	%
Efficiency (taxable equivalent) (B)		65.04	%		59.60	%	9.13	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	14,500		$	13,581
Provision for loan losses		365			610
Charge-offs		(433	)		(315	)
Recoveries		185			436
Net charge-offs		(248	)		121
End of period	$	14,617		$	14,312
Allowance for loan losses to total loans		1.21	%		1.19	%
Net charge-offs	$	248		$	(121	)
Net charge-offs (recoveries) to average loans outstanding		0.03	%		(0.01	)%

NOTES:

(A) Excludes the effect on average stockholders’ equity of unrealized gains (losses) that result from changes in market values of securities and other comprehensive pension expense.

(B) Excludes securities gains (losses) and foreclosed property expense for all periods.

(C) Individual amounts shown above are calculated from actual, not rounded amounts in the thousands, which appear above.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	9/30/2007			9/30/2006			Percent Increase (Decrease)
SELECTED BALANCE SHEET DATA
(Dollars in thousands)
End of period balances
Cash and cash equivalents	$	42,645		$	44,803		-4.82	%
Securities available for sale		249,746			267,789		-6.74	%
Securities held to maturity		2,655			3,326		-20.17	%
Total securities		252,401			271,115		-6.90	%
Real estate—construction		225,268			192,113		17.26	%
Real estate—1-4 family residential		326,858			302,706		7.98	%
Real estate—commercial and multifamily		507,096			566,497		-10.49	%
Commercial, financial and agricultural		117,490			101,920		15.28	%
Consumer loans		27,544			34,134		-19.31	%
All other loans		6,021			6,585		-8.56	%
Total loans		1,210,277			1,203,955		0.53	%
Deferred loan costs		1,036			858		20.75	%
Allowance for loan losses		(14,617	)		(14,312	)	2.13	%
Net loans		1,196,696			1,190,501		0.52	%
Bank owned life insurance		10,597			10,119		4.72	%
Other assets		84,377			76,016		11.00	%
Total assets		1,586,716			1,592,554		-0.37	%
Noninterest bearing deposits		214,412			241,666		-11.28	%
Money market & interest checking		305,236			347,851		-12.25	%
Savings		84,505			100,462		-15.88	%
CD’s and other time deposits		569,260			595,543		-4.41	%
Total deposits		1,173,413			1,285,522		-8.72	%
Federal funds purchased and securities sold under agreements to repurchase		35,500			—		N/A
Federal Home Loan Bank advances		107,000			65,000		64.62	%
Subordinated debt		20,619			20,619		0.00	%
Commercial paper		76,082			61,632		23.45	%
Other borrowed funds		4,213			1,335		>100.00	%
Other liabilities		10,737			11,306		-5.03	%
Total liabilities		1,427,564			1,445,414		-1.23	%
Total stockholders’ equity	$	159,152		$	147,140		8.16	%
Accumulated comprehensive loss	$	(586	)	$	(1,137	)	-48.46	%
Average balances
	For the Three Months Ended						Percent Increase (Decrease)
	9/30/2007			9/30/2006
Total assets	$	1,566,391		$	1,587,664		-1.34	%
Total stockholders’ equity	$	156,458		$	144,848		8.02	%
	For the Nine Months Ended
	9/30/2007			9/30/2006
Total assets	$	1,585,471		$	1,557,652		1.79	%
Total stockholders’ equity	$	153,957		$	141,955		8.45	%
OTHER DATA
End of period full time employees		512			569		-10.02	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended					Percent Increase (Decrease)
	9/30/2007			9/30/2006
Interest Income
Loans, including fees	$	21,891		$	21,618	1.26	%
Deposits in other banks		4			5	-20.00	%
Investment securities:
Taxable		1,738			1,772	-1.92	%
Tax-exempt		922			844	9.24	%
Dividends		150			131	14.50	%
Federal funds sold		9			381	-97.64	%
Total interest income		24,714			24,751	-0.15	%
Interest Expense
Deposits		7,634			7,601	0.43	%
Federal funds purchased and securities sold under agreements to repurchase		190			25	>100.00	%
