8-K

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 (Date of earliest event reported)

October 20, 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)	(Commission File Number)	(IRS Employer Identification No.)

102 S. 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:

¨ 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 20, 2004, 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, 2004. The text of the press release is included as Exhibit 99.1 to this report. The Company will include financial statements and additional analyses for the quarter and nine months ended September 30, 2004 as part of its Form 10-Q covering the period.

Item 9.01. Financial Statements and Exhibits.

Exhibit
99.1	Virginia Financial Group, Inc. press release dated October 20, 2004.

1

SIGNATURE

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

October 25, 2004

2

EXHIBIT INDEX

Exhibit
99.1	Virginia Financial Group, Inc. press release dated October 20, 2004.

3

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 13% GROWTH IN THIRD QUARTER EARNINGS

Culpeper, VA - Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported third quarter 2004 earnings of $4.0 million or $.55 per share, an increase of 13.0% compared to earnings of $3.5 million or $.49 per share for the quarter ended September 30, 2003. Diluted earnings per share for the quarter increased 12.2% compared to third quarter 2003 results.

Earnings for the first nine months of 2004 amounted to $11.1 million or $1.55 per diluted share compared to earnings of $10.4 million or $1.45 per diluted share. This earnings growth represents a 6.9% increase in net income and diluted earnings per share.

VFG’S earnings for the third quarter produced an annualized return on average assets of 1.11% and an annualized return on average equity of 12.99%, compared to prior year ratios of 1.20% and 12.09%, respectively. Earnings for the nine month period yielded an annualized return on average assets of 1.05% and an annualized return on average shareholders’ equity of 12.24%, compared with prior year ratios of 1.22% and 11.97%, respectively.

Analysis of Financial Performance

Revenues for the third quarter of 2004 were $16.8 million, an increase of $1.9 million or 12.4% over $14.9 million in 2003. The largest component, net interest income, amounted to $13.2 million for the third quarter, up $2.4 million or 22.2% compared with $10.8 million for the same quarter in 2003. Growth in average earning assets and an improving net interest margin were primarily contributors to this growth. For the nine months ended September 30, 2004, net interest income was $38.2 million, an increase of $6.7 million or 21.4% from $31.5 million for the same period in 2003. The net interest

margin for the third quarter of 2004 was 4.14%, compared to 4.12% for the same quarter in 2003, and 4.05% for the second quarter of 2004. The net interest margin for the nine month period ended September 30, 2004 was 4.10%, compared to 4.21% for the same period in 2003.

Total noninterest income was $3.6 million for the third quarter of 2004, a decrease of 12.8% compared to $4.2 million for the same period in 2003. Excluding securities gains of $365 thousand in 2003, the decrease in 2004 as compared to 2003 amounted to $169 thousand or 4.4%. VFG continued to see a decrease in mortgage refinance activity, with total mortgage revenue decreasing $754 thousand or 41.5% to $534 thousand for the third quarter of 2004. VFG’s mortgage operation originations for the quarter constituted 66.3% purchase loan activity. Fees from retail banking operations amounted to $2.0 million for the third quarter of 2004, an increase of $556 thousand or 38.2%. Fees from trust and investment services for the third quarter of 2004 amounted to $845 thousand, an increase of $69 thousand or 8.9% compared to the same quarter in 2003.

Noninterest expense for the third quarter of 2004 amounted to $10.4 million, an increase of $526 thousand or 5.3% for the same quarter in 2003. Excluding nonrecurring expenses in 2003 of $340 thousand associated with integration of the First Virginia branches, noninterest expenses increased $866 thousand or 9.1%. Components of this increase are higher operating costs associated with the loan production office in Lynchburg, amortization of intangibles, tele-communication costs and professional fees. These expenses were offset somewhat by decreases in costs associated with mortgage related commissions, medical benefits, and other incentive related accruals. VFG’s efficiency ratio was 60.25% for the third quarter of 2004, compared to 63.22% for the same quarter in 2003.

