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, 2005

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)	(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

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):

¨ 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, 2005, 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, 2005. The text of the press release is included as Exhibit 99.1 to this report.

Item 9.01. Financial Statements and Exhibits.

Exhibit
99.1	Virginia Financial Group, Inc. press release dated October 20, 2005.

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 21, 2005

2

EXHIBIT INDEX

Exhibit
99.1	Virginia Financial Group, Inc. press release dated October 20, 2005.

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 18%

GROWTH IN THIRD QUARTER EARNINGS

Culpeper, VA-Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported third quarter 2005 earnings of $4.7 million, an increase of 18.2% compared to earnings of $4.0 million for the third quarter of 2004. Net income per diluted share was $.65, also up 18.2% compared to $.55 for the same period in 2004. VFG’S earnings for the third quarter of 2005 produced an annualized return on average assets (ROA) of 1.26% and an annualized return on average equity (ROE) of 14.03%, compared to prior year ratios of 1.11% and 12.99%, respectively. For the first nine months of 2005, net income was $13.2 million, up 18.6% from $11.1 million for the same period in 2004. Net income per diluted share was $1.83, up 18.1% from $1.55 for the first nine months of 2004. ROA and ROE for the nine month period was 1.20% and 13.60%, respectively, compared to 1.05% and 12.24% for the same period in 2004.

O.R. Barham, Jr., President and CEO, commented, “We are quite pleased with our results for the quarter, particularly with revenue and balance sheet growth. Revenue growth was fueled by an 18.5% annualized growth rate in loans for the quarter and a 13 basis point improvement in net interest margin sequentially. We saw our efficiency ratio drop to its lowest level in several years, and our return on average equity eclipse 14% for the quarter. Deposit growth also showed some improvement, and we are excited about the prospects of deposit growth from new branches coming on-line in the next several quarters. Our balance sheet reached the $1.5 billion level, an important milestone and one in which we can be proud of.”

REVENUE GROWTH

Total revenue, comprised of net interest income and noninterest income, was $18.5 million for the third quarter of 2005, an increase of $1.7 million or 10.3% over $16.8 million in 2004. The largest component, net interest income, amounted to $14.7 million for the third quarter, up $1.5 million or 11.4% compared with $13.2 million for the same quarter in 2004. For the nine months ended September 30, 2005, net interest income was $41.6 million, an increase of $3.4 million or 8.9% from $38.2 million for the same period in 2004. Improvements in the growth and mix of average earning assets, coupled with net interest

margin expansion, were primarily contributors to this growth. The net interest margin for the third quarter of 2005 was 4.36%, up thirteen basis points sequentially compared to 4.23% for the second quarter of 2005, and up twenty-two basis points when compared to 4.14% for the third quarter of 2004. The net interest margin for the nine month period ended September 30, 2005 was 4.25%, compared to 4.09% for the same period in 2004.

Total noninterest income was $3.9 million for the third quarter of 2005, an increase of $228 thousand or 6.3% compared to $3.6 million for the third quarter of 2004. Retail banking fees decreased $266 thousand or 13.2% to $1.7 million, compared to $2.0 million in the third quarter of 2004. VFG continues to see decline in the volume of NSF charges attributable to trends noted with respect to a corresponding decrease in paper items processed and increase in pre-authorized electronic banking transactions such as ATM and debit card transactions. VFG experienced higher revenues and profitability from mortgage operations, with gross mortgage banking fees amounting to $1.0 million, a increase of $488 thousand or 91.4%, as compared to $534 thousand for the third quarter of 2004, and up sequentially $345 thousand or 51.1% from the second quarter of 2005. Revenues and profitability are anticipated to decline somewhat in the fourth quarter due to seasonal fluctuation and potential increases in mortgage rates.

NONINTEREST EXPENSE AND EFFICIENCY

Noninterest expense for the third quarter of 2005 amounted to $11.1 million, up $661 thousand or 6.3% from $10.4 million for the same period in 2004, and up sequentially $293 thousand or 2.7% from the second quarter of 2005. For the nine month period ended September 30, 2005, noninterest expense amounted to $32.4 million, an increase of $921 thousand or 2.9% over $31.5 million for the same period in 2004. The relatively modest increases are attributable to a fairly stable full-time equivalent employee count and related costs associated with health and welfare benefits, no significant expansion activities during the period, and general improvements in overall efficiency. Some acceleration of costs associated with training and professional fees was noted in the quarter, and management anticipates that these increases will continue to grow to a more normalized level as it accelerates its expansion efforts and completes several sales and credit training initiatives in the fourth quarter of 2005. VFG’s efficiency ratio was 58.3% for the quarter, compared to 60.2% for the same quarter in 2004. For the nine month period ended September 30, 2005, the efficiency ratio was 59.6%, compared to 62.1% for the same period in 2004.

BALANCE SHEET

Average loans for the third quarter were $1.13 billion, up $121.3 million or 12.0% from the third quarter of 2004, and average total assets were $1.48 billion, up $54.8 million or 3.8% from the third quarter of 2004. Loan growth for the third quarter of 2005 was $51.5 million or 4.6%, with approximately 70% of the increase originating from the non-residential real estate component of the portfolio. Third quarter 2005 loan growth was funded from maturities and pay downs in the securities portfolio of $12.9 million, deposit growth of $19.7 million and wholesale funding of $16.8 million.

Deposit growth was predominately in the money market component, with money market balances up $27.5 million or 7.8% for the quarter, reflecting a successful deposit campaign during the period. Non-interest bearing demand deposits were down $8.1 million or 3.1% for the quarter, due to lower balances associated with real estate closings, but are up $36.7 million or 16.6% when compared to a year ago.

At September 30, 2005 VFG had total assets of $1.50 billion, compared to $1.44 billion at September 30, 2004. Shareholder’s equity at September 30, 2005 was $134.5 million, an increase of $8.4 million or 6.7% compared to September 30, 2004. Shareholder’s equity represented 8.91% of total assets at September 30, 2005, while tangible equity capital represented 7.78% of tangible assets at September 30, 2005. Book value at September 30, 2005 was $18.70 per share, compared to $17.55 at September 30, 2004.

ASSET QUALITY

Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .11% as of September 30, 2005, compared to ..28% at September 30, 2004 and .11% at June 30, 2005. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter and .02% for the nine month period ended September 30, 2005, compared to .01% and .04% for the same periods in 2004. At September 30, 2005, the allowance for loan losses was approximately eight times the level of non-performing assets, while the allowance as a percentage of total loans amounted to 1.13%. VFG decreased its provision for loan losses by $133 thousand or 20.9%, from $636 thousand for the three months ended September 30, 2004 compared to $503 thousand for the three months ended September 30, 2005, consistent with charