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: January 23, 2008

(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 January 23, 2008, Virginia Financial Group, Inc. issued a press release regarding its results of operations and financial condition for the quarter and twelve months ended December 31, 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.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Virginia Financial Group, Inc. press release dated January 23, 2008.

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: January 23, 2008

EXHIBIT INDEX

Exhibit No.	Description
99.1	Virginia Financial Group, Inc. press release dated January 23, 2008.

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 FOURTH

QUARTER EARNINGS OF $4.1 MILLION, 2007 ANNUAL

EARNINGS OF $17.0 MILLION

Charlottesville, VA, January 23, 2008 - Virginia Financial Group, Inc. (NASDAQ: VFGI) (VFG) today reported fourth quarter 2007 earnings totaled $4.1 million, down 12.8% from $4.7 million for the fourth quarter of 2006. Net income per diluted share was $0.38, down 13.6% from $0.44 for the same period in 2006. For the full year 2007, VFG’s earnings totaled $17.0 million, down 12.8% from $19.5 million for the full year 2006. Net income per diluted share was $1.57, down 12.8% from $1.80 for the year ended December 31, 2006.

O.R. Barham, Jr., President and CEO commented, “We are pleased with our earnings in spite of a difficult operating environment for banks in 2007. We experienced a significant charge-off and foreclosure related to a single lending relationship during the fourth quarter which, in addition to continued weakness in our real estate markets, necessitated an increase in both provision and allowance for loan losses. While non-performing assets declined from third quarter and past dues continue to be low, we are experiencing a volatile credit cycle and slowing economy, and have appropriately increased our allowance for loan losses as a percentage of loan receivable in anticipation that we will have further increases in non-performing assets and net charge-offs in 2008.”

“We certainly had some positives in the fourth quarter. We realized a sizable gain on the sale of some recently closed branch properties. We continued to see good momentum in fee income and new accounts associated with our High Performance Checking Account Program. Our Trust Company continued to provide significant earnings contribution and posted record earnings for the year. Lastly, we saw a 5.3% and 2.7% reduction in noninterest expenses compared to third quarter of 2007 and fourth quarter of last year, reflecting our efforts to improve overall efficiency in the face of contracting revenues.”

Financial Performance

VFG’s earnings for 2007 produced an annualized return on average assets (ROA) of 1.07% and an annualized return on average equity (ROE) of 10.92%, compared to prior year ratios of 1.24% and 13.57%, respectively. VFG’s earnings for the fourth quarter of 2007 produced an ROA of 1.04% and ROE of 10.17%, compared to prior year ratios of 1.16% and 12.57%, respectively.

Net Interest Income

Net interest income amounted to $14.1 million for the quarter ended December 31, 2007, down $773 thousand or 5.2% compared with $14.9 million for the same period in 2006.The net interest margin for the fourth quarter of 2007 was 3.98%, down ten basis points when compared to 4.08% for the fourth quarter of 2006. On a sequential basis, the net interest margin was down eight basis points from the 4.06% for the third quarter. This drop was due in most part to a decrease in asset yields, with an average yield on assets of 6.78% for the fourth quarter of 2007, compared to 6.87% for the third quarter of 2007 and 6.82% for the fourth 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 seventy-five basis point decrease in the prime rate during the last several months and an increase in non-accruals for the period. On a linked quarter basis, the average cost of interest bearing liabilities dropped two basis points from 3.43% for the third quarter 2007 to 3.41% for the fourth quarter of 2007 and increased three basis points when compared to 3.38% for the fourth quarter of 2006. VFG’s interest rate sensitivity continues to project modest margin compression if short term rates continue to decrease, while such contraction is deemed manageable.

Net interest income amounted to $57.8 million for the year ended December 31, 2007, down $2.3 million or 4.0% compared with $60.1 million for the same period in 2006. The net interest margin for the twelve month period ended December 31, 2007 was 4.08%, down seventeen basis points compared to 4.25% for the same period in 2006. Increased funding costs associated with competition for deposits in local markets which resulted in heavier reliance on wholesale funding, a lower rate of growth in loans receivable and average earning assets, combined with the Federal Open Market Committee reduction of the Fed funds target rate during the second half of the year led to this decrease in net interest margin and revenues.