VFG’s loan portfolio increased $161.2 million or 18.5% to $1.034 billion at September 30, 2004, compared to the same date in 2003. For the third quarter of 2004, VFG’s loan portfolio grew $38.3 million or 3.8%, funded by deposit growth of $31.8 million representing growth of 2.6%. For the nine months ended September 30, 2004, loan growth amounted to $110.4 million or 12.0%. The growth in loans for the quarter was fairly distributed between our Culpeper, Fredericksburg, Charlottesville and Lynchburg lending units. VFG anticipates some slowing in its loan growth during the fourth quarter based on current pipeline levels. VFG ended the quarter with assets of $1.440 billion, compared to $1.383 billion at the same date last year, representing growth of $57 million or 4.1%

VFG’s ratio of non-performing assets as a percentage of total assets amounted to .28% at the end of the third quarter of 2004, compared to .55% for the same quarter in 2003. VFG’s ratio of non-performing assets to loans and other real estate owned amounted to .39% at the end of the quarter, compared to .88% for the same quarter in 2003. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter, compared to less than .01% for the same quarter in 2003. At September 30, 2004, the allowance for loan losses as a percentage of non-performing assets was 279.4%, while the allowance as a percentage of total loans amounted to 1.09%.

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 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-seven branches serving Central and Southwest Virginia. It also maintains five trust and investment service offices in its markets, and 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, changes in the lending environment, 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)
	9/30/2004			9/30/2003
INCOME STATEMENT
Interest income - taxable equivalent	$	18,372		$	15,912		15.46	%
Interest expense		4,775			4,622		3.31	%
Net interest income - taxable equivalent		13,597			11,290		20.43	%
Less: taxable equivalent adjustment		436			523		-16.63	%
Net interest income		13,161			10,767		22.23	%
Provision for loan and lease losses		636			323		96.90	%
Net interest income after provision for loan and lease losses		12,525			10,444		19.93	%
Noninterest income		3,642			4,176		-12.79	%
Noninterest expense		10,433			9,907		5.31	%
Provision for income taxes		1,743			1,181		47.59	%
Net income	$	3,991		$	3,532		13.00	%
PER SHARE DATA
Basic earnings	$	0.56		$	0.49		14.29	%
Diluted earnings	$	0.55		$	0.49		12.24	%
Shares outstanding		7,160,417			7,149,926
Weighted average shares -
Basic		7,160,417			7,149,926
Diluted		7,204,399			7,185,547
Shares repurchased		—			—
Average price of shares repurchased	$	—		$	—
Dividends paid on common shares	$	0.20		$	0.19
PERFORMANCE RATIOS
Return on average assets		1.11	%		1.20	%	-7.50	%
Return on average equity		12.99	%		12.09	%	7.44	%
Return on average realized equity (A)		13.12	%		12.70	%	3.31	%
Net yield on earning assets (taxable equivalent)		4.14	%		4.12	%	0.49	%
Efficiency (taxable equivalent) (B)		60.25	%		63.22	%	-4.70	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	10,799		$	9,344
Provision for loan losses		636			322
Charge offs		(184	)		(88	)
Recoveries		49			80
End of period	$	11,300		$	9,658