Federal Home Loan Bank advances		1,206			860	40.23	%
Subordinated debt		426			434	-1.84	%
Commercial paper		844			658	28.27	%
Other borrowings		12			4	>100.00	%
Total interest expense		10,312			9,582	7.62	%
Net interest income		14,402			15,169	-5.06	%
Provision for loan losses		200			—	N/A
Net interest income after provision for loan losses		14,202			15,169	-6.37	%
Noninterest Income
Retail banking fees		2,008			1,793	11.99	%
Commissions and fees from fiduciary activities		855			728	17.45	%
Brokerage fee income		185			169	9.47	%
Other operating income		559			473	18.18	%
(Losses) gains on sale of premises and equipment		(19	)		216	>-100.00	%
Gains on securities available for sale		67			—	N/A
Mortgage banking-related fees		602			686	-12.24	%
Total noninterest income		4,257			4,065	4.72	%
Noninterest Expense
Compensation and employee benefits		6,635			6,707	-1.07	%
Net occupancy		907			754	20.29	%
Supplies and equipment		1,017			1,053	-3.42	%
Amortization-intangible assets		161			161	0.00	%
Marketing		480			332	44.58	%
State franchise taxes		298			252	18.25	%
Data processing		451			333	35.44	%
Telecommunications		273			226	20.80	%
Professional fees		195			357	-45.38	%
Other operating expenses		1,971			1,751	12.56	%
Total noninterest expense		12,388			11,926	3.87	%
Income before income taxes		6,071			7,308	-16.93	%
Income tax expense		1,748			2,239	-21.93	%
Net income	$	4,323		$	5,069	-14.72	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Nine Months Ended						Percent Increase (Decrease)
	9/30/2007			9/30/2006
Interest Income
Loans, including fees	$	66,154		$	61,885		6.90	%
Deposits in other banks		14			70		-80.00	%
Investment securities:
Taxable		5,287			4,782		10.56	%
Tax-exempt		2,792			2,504		11.50	%
Dividends		410			357		14.85	%
Federal funds sold		70			790		-91.14	%
Total interest income		74,727			70,388		6.16	%
Interest Expense
Deposits		24,007			20,157		19.10	%
Federal funds purchased and securities sold under agreements to repurchase		415			173		>100.00	%
Federal Home Loan Bank advances		2,952			2,065		42.95	%
Subordinated debt		1,264			1,209		4.55	%
Commercial paper		2,388			1,491		60.16	%
Other borrowings		28			17		64.71	%
Total interest expense		31,054			25,112		23.66	%
Net interest income		43,673			45,276		-3.54	%
Provision for loan losses		365			610		-40.16	%
Net interest income after provision for loan losses		43,308			44,666		-3.04	%
Noninterest Income
Retail banking fees		5,671			5,166		9.78	%
Commissions and fees from fiduciary activities		2,541			2,321		9.48	%
Brokerage fee income		735			566		29.86	%
Other operating income		1,615			1,184		36.40	%
(Losses) Gains on sale of premises and equipment		(23	)		292		<(100.00)	%
Gains (losses) on securities available for sale		36			(199	)	<(100.00)	%
Losses on sale of foreclosed assets		(1	)		—		N/A
Mortgage banking-related fees		1,846			2,173		-15.05	%
Total noninterest income		12,420			11,503		7.97	%
Noninterest Expense
Compensation and employee benefits		20,492			19,992		2.50	%
Net occupancy		2,666			2,258		18.07	%
Supplies and equipment		3,303			3,057		8.05	%
Amortization-intangible assets		485			417		16.31	%
Marketing		1,122			767		46.28	%
State franchise taxes		840			716		17.32	%
Data processing		1,349			1,024		31.74	%
Telecommunications		747			774		-3.49	%
Professional fees		722			636		13.52	%
Other operating expenses		5,803			5,221		11.15	%
Total noninterest expense		37,529			34,862		7.65	%
Income before income taxes		18,199			21,307		-14.59	%
Income tax expense		5,317			6,535		-18.64	%
Net income	$	12,882		$	14,772		-12.79	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Dollars in thousands)