Non-Interest Income

Total non-interest income was $5.0 million for the fourth quarter of 2007 and up 24.8% compared with $4.0 million for the fourth quarter of 2006. Included in non-interest income is a gain of $1.2 million on sale of real estate associated with three branches that were closed during the third quarter. Retail banking fee income increased $236 thousand or 13.0% to $2.1 million, compared to $1.8 million in the fourth 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 initiative. Mortgage banking revenue amounted to $593 thousand, a decrease of $104 thousand or 14.9%, as compared to $697 thousand for the fourth quarter of 2006, and down sequentially $9 thousand or 1.5% from the third quarter of 2007. Revenues from trust and brokerage for fourth quarter of 2007 were $1.0 million, up $30 thousand or 3.1% compared to $979 thousand in the fourth quarter of 2006, and essentially flat with third quarter 2007. Fiduciary and brokerage assets under management were $595 million at December 31, 2007, essentially flat when compared to $597 million at December 31, 2006. Included in other non-interest income during fourth quarter of 2007 was income associated with an investment in bank owned life insurance of $126 compared to $112 thousand for the same period in 2006.

Non-interest Expense

Non-interest expense for the fourth quarter of 2007 amounted to $11.7 million, down $324 thousand or 2.7% from $12.1 million for the same period in 2006, and down sequentially $655 thousand or 5.3% from the third quarter of 2007. Compensation and benefits decreased $483 thousand or 7.3% compared to fourth quarter 2006, reflecting reductions associated with the combination of two bank charters in the first quarter, five branch closings during the third quarter and other initiatives to improve efficiency. Marketing decreased $29 thousand or 6.5% to $480 thousand as compared to the fourth quarter of 2006, the difference attributable to marketing costs associated with the opening of the Arlington Boulevard and South High Street branches in the fourth quarter of 2006. Professional fees increased $111 thousand or 59.4% when compared to the same period in the prior year. Much of this increase can be attributed to professional fees related to the High Performance Checking Account Program discussed above. VFG’s efficiency ratio was 63.2% for the quarter, compared to 62.2% for the same quarter in 2006. For the twelve month period ended December 31, 2007 and 2006 the efficiency ratio was 64.4% and 60.5%, respectively.

Loan Portfolio

Average loans for the fourth quarter of 2007 was $1.21 billion, essentially flat with fourth quarter 2006, and up $15 million or 1.3% sequentially from $1.20 billion from the third quarter of 2007. Period end loans were up $16.3 million or 1.3% for the quarter and up $9.8 million or 0.8% over the last twelve months. The commercial and industrial segment of the portfolio increased $7.9 million or 6.7% sequentially from the third quarter of 2007, and increased $20.7 million or 19.8% over year end 2006. Commercial real estate increased $31.7 million or 6.2% sequentially. Real estate construction loan segment decreased $26.0 million or 11.5% from the third quarter of 2007, due to continuing payoff activity, conversions to permanent status and slowing new production.

Deposits and Borrowings

Average deposits for the fourth quarter were $1.17 billion, down $126.1 million or 9.8% from the fourth quarter of 2006, and down sequentially $34.3 million from the third quarter of 2007. Period end deposits were also down $30.9 million or 2.6% sequentially, with approximately $15 million of this decrease representing maturity of brokered certificates of deposit that were not renewed during the quarter. Decreases were noted in each category with the exception of NOW accounts. Average noninterest bearing deposits have decreased $34.9 million or 14.6% from the fourth quarter of 2006. Average certificates of deposits were down $15.8 million or 2.7% sequentially, with the average cost of such funding improving from 4.38% to 4.32% for the period. Average borrowings for the fourth quarter of 2007 amounted to $238.3 million, an increase of $82.4 million or 52.9% compared to the same period in 2006, with the average cost of such funding improving from 5.10% to 4.58% for the period. Average borrowings were up sequentially $34.7 million or 17.1% from the third quarter of 2007, while the average cost of such funding improving from 5.15% to 4.58% for the period.