NOTES: Applicable ratios are annualized

(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 foreclosed property expense for all periods.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	For the Nine Months Ended						Percent Increase (Decrease)
	9/30/2004			9/30//03
INCOME STATEMENT
Interest income - taxable equivalent	$	53,917		$	47,562		13.36	%
Interest expense		14,356			14,377		-0.15	%
Net interest income - taxable equivalent		39,561			33,185		19.21	%
Less: taxable equivalent adjustment		1,346			1,698		-20.73	%
Net interest income		38,215			31,487		21.37	%
Provision for loan and lease losses		1,953			968		101.76	%
Net interest income after provision for loan and lease losses		36,262			30,519		18.82	%
Noninterest income		11,048			11,705		-5.61	%
Noninterest expense		31,503			28,252		11.51	%
Provision for income taxes		4,676			3,557		31.46	%
Net income	$	11,131		$	10,415		6.87	%
PER SHARE DATA
Basic earnings	$	1.56		$	1.46		6.85	%
Diluted earnings	$	1.55		$	1.45		6.90	%
Shares outstanding		7,160,417			7,149,926
Weighted average shares -
Basic		7,157,833			7,157,482
Diluted		7,201,815			7,192,409
Shares repurchased		—			28,507
Average price of shares repurchased	$	—		$	28.68
Dividends paid on common shares	$	0.58		$	0.56
PERFORMANCE RATIOS
Return on average assets		1.05	%		1.22	%	-13.93	%
Return on average equity		12.24	%		11.97	%	2.26	%
Return on average realized equity (A)		12.55	%		12.62	%	-0.55	%
Net yield on earning assets (taxable equivalent)		4.10	%		4.21	%	-2.61	%
Efficiency (taxable equivalent) (B)		62.13	%		62.75	%	-0.99	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	9,743		$	9,180
Provision for loan losses		1,953			968
Charge offs		(538	)		(679	)
Recoveries		142			189
End of period	$	11,300		$	9,658
Non-performing assets:
Non-accrual loans	$	2,116		$	1,824
Loans 90+ days past due and still accruing		1			11
Other real estate owned		5			1,233
Troubled debt restructurings		1,937			4,572
Total non-performing assets	$	4,059		$	7,640

NOTES: Applicable ratios are annualized

(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 foreclosed property expense for all periods.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	For the Nine Months Ended						Percent Increase (Decrease)
	9/30/2004			9/30/2003
SELECTED BALANCE SHEET DATA
End of period balances
Securities available for sale	$	292,096		$	379,847		-23.10	%
Securities held to maturity		5,846			6,335		-7.72	%
Total securities		297,942			386,182		-22.85	%
Real estate - construction		106,356			75,099		41.62	%
Real estate - 1-4 family residential		316,425			314,507		0.61	%
Real estate - commercial and multifamily		479,760			347,190		38.18	%
Commercial, financial and agricultural		82,307			75,119		9.57	%
Consumer loans		45,587			56,657		-19.54	%
All other loans		3,073			3,733		-17.68	%
Total loans		1,033,508			872,305		18.48	%
Allowance for loan losses		(11,300	)		(9,658	)	17.00	%
Other earning assets		3,527			9,191		-61.63	%
Total earning assets		1,334,977			1,267,678		5.31	%
Total assets		1,439,756			1,382,540		4.14	%
Non-interest bearing deposits		220,355			223,721		-1.50	%
Money market & interest checking		389,970			354,345		10.05	%
Savings		141,508			137,536		2.89	%
CD’s and other time deposits		498,888			491,741		1.45	%
Total deposits		1,250,721			1,207,343		3.59	%
Short-term borrowed funds		20,400			34,698		-41.21	%
Trust preferred capital notes		20,000			—		100.00	%
Federal Home Loan Bank advances		14,080			9,160		53.71	%
Total interest-bearing liabilities		1,084,846			1,027,480		5.58	%
Total stockholders’ equity	$	125,679		$	117,738		6.74	%
Average balances
Total assets	$	1,411,928		$	1,141,813		23.66	%
Total stockholders’ equity	$	121,472		$	116,384		4.37	%
	For the Three Months Ended						Percent Increase (Decrease)
	9/30/2004			9/30/2003
Average Balances
Total assets	$	1,425,340		$	1,181,658		20.62	%
Total stockholders’ equity	$	122,230		$	117,236		4.26	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended				For the Nine Months Ended
	9/30/2004		9/30/2003		9/30/2004		9/30/2003
Interest Income
Interest and fees on loans	$	14,969	$	12,167	$	43,263	$	36,381
Interest on deposits in other banks		1		29		3		31
Interest on investment securities:
Taxable		92		109		279		337
Interest and dividends on securities available for sale:
Taxable		2,023		2,066		6,580		5,956
Nontaxable		696		897		2,158		2,731
Dividends		132		96		256		259
Interest income on federal funds sold		23		25		32		169
Total Interest Income		17,936		15,389		52,571		45,864
Interest Expense
Interest on deposits		4,322		4,396		13,093		13,681
Interest on trust preferred		220		—		442		—
Interest on Federal Home Loan Bank advances		181		163		519		533
Interest on federal funds repurchased and securities sold under agreements to repurchase		47		62		161		159
Interest on other short-term borrowings		5		1		141		4
Total Interest Expense		4,775		4,622		14,356		14,377
Net Interest Income		13,161		10,767		38,215		31,487
Provision for loan losses		636		323		1,953		968
Net Interest Income after Provision for Loan Losses		12,525		10,444		36,262		30,519
Other Income
Retail banking fees		2,011		1,455		5,610		4,143
Fees from fiduciary activities		676		673		2,136		2,162
Brokerage services		169		103		514		451
Other operating income		252		272		773		884
Gains (losses) on securities available for sale		—		365		—		435
Gains (losses) on other real estate owned		—		20		—		20
Gains (losses) on sale of fixed assets		—		—		—		—
Fees on mortgage loans sold		534		1,288		2,015		3,610
Total Other Income		3,642		4,176		11,048		11,705
Other Expense
Compensation and employee benefits		5,793		5,690		17,601		16,274
Net occupancy expense		697		561		2,073		1,679
Supplies and equipment		1,085		893		3,224		2,840
Amortization-intangible assets		173		39		520		118
Computer services		350		270		1,091		902
Professional fees		162		219		653		575
Other operating expenses		2,173		2,235		6,341		5,864
Total Other Expense		10,433		9,907		31,503		28,252
Income Before Income Tax Expense		5,734		4,713		15,807		13,972
Income tax expense		1,743		1,181		4,676		3,557
Net Income	$	3,991	$	3,532	$	11,131	$	10,415

