8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of

the Securities Act of 1934

Date of Report (Date of earliest event reported): April 19, 2004

VIRGINIA FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Virginia	000-22283	54-1829288
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

102 S. Main Street, Culpeper, Virginia 22701

(Address of principal executive offices, including zip code)

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

Item 5. Other Events and Regulation FD Disclosure.

On April 19, 2004, Virginia Financial Group, Inc. issued a press release announcing earnings for the first quarter. A copy of the company’s press release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.

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SIGNATURES

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

VIRGINIA FINANCIAL GROUP, INC.
By:	/s/ Jeffrey W. Farrar
	Jeffrey W. Farrar
	Executive Vice President
	and Chief Financial Officer

April 26, 2004

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EX-99.1

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE

Contact:
	Jeffrey W. Farrar
	Executive Vice President and CFO
	(540) 829-1603
	farrarj@vfgi.net

VIRGINIA FINANCIAL GROUP, INC. ANNOUNCES 5%

GROWTH IN FIRST QUARTER EARNINGS

Culpeper, VA-Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported first quarter 2004 earnings of $3.5 million or $.48 per diluted share, an increase of 4.9% compared to earnings of $3.3 million or $.46 per diluted share for the first quarter of 2003. Diluted earnings per share growth represented an increase of 4.4% compared to first quarter 2003 results.

VFG’S earnings for the first quarter of 2004 produced an annualized return on average assets of .99% and an annualized return on average equity of 11.51%, compared to prior year ratios of 1.20% and 11.62%, respectively.

Total revenues for the first quarter of 2004 were $15.9 million, an increase of $2.0 million or 14.4% over the $13.9 million in 2003. The largest component, net interest income, amounted to $12.5 million for the first quarter, up $2.2 million or 21.5% compared with $10.3 million for the same quarter in 2003. Continuing loan growth and contributions from eight new branches purchased late in 2003 were primarily contributors to this growth. The net interest margin for the first quarter of 2004 was 4.09%, an improvement of .18% when compared to 3.91% for the fourth quarter of 2003, but down .18% when compared to 4.27% for the first quarter of 2003.

Total noninterest income was $3.5 million for the first quarter of 2004, a decrease of $202 thousand or 5.5% compared to $3.7 million for the first quarter of 2003. Lower revenues from VFG’s mortgage operations where the primary contributor to this decline. Fees and net gains from mortgages sold were $645 thousand for the first quarter of 2004, a decrease of $418 thousand or 39.3% from the first quarter of 2003. Originations were down $20.9 million or 32.9%, from $63.5 million for the three months ended March 31, 2003 to $42.6 million for the three months ended March 31, 2004. Refinance loans represented $51.2 million or 80.6% and $27.7 million or 65.1% of total originations for the three-month periods ended March 31, 2003 and 2004, respectively. Offsetting much of this decline were retail banking fees, which increased $301 thousand to $1.5 million, compared to $1.2 million in 2003.

Noninterest expense for the first quarter of 2004 amounted to $10.4 million, an increase of $1.3 million or 14.0% compared $9.2 million for the same period in 2003. This increase is largely attributable to the Company’s expansion efforts, and the incremental costs associated with the eight purchased branches, loan production offices in Charlottesville and Lynchburg and a de novo branch in Fishersville, Virginia.

The Company continues to see improvement in its asset mix, with loan growth of $249.0 million or 34.8% from $716.1 million at March 31, 2003 to $965.2 million at March 31, 2004, and growth of $42.1 million or 4.4% for the first quarter of 2004 from $923.1 million at December 31, 2003.. Total asset growth was $275.1 million or 24.2% from $1.14 billion at March 31, 2003, to $1.41 billion at March 31, 2004, and growth of $23.7 million or 1.7% from $1.39 billion at December 31, 2003. Deposits grew $229.5 million or 23.4% from $980.2 million at March 31, 2003 to $1.21 billion at March 31, 2004, and remained essentially flat for the first quarter of 2004. A significant component of the twelve month growth relates to the branch purchase in September 2003, which initially accounted for approximately $201 million in asset and deposit growth, and $79 million in loan growth for the period.

The major component of loan growth during the past twelve months occurred in the non-residential real estate portfolio, which grew $115.4 million or 37.6% from $306.5 million at March 31, 2003 to $421.9 million at March 31, 2004. Construction lending represented the largest percentage increase, with growth of $44.6 million or 74.0% from $60.2 million to $104.8 million. Commercial lending and residential real estate portfolios also experience double-digit growth year to year. For the quarter ended March 31, 2004, real estate construction loans increased $10.4 million or 11.1%, residential real estate loans decreased $1.5 million or .5%, nonresidential real estate loans increased $17.6 million or 4.4% and commercial loans increased $6.3 million or 8.6%.