Capital

At December 31, 2007 VFG had total assets of $1.59 billion, compared to $1.63 billion at December 31, 2006. Shareholder’s equity at December 31, 2007 was $162.8 million, an increase of $12.1 million or 8.0% compared to December 31, 2006. Capital levels have remained very strong, with shareholder’s equity representing 10.21% of total assets at December 31, 2007, while tangible equity capital represented 9.23% of tangible assets at December 31, 2007. Book value at December 31, 2007 was $15.08 per share, an increase of 7.9% compared to $13.97 at December 31, 2006.

Asset Quality

VFG’s ratio of non-performing assets as a percentage of total assets amounted to 0.44% as of December 31, 2007, compared to 0.19% at December 31, 2006 and 0.47% at September 30, 2007. Net charge-offs as a percentage of average loans receivable amounted to 0.10% for the quarter ended December 31, 2007, compared to 0.00% for the same period in 2006. At December 31, 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 1.23%, compared to 1.21% at September 30, 2007 and 1.19% at December 31, 2006. VFG recorded a provision for loan losses of $1.67 million for the fourth quarter, compared to $140 thousand for the three months ended December 31, 2006. The increase in non-performing assets and provision for loan losses is a result of a previously disclosed $4.1 million commercial credit that was put on nonaccrual status during the third quarter, written down $1.2 million and subsequently foreclosed upon during the fourth quarter. In addition, the real estate market conditions in VFG’s primary markets continue to show weakness. The higher loss experience rate related to charge-offs for acquisition and development lending coupled with market conditions necessitated a larger allocation of allowance and provisioning for the quarter. For the twelve month period, the provision for loan losses amounted to $2.0 million, compared to net charge-offs of $1.5 million for the period.

Merger with FNB Corporation

VFG and FNB Corporation (FNB) have scheduled special shareholders meetings on February 12, 2008 for shareholders of VFG and FNB to vote on the merger. As previously announced, the merger has received approval from the Federal Reserve Board and Virginia State Corporation Commission. Additionally, merger and integration teams continue to make 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. This document was declared effective by the SEC on December 28, 2007. The registration statement included a joint proxy statement/prospectus, a final version of which has now been sent to the shareholders of VFG and FNB seeking their approval of the merger. In addition, each of VFG and FNB has filed and may continue to 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 DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER, BECAUSE THEY 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., 590 Peter Jefferson Pkwy, Suite 250 Charlottesville, Virginia 22911, Attention: Investor Relations (telephone: (434) 964-2211) 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
	12/31/2007			12/31/2006			(Decrease)
INCOME STATEMENT
Interest income - taxable equivalent	$	24,973		$	25,754		-3.03	%
Interest expense		10,335			10,370		-0.34	%
Net interest income - taxable equivalent		14,638			15,384		-4.85	%
Less: taxable equivalent adjustment		542			515		5.24	%
Net interest income		14,096			14,869		-5.20	%
Provision for loan and lease losses		1,674			140		>100.00	%
Net interest income after provision for loan and lease losses		12,422			14,729		-15.66	%
Noninterest income		4,969			3,982		24.79	%
Noninterest expense		11,733			12,057		-2.69	%
Provision for income taxes		1,537			1,929		-20.32	%
Net income	$	4,121		$	4,725		-12.78	%
PER SHARE DATA
Basic earnings	$	0.38		$	0.44		-13.64	%
Diluted earnings	$	0.38		$	0.44		-13.64	%
Shares outstanding		10,795,943			10,784,303
Weighted average shares -
Basic		10,795,877			10,776,308
Diluted		10,817,458			10,852,495
Dividends paid on common shares	$	0.16		$	0.16
PERFORMANCE RATIOS
Return on average assets		1.04	%		1.16	%	-10.34	%
Return on average equity		10.17	%		12.57	%	-19.09	%
Return on average realized equity (A)		10.20	%		12.49	%	-18.33	%
Return on average tangible equity (D)		11.39	%		14.27	%	-20.18	%
Net interest margin (taxable equivalent)		3.98	%		4.08	%	-2.57	%
Efficiency (taxable equivalent) (B)		63.18	%		62.16	%	1.64	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	14,617		$	14,312
Provision for loan losses		1,674			140
Charge-offs		(1,329	)		(86	)
Recoveries		120			134
Net (charge-offs) recoveries		(1,209	)		48
End of period	$	15,082		$	14,500
Non-performing assets:
Non-accrual loans	$	3,937		$	2,999
Loans 90+ days past due and still accruing		—			—
Foreclosed assets		3,027			38
Troubled debt restructurings		—			—
Total non-performing assets	$	6,964		$	3,037
to total assets:		0.44	%		0.19	%
to total loans plus foreclosed assets:		0.57	%		0.25	%
Allowance for loan losses to total loans		1.23	%		1.19	%
Net charge-offs (recoveries)	$	1,209		$	(48	)
Net charge-offs (recoveries) to average loans outstanding		0.10	%		0.00	%