	Three months ended September 30, (unaudited)
	2007						2006
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,199,114	$	21,930	7.26	%	$	1,192,675	$	21,658	7.20	%
Investment securities
Taxable		165,128		1,888	4.47	%		171,150		1,903	4.41	%
Tax exempt		93,275		1,419	5.95	%		84,315		1,299	6.11	%
Total investments		258,403		3,307	5.01	%		255,465		3,202	4.97	%
Interest bearing deposits		545		4	2.87	%		575		5	3.45	%
Federal funds sold		667		9	5.28	%		28,174		381	5.37	%
		259,615		3,320	5.01	%		284,214		3,588	5.01	%
Total earning assets		1,458,729		25,250	6.87	%		1,476,889		25,246	6.78	%
Total nonearning assets		107,662						110,775
Total assets	$	1,566,391					$	1,587,664
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	172,637	$	46	0.11	%	$	166,206	$	240	0.57	%
Money market		138,217		789	2.26	%		170,955		1,020	2.37	%
Savings		89,573		423	1.87	%		104,623		179	0.68	%
Time deposits:
Less than $100,000		390,529		4,105	4.17	%		406,289		4,040	3.95	%
$100,000 and more		194,095		2,271	4.64	%		194,008		2,122	4.34	%
Total interest-bearing deposits		985,051		7,634	3.07	%		1,042,081		7,601	2.89	%
Federal funds purchased and securities sold under agreements to repurchase		13,899		190	5.35	%		1,829		25	5.42	%
Federal Home Loan Bank advances		91,440		1,206	5.16	%		69,348		860	4.92	%
Subordinated debt		20,619		426	8.08	%		20,619		434	8.35	%
Commercial paper		76,399		844	4.32	%		56,092		658	4.65	%
Other borrowings		1,157		12	4.06	%		374		4	4.24	%
		203,514		2,678	5.15	%		148,262		1,981	5.30	%
Total interest-bearing liabilities		1,188,565		10,312	3.43	%		1,190,343		9,582	3.19	%
Total noninterest-bearing liabilities		221,368						252,473
Total liabilities		1,409,933						1,442,816
Stockholders’ equity		156,458						144,848
Total liabilities and stockholders’ equity	$	1,566,391					$	1,587,664
Net interest income (tax equivalent)			$	14,938					$	15,664
Average interest rate spread					3.44	%					3.59	%
Interest expense as percentage of average earning assets					2.80	%					2.57	%
Net interest margin					4.06	%					4.21	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Dollars in thousands)

	Nine months ended September 30, (unaudited)
	2007						2006
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,209,413	$	66,272	7.33	%	$	1,179,781	$	61,996	7.03	%
Investment securities
Taxable		168,024		5,697	4.47	%		159,480		5,139	4.31	%
Tax exempt		93,996		4,295	6.03	%		83,102		3,852	6.20	%
Total investments		262,020		9,992	5.03	%		242,582		8,991	4.96	%
Interest bearing deposits		516		14	3.58	%		3,439		70	2.72	%
Federal funds sold		1,710		70	5.40	%		27,148		790	3.89	%
		264,246		10,076	5.03	%		273,169		9,851	4.83	%
Total earning assets		1,473,659		76,348	6.93	%		1,452,950		71,847	6.62	%
Total nonearning assets		111,812						104,702
Total assets	$	1,585,471					$	1,557,652
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	165,530	$	179	0.14	%	$	173,469	$	683	0.53	%
Money market		155,812		2,943	2.53	%		164,785		2,399	1.95	%
Savings		93,835		1,050	1.50	%		111,483		548	0.66	%
Time deposits:
Less than $100,000		401,010		12,738	4.25	%		390,365		10,833	3.71	%
$100,000 and more		203,978		7,098	4.65	%		184,747		5,693	4.12	%
Total interest-bearing deposits		1,020,165		24,008	3.15	%		1,024,849		20,156	2.63	%
Federal funds purchased and securities sold under agreements to repurchase		10,067		415	5.44	%		12,074		173	1.92	%
Federal Home Loan Bank advances		75,869		2,951	5.13	%		60,470		2,065	4.57	%
Subordinated debt		20,619		1,264	8.08	%		20,619		1,210	7.85	%
Commercial paper		69,983		2,388	4.50	%		45,142		1,491	4.42	%
Other borrowings		741		28	4.98	%		365		17	6.23	%
		177,279		7,046	5.24	%		138,670		4,956	4.78	%
Total interest-bearing liabilities		1,197,444		31,054	3.46	%		1,163,519		25,112	2.89	%
Total noninterest-bearing liabilities		234,070						252,178
Total liabilities		1,431,514						1,415,697
Stockholders’ equity		153,957						141,955
Total liabilities and stockholders’ equity	$	1,585,471					$	1,557,652
Net interest income (tax equivalent)			$	45,294					$	46,735
Average interest rate spread					3.47	%					3.73	%
Interest expense as percentage of average earning assets					2.82	%					2.31	%
Net interest margin					4.11	%					4.31	%