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

	Three months Ending SEPTEMBER 30, 2004							Three months Ending SEPTEMBER 30, 2003
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates			Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,009,098,814	$	15,027,427	5.92	%		$	755,222,127	$	12,233,073	6.43	%
Investment securities
Taxable		226,490,641		2,249,404	3.95	%			239,450,228		2,273,723	3.80	%
Tax exempt		65,267,961		1,071,656	6.53	%			77,260,040		1,354,470	7.01	%
Total Investments		291,758,602		3,321,060	4.53	%			316,710,268		3,628,193	4.58	%
FHLB int bearing		323,067		1,289	1.59	%			313,263		25,768	32.63	%
Federal funds sold		5,962,083		22,108	1.48	%			16,946,229		51,037	1.19	%
		298,043,752		3,344,457	4.46	%			333,969,760		3,704,998	4.44	%
Total Earning Assets		1,307,142,566		18,371,884	5.59	%	Tax Eql.		1,089,191,887		15,938,071	5.82	%	Tax Eql.
Non-Earning Assets		118,197,929							92,465,731
Total Assets		1,425,340,495							1,181,657,618
Liabilities and Stockholders’ Equity
Time and savings deposits
Interest-bearing transaction accounts	$	196,014,562	$	184,026	0.37	%		$	134,876,643	$	216,835	0.64	%
Money market deposit accounts		181,754,438		413,743	0.91	%			163,709,661		421,622	1.02	%
Passbook savings accounts		144,072,154		233,693	0.65	%			114,981,891		235,237	0.81	%
Certificates of deposit >$100k		122,270,427		1,020,227	3.32	%			93,176,952		880,914	3.75	%
Certificates of deposit <$100k		369,100,912		2,469,840	2.66	%			315,843,023		2,641,615	3.32	%
Total Time and Savings Deposits		1,013,212,493		4,321,529	1.70	%			822,588,170		4,396,223	2.12	%
Federal funds purchased		21,754,651		46,208	0.85	%			40,377,100		88,252	0.87	%
Trust Preferred Securities		19,999,999		220,609	4.39	%			—		—
Other short term borrowings		1,293,478		5,132	1.58	%			403,325		1,485	1.46	%
Federal Home Loan Bank advances		13,504,525		181,461	5.35	%			9,177,826		162,608	7.03	%
		56,552,653		453,410	3.19	%			49,958,251		252,345	2.00	%
Total Interest - Bearing Liabilities		1,069,765,146		4,774,939	1.78	%			872,546,421		4,648,568	2.11	%
Non-Interest - Bearing     Liabilities		233,345,465							191,875,534
Total Stockholders’ Equity		122,229,884							117,235,663
Total Liabilities and Stockholders’ Equity		1,425,340,495							1,181,657,618
Net interest income (tax equivalent)			$	13,596,945						$	11,289,503
Average interest rate spread					3.82	%						3.70	%
Interest expense as percentage of average earning assets					1.45	%						1.69	%
Net interest margin					4.14	%						4.12	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