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.

(D) Excludes the amount of average stockholders’ equity related to average intangible asset balances which consist of core deposit intangibles net of amortization and goodwill at carrying value.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	For the Twelve Months Ended						Percent
							Increase
	12/31/2007			12/31/2006			(Decrease)
INCOME STATEMENT
Interest income - taxable equivalent	$	101,322		$	97,620		3.79	%
Interest expense		41,390			35,482		16.65	%
Net interest income - taxable equivalent		59,932			62,138		-3.55	%
Less: taxable equivalent adjustment		2,163			1,993		8.53	%
Net interest income		57,769			60,145		-3.95	%
Provision for loan and lease losses		2,040			750		>100.00	%
Net interest income after provision for loan and lease losses		55,729			59,395		-6.17	%
Noninterest income		16,967			15,485		9.57	%
Noninterest expense		48,841			46,918		4.10	%
Provision for income taxes		6,853			8,465		-19.04	%
Net income	$	17,002		$	19,497		-12.80	%
PER SHARE DATA
Basic earnings	$	1.58		$	1.81		-12.71	%
Diluted earnings	$	1.57		$	1.80		-12.78	%
Shares outstanding		10,795,943			10,784,303
Weighted average shares -
Basic		10,793,177			10,770,969
Diluted		10,817,127			10,843,356
Dividends paid on common shares	$	0.64		$	0.61
PERFORMANCE RATIOS
Return on average assets		1.07	%		1.24	%	-13.71	%
Return on average equity		10.92	%		13.57	%	-19.53	%
Return on average realized equity (A)		10.88	%		13.42	%	-18.93	%
Return on average tangible equity (D)		12.30	%		15.52	%	-20.75	%
Net interest margin (taxable equivalent)		4.08	%		4.25	%	-4.00	%
Efficiency (taxable equivalent) (B)		64.39	%		60.54	%	6.36	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	14,500		$	13,581
Provision for loan losses		2,040			750
Charge-offs		(1,762	)		(402	)
Recoveries		304			571
Net (charge-offs) recoveries		(1,458	)		169
End of period	$	15,082		$	14,500
Allowance for loan losses to total loans		1.23	%		1.19	%
Net charge-offs	$	1,458		$	(169	)
Net charge-offs (recoveries) to average loans outstanding		0.12	%		(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.

(D) Excludes the amount of average stockholders’ equity related to average intangible asset balances which consist of core deposit intangibles net of amortization and goodwill at carrying value.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