The Company’s asset quality remains sound, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .49% as of March 31, 2004, compared to .79% at March 31, 2003 and .53% at December 31, 2003. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter ended March 31, 2004, compared to .02% for the quarter ended March 31, 2003 and .03% for the previous quarter ended December 31, 2003. At March 31, 2004, the allowance for loan losses as a percentage of non-performing assets was 148.5%, while the allowance as a percentage of total loans amounted to 1.07%. The Company increased its provision for loan losses by $358 thousand or over 100%, from $323 thousand for the three months ended March 31, 2003 to $681 thousand for the three months ended March 31, 2004, consistent with the loan growth experienced for the period.

VFG is the holding company for Planters Bank & Trust Company of Virginia – in Staunton; Second Bank & Trust – in Culpeper; Virginia Heartland Bank – in Fredericksburg and Virginia Commonwealth Trust Company – in Culpeper. The organization maintains a network of thirty-seven branches serving Central and Southwest Virginia. It also has loan production offices located in Charlottesville and Lynchburg.

This press release contains forward-looking statements as defined by federal securities laws. These statements may address certain results that are expected or anticipated to occur or otherwise state the company’s predictions for the future. These particular forward-looking statements and all other statements that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Such factors include but are not limited to: general economic conditions, significant fluctuations in interest rates that could reduce net interest margin; difficulties in executing integration plans: reduction of fee income from existing products due to market conditions; and the amount of growth in the company’s general and administrative expenses. Consequently, these cautionary statements qualify all forward-looking statements made herein. 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)
	3/31/2004			3/31/2003
INCOME STATEMENT
Interest income - taxable equivalent	$	17,842		$	15,860		12.50	%
Interest expense		4,888			4,991		-2.06	%
Net interest income - taxable equivalent		12,954			10,869		19.18	%
Less: taxable equivalent adjustment		462			588		-21.43	%
Net interest income		12,492			10,281		21.51	%
Provision for loan and lease losses		681			323		110.84	%
Net interest income after provision for loan and lease losses		11,811			9,958		18.61	%
Noninterest income		3,457			3,659		-5.52	%
Noninterest expense		10,435			9,150		14.04	%
Provision for income taxes		1,378			1,173		17.48	%
Net income	$	3,455		$	3,294		4.89	%
PER SHARE DATA
Basic earnings	$	0.48		$	0.46		4.35	%
Diluted earnings	$	0.48		$	0.46		4.35	%
Shares outstanding		7,155,519			7,161,234
Weighted average shares -
Basic		7,153,348			7,168,741
Diluted		7,202,328			7,202,137
Dividends paid on common shares	$	0.19		$	0.18
PERFORMANCE RATIOS
Return on average assets		0.99	%		1.20	%	-17.50	%
Return on average equity		11.51	%		11.62	%	-0.95	%
Return on average realized equity (A)		11.98	%		12.35	%	-3.00	%
Net yield on earning assets (taxable equivalent)		4.09	%		4.27	%	-4.22	%
Efficiency (taxable equivalent) (B)		63.54	%		62.89	%	1.03	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	9,743		$	9,180
Provision for loan losses		681			323
Charge offs		(176	)		(175	)
Recoveries		35			39
End of period	$	10,283		$	9,367
Non-performing assets:
Non-accrual loans	$	2,121		$	1,085
Loans 90+ days past due and still accruing		78			46
Other real estate owned		241			576
Troubled debt restructurings		4,483			7,041
Total non-performing assets	$	6,923		$	8,748

NOTES: Applicable ratios are annualized

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

(B) Excludes foreclosed property expense and non-recurring items for all periods.

Consolidated Balance Sheets

Selected Balance Sheet Data

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	3/31/2004			3/31/2003			Percent Increase (Decrease)
End of period balances
Securities available for sale	$	325,001		$	308,580		5.32	%
Securities held to maturity		5,840			7,053		-17.20	%
Total securities		330,841			315,633		4.82	%
Real estate - construction		104,804			60,243		73.97	%
Real estate - 1-4 family residential		307,097			219,682		39.79	%
Real estate - commercial and multifamily		421,887			306,510		37.64	%
Commercial, financial and agricultural		80,173			66,363		20.81	%
Consumer loans		47,428			51,109		-7.20	%
All other loans		3,761			12,211		-69.20	%
Total loans		965,150			716,118		34.78	%
Allowance for loan losses		(10,283	)		(9,367	)	9.78	%
Other earning assets		8,935			37,696		-76.30	%
Total earning assets		1,304,926			1,069,447		22.02	%
Total assets		1,410,928			1,135,793		24.22	%
Non-interest bearing deposits		219,413			181,807		20.68	%
Money market & interest checking		361,498			286,395		26.22	%
Savings		139,807			109,210		28.02	%
CD’s and other time deposits		488,979			402,800		21.39	%
Total deposits		1,209,697			980,212		23.41	%
Short-term borrowed funds		34,038			21,938		55.16	%
Trust preferred capital notes		20,000			—		100.00	%
Federal Home Loan Bank advances		14,120			9,140		54.49	%
Total interest-bearing liabilities		1,058,442			849,483		24.60	%
Total shareholders’ equity		123,429			115,566		6.80	%
Average balances
Total assets		1,403,681			1,110,692		26.38	%
Total shareholder’s equity	$	120,732		$	115,058		4.93	%