	Nine months Ending SEPTEMBER 30, 2004							Nine months Ending SEPTEMBER 30, 2003
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates			Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	976,363,428	$	43,438,782	5.94	%		$	732,297,011	$	36,621,327	6.69	%
Investment securities
Taxable		242,745,631		7,123,168	3.92	%			222,299,115		6,555,320	3.93	%
Tax exempt		67,586,427		3,320,086	6.56	%			78,492,230		4,188,248	7.11	%
Total Investments		310,332,058		10,443,254	4.50	%			300,791,345		10,743,568	4.76	%
FHLB int bearing		458,136		3,334	0.97	%			436,258		28,032	8.59	%
Federal funds sold		3,356,694		31,571	1.26	%			18,407,982		168,928	1.23	%
		314,146,888		10,478,159	4.46	%			319,635,585		10,940,528	4.56	%
Total Earning Assets		1,290,510,316		53,916,941	5.58	%	Tax Eql.		1,051,932,596		47,561,855	6.04	%	Tax Eql.
Non-Earning Assets		121,417,205							89,880,649
Total Assets		1,411,927,521							1,141,813,245
Liabilities and Stockholders’ Equity
Time and savings deposits
Interest-bearing transaction accounts	$	193,990,441	$	753,997	0.52	%		$	128,686,454	$	689,997	0.72	%
Money market deposit accounts		173,922,313		1,194,696	0.92	%			160,028,427		1,422,557	1.19	%
Passbook savings accounts		140,716,072		717,736	0.68	%			111,117,410		820,018	0.99	%
Certificates of deposit >$100k		119,364,249		3,000,241	3.36	%			91,454,193		2,640,905	3.86	%
Certificates of deposit <$100k		370,699,992		7,426,262	2.68	%			313,436,061		8,107,623	3.46	%
Total Time and Savings Deposits		998,693,067		13,092,932	1.75	%			804,722,545		13,681,100	2.27	%
Federal funds purchased		25,919,258		154,826	0.80	%			22,206,170		159,193	0.96	%
Trust Preferred Securities		14,379,562		442,475	4.11	%			—		—
Other short term borrowings		12,798,175		146,896	1.53	%			485,475		4,251	1.17	%
Federal Home Loan Bank advances		12,584,818		519,013	5.51	%			10,758,022		532,950	6.62	%
		65,681,813		1,263,210	2.57	%			33,449,667		696,394	2.78	%
Total Interest - Bearing Liabilities		1,064,374,880		14,356,142	1.80	%			838,172,212		14,377,494	2.29	%
Non-Interest - Bearing Liabilities		226,080,678							187,256,629
Total Stockholders’ Equity		121,471,963							116,384,404
Total Liabilities and Stockholders’ Equity		1,411,927,521							1,141,813,245
Net interest income (tax equivalent)			$	39,560,799						$	33,184,361
Average interest rate spread					3.78	%						3.75	%
Interest expense as percentage of average earning assets					1.49	%						1.83	%
Net interest margin					4.10	%						4.21	%