							Percent
							Increase
	12/31/2007			12/31/2006			(Decrease)
SELECTED BALANCE SHEET DATA
(Dollars in thousands)
End of period balances
Cash and cash equivalents	$	41,793		$	57,635		-27.49	%
Securities available for sale		240,217			268,922		-10.67	%
Securities held to maturity		2,657			3,328		-20.16	%
Total securities		242,874			272,250		-10.79	%
Real estate - construction		199,281			198,400		0.44	%
Real estate - 1-4 family residential		331,029			276,488		19.73	%
Real estate - commercial and multifamily		538,776			597,423		-9.82	%
Commercial, financial and agricultural		125,410			104,709		19.77	%
Consumer loans		26,169			32,528		-19.55	%
All other loans		5,924			7,270		-18.51	%
Total loans		1,226,589			1,216,818		0.80	%
Deferred loan costs		1,088			814		33.66	%
Allowance for loan losses		(15,082	)		(14,500	)	4.01	%
Net loans		1,212,595			1,203,132		0.79	%
Bank owned life insurance		10,725			10,231		4.83	%
Other assets		86,831			92,972		-6.61	%
Total assets		1,594,818			1,625,989		-1.92	%
Noninterest bearing deposits		204,774			239,672		-14.56	%
Money market & interest checking		306,983			367,132		-16.38	%
Savings		78,626			96,682		-18.68	%
CD’s and other time deposits		552,164			614,795		-10.19	%
Total deposits		1,142,547			1,318,281		-13.33	%
Federal funds purchased and securities sold under agreements to repurchase		20,000			—		N/A
Federal Home Loan Bank advances		169,000			65,000		>100.00	%
Subordinated debt		20,619			20,619		0.00	%
Commercial paper		68,745			58,632		17.25	%
Other borrowed funds		892			561		59.00	%
Other liabilities		10,247			12,244		-16.31	%
Total liabilities		1,432,050			1,475,337		-2.93	%
Total stockholders’ equity	$	162,768		$	150,652		8.04	%
Accumulated comprehensive gain (loss)	$	475		$	(1,026	)	>(100.00	)%
Average balances
	For the Three Months Ended						Percent Increase
	12/31/2007			12/31/2006			(Decrease)
Total assets	$	1,576,586		$	1,609,823		-2.06	%
Total stockholders’ equity	$	160,745		$	149,171		7.76	%
	For the Twelve Months Ended
	12/31/2007			12/31/2006
Total assets	$	1,583,182		$	1,570,778		0.79	%
Total stockholders’ equity	$	155,668		$	143,722		8.31	%
OTHER DATA
End of period full time employees		496			580		-14.48	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended						Percent Increase (Decrease)
	12/31/2007			12/31/2006
Interest Income
Loans, including fees	$	21,747		$	22,118		-1.68	%
Deposits in other banks		4			4		0.00	%
Investment securities:
Taxable		1,567			1,975		-20.66	%
Tax-exempt		934			873		6.99	%
Dividends		171			129		32.56	%
Federal funds sold		8			140		-94.29	%
Total interest income		24,431			25,239		-3.20	%
Interest Expense
Deposits		7,544			8,339		-9.53	%
Federal funds purchased and securities sold under agreements to repurchase		216			45		>100.00	%
Federal Home Loan Bank advances		1,393			770		80.91	%
Subordinated debt		419			427		-1.87	%
Commercial paper		752			783		-3.96	%
Other borrowings		11			6		83.33	%
Total interest expense		10,335			10,370		-0.34	%
Net interest income		14,096			14,869		-5.20	%
Provision for loan losses		1,674			140		>100.00	%
Net interest income after provision for loan losses		12,422			14,729		-15.66	%
Noninterest Income
Retail banking fees		2,052			1,816		13.00	%
Commissions and fees from fiduciary activities		834			788		5.84	%
Brokerage fee income		175			191		-8.38	%
Other operating income		281			466		-39.70	%
Gains (losses) on sale of premises and equipment		1,035			(18	)	>100.00	%
(Losses) gains on securities available for sale		(1	)		3		>100.00	%
Gains on sale of other real estate owned		—			39		-100.00	%
Mortgage banking-related fees		593			697		-14.92	%
Total noninterest income		4,969			3,982		24.79	%
Noninterest Expense
Compensation and employee benefits		6,132			6,615		-7.30	%
Net occupancy		918			890		3.15	%
Supplies and equipment		1,103			1,085		1.66	%
Amortization-intangible assets		161			160		0.63	%
Marketing		419			448		-6.47	%
State franchise taxes		298			257		15.95	%
Data processing		446			365		22.19	%
Telecommunications		236			231		2.16	%
Professional fees		298			187		59.36	%
Other operating expenses		1,722			1,819		-5.33	%
Total noninterest expense		11,733			12,057		-2.69	%
Income before income taxes		5,658			6,654		-14.97	%
Income tax expense		1,537			1,929		-20.32	%
Net income	$	4,121		$	4,725		-12.78	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Twelve Months Ended						Percent Increase (Decrease)
	12/31/2007			12/31/2006
Interest Income
Loans, including fees	$	87,902		$	84,003		4.64	%
Deposits in other banks		18			74		-75.68	%
Investment securities:
Taxable		6,853			6,724		1.92	%
Tax-exempt		3,726			3,410		9.27	%
Dividends		582			486		19.75	%
Federal funds sold		78			930		-91.61	%
Total interest income		99,159			95,627		3.69	%
Interest Expense
Deposits		31,551			28,496		10.72	%
Federal funds purchased and securities sold under agreements to repurchase		630			219		>100.00	%
Federal Home Loan Bank advances		4,345			2,834		53.32	%
Subordinated debt		1,684			1,636		2.93	%
Commercial paper		3,141			2,275		38.07	%
Other borrowings		39			22		>100.00	%
Total interest expense		41,390			35,482		16.65	%
Net interest income		57,769			60,145		-3.95	%
Provision for loan losses		2,040			750		>100.00	%
Net interest income after provision for loan losses		55,729			59,395		-6.17	%
Noninterest Income
Retail banking fees		7,724			6,982		10.63	%
Commissions and fees from fiduciary activities		3,375			3,108		8.59	%
Brokerage fee income		909			756		20.24	%
Other operating income		1,473			1,652		-10.84	%
Gains on sale of premises and equipment		1,013			274		>100.00	%
Gains (losses) on securities available for sale		35			(196	)	>100.00	%
(Losses) gains on sale of foreclosed assets		(1	)		40		>100.00	%
Mortgage banking-related fees		2,439			2,869		-14.99	%
Total noninterest income		16,967			15,485		9.57	%
Noninterest Expense
Compensation and employee benefits		26,422			26,607		-0.70	%
Net occupancy		3,570			3,147		13.44	%
Supplies and equipment		4,383			4,141		5.84	%
Amortization-intangible assets		646			578		11.76	%
Marketing		1,533			1,214		26.28	%
State franchise taxes		1,138			973		16.96	%
Data processing		1,794			1,389		29.16	%
Telecommunications		976			1,006		-2.98	%
Professional fees		1,005			823		22.11	%
Other operating expenses		7,374			7,040		4.74	%
Total noninterest expense		48,841			46,918		4.10	%
Income before income taxes		23,855			27,962		-14.69	%
Income tax expense		6,853			8,465		-19.04	%
Net income	$	17,002		$	19,497		-12.80	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands)