Consolidated Statements of Income

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended
	3/31/2004		3/31/2003
Interest Income
Interest and fees on loans	$	14,055	$	12,208
Interest on deposits in other banks		1		2
Interest on investment securities:
Taxable		95		114
Interest and dividends on securities available for sale:
Taxable		2,431		1,920
Nontaxable		749		894
Dividends		47		55
Interest income on federal funds sold		2		79
Total Interest Income		17,380		15,272
Interest Expense
Interest on deposits		4,534		4,750
Interest on trust preferred capital notes		28		—
Interest on Federal Home Loan Bank advances		155		192
Interest on federal funds repurchased and securities sold under agreements to repurchase		100		48
Interest on other short-term borrowings		71		1
Total Interest Expense		4,888		4,991
Net Interest Income		12,492		10,281
Provision for loan losses		681		323
Net Interest Income after Provision for Loan Losses		11,811		9,958
Other Income
Retail banking fees		1,549		1,248
Fees from fiduciary activities		776		779
Brokerage services		198		233
Other operating income		289		312
Gains (losses) on securities available for sale		—		24
Gains (losses) on other real estate owned		—		—
Gains (losses) on sale of fixed assets		—		—
Fees on mortgage loans sold		645		1,063
Total Other Income		3,457		3,659
Other Expense
Compensation and employee benefits		5,860		5,258
Net occupancy expense		706		570
Supplies and equipment		1,044		948
Amortization-intangible assets		173		39
Computer services		299		341
Professional fees		201		212
Other operating expenses		2,152		1,782
Total Other Expense		10,435		9,150
Income Before Income Tax Expense		4,833		4,467
Income tax expense		1,378		1,173
Net Income	$	3,455	$	3,294

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

VIRGINIA FINANCIAL GROUP INC. (NASDAQ: VFGI)

THREE MONTHS ENDED MARCH 31, 2004 AND 2003

	2004						2003
Dollars in thousands	Average Balance		Interest Income/ Expense		Average Rates		Average Balance		Interest Income/ Expense		Average Rates
Assets
Loans receivable, net	$	942,969,430	$	14,114,179	6.02	%	$	716,686,783	$	12,310,249	6.97	%
Investment securities
Taxable		257,815,886		2,573,977	4.02	%		203,826,441		2,093,476	4.11	%
Tax exempt		70,909,182		1,151,963	6.53	%		79,592,159		1,375,605	6.91	%
Total Investments		328,725,068		3,725,940	4.56	%		283,418,600		3,469,081	4.90	%
FHLB interest bearing		548,712		754	0.55	%		486,712		1,563	1.30	%
Federal funds sold		858,579		2,085	0.98	%		27,426,067		79,296	1.17	%
		330,132,359		3,728,779	4.54	%		311,331,379		3,549,940	4.56	%
Total Earning Assets	$	1,273,101,789		17,842,958	5.64	%	$	1,028,018,162		15,860,189	6.24	%
Liabilities and Stockholders’ Equity
Time and savings deposits
Interest-bearing transaction accounts	$	196,532,271	$	385,099	0.79	%	$	123,863,743	$	236,139	0.77	%
Money market deposit accounts		169,228,844		405,823	0.96	%		156,452,419		536,223	1.39	%
Passbook savings accounts		137,018,701		248,569	0.73	%		106,919,155		310,336	1.18	%
Certificates of deposit >$100k		115,851,857		986,679	3.43	%		90,441,424		884,807	3.97	%
Certificates of deposit <$100k		372,339,730		2,507,815	2.71	%		312,594,143		2,782,817	3.61	%
Total Time and Savings Deposits		990,971,403		4,533,985	1.84	%		790,270,884		4,750,322	2.44	%
Federal funds purchased		32,568,564		71,722	0.89	%		19,521,938		48,000	1.00	%
Trust preferred capital notes		3,076,923		27,733	3.63	%
Other short term borrowings		26,414,286		98,415	1.50	%		453,597		1,460	1.31	%
Federal Home Loan Bank advances		9,522,198		154,876	6.54	%		12,217,556		191,556	6.36	%
		71,581,971		352,746	1.98	%		32,193,091		241,016	3.04	%
Total Interest- Bearing Liabilities	$	1,062,553,374		4,886,731	1.85	%	$	822,463,975		4,991,338	2.46	%
Net interest income (tax equivalent)			$	12,956,227					$	10,868,851
Average interest rate spread					3.79	%					3.78	%
Interest expense as percentage of
average earning assets					1.54	%					1.97	%
Net interest margin					4.09	%					4.27	%