	Three months ended December 31, (unaudited)
	2007						2006
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,214,274	$	21,786	7.12	%	$	1,213,929	$	22,162	7.24	%
Investment securities
Taxable		151,455		1,738	4.49	%		181,710		2,104	4.53	%
Tax exempt		94,146		1,437	5.97	%		90,711		1,344	5.80	%
Total investments		245,601		3,175	5.06	%		272,421		3,448	4.95	%
Interest bearing deposits		376		4	4.16	%		431		4	3.63	%
Federal funds sold		657		8	4.76	%		10,791		140	5.08	%
		246,634		3,187	5.06	%		283,643		3,592	4.95	%
Total earning assets		1,460,908		24,973	6.78	%		1,497,572		25,754	6.82	%
Total nonearning assets		115,678						112,251
Total assets	$	1,576,586					$	1,609,823
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	185,150	$	512	1.10	%	$	160,517	$	81	0.20	%
Money market		122,022		706	2.30	%		189,015		1,335	2.80	%
Savings		84,809		137	0.64	%		100,276		305	1.21	%
Time deposits:
Less than $100,000		374,927		3,861	4.09	%		404,378		4,265	4.18	%
$100,000 and more		193,877		2,328	4.76	%		203,022		2,353	4.60	%
Total interest-bearing deposits		960,785		7,544	3.12	%		1,057,208		8,339	3.13	%
Federal funds purchased and securities sold under agreements to repurchase		17,149		216	4.93	%		3,348		45	5.33	%
Federal Home Loan Bank advances		123,441		1,393	4.42	%		65,000		770	4.70	%
Subordinated debt		20,619		419	7.95	%		20,619		427	8.22	%
Commercial paper		76,181		752	3.86	%		66,518		783	4.67	%
Other borrowings		863		11	4.99	%		355		6	6.71	%
		238,253		2,791	4.58	%		155,840		2,031	5.10	%
Total interest-bearing liabilities		1,199,038		10,335	3.41	%		1,213,048		10,370	3.38	%
Total noninterest-bearing liabilities		216,803						247,604
Total liabilities		1,415,841						1,460,652
Stockholders’ equity		160,745						149,171
Total liabilities and stockholders’ equity	$	1,576,586					$	1,609,823
Net interest income (tax equivalent)			$	14,638					$	15,384
Average interest rate spread					3.37	%					3.44	%
Interest expense as percentage of average earning assets					2.81	%					2.75	%
Net interest margin					3.98	%					4.08	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

TWELVE MONTHS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands)

	Twelve months ended December 31, (unaudited)
	2007						2006
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,210,638	$	88,059	7.27	%	$	1,188,388	$	84,159	7.08	%
Investment securities
Taxable		163,847		7,435	4.48	%		165,083		7,210	4.37	%
Tax exempt		94,034		5,732	6.01	%		85,020		5,247	6.17	%
Total investments		257,881		13,167	5.04	%		250,103		12,457	4.98	%
Interest bearing deposits		481		18	3.69	%		2,681		74	2.76	%
Federal funds sold		1,445		78	5.32	%		18,805		930	4.95	%
		259,807		13,263	5.04	%		271,589		13,461	4.97	%
Total earning assets		1,470,445		101,322	6.89	%		1,459,977		97,620	6.69	%
Total nonearning assets		112,737						110,801
Total assets	$	1,583,182					$	1,570,778
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	170,475	$	1,312	0.77	%	$	170,204	$	765	0.45	%
Money market		147,295		3,649	2.48	%		170,892		3,734	2.19	%
Savings		91,560		565	0.62	%		108,659		853	0.79	%
Time deposits:
Less than $100,000		394,436		16,599	4.21	%		393,897		15,099	3.83	%
$100,000 and more		201,432		9,426	4.68	%		189,353		8,045	4.25	%
Total interest-bearing deposits		1,005,198		31,551	3.14	%		1,033,005		28,496	2.76	%
Federal funds purchased and securities sold under agreements to repurchase		11,852		630	5.24	%		4,738		219	4.62	%
Federal Home Loan Bank advances		87,860		4,345	4.88	%		61,612		2,834	4.60	%
Subordinated debt		20,619		1,684	8.06	%		20,619		1,636	7.93	%
Commercial paper		71,545		3,141	4.33	%		50,530		2,275	4.50	%
Other borrowings		772		39	4.98	%		363		22	6.06	%
		192,648		9,839	5.04	%		137,862		6,986	5.07	%
Total interest-bearing liabilities		1,197,846		41,390	3.45	%		1,170,867		35,482	3.03	%
Total noninterest-bearing liabilities		229,668						256,189
Total liabilities		1,427,514						1,427,056
Stockholders’ equity		155,668						143,722
Total liabilities and stockholders’ equity	$	1,583,182					$	1,570,778
Net interest income (tax equivalent)			$	59,932					$	62,138
Average interest rate spread					3.44	%					3.66	%
Interest expense as percentage of average earning assets					2.81	%					2.43	%
Net interest margin					4.08	%					4.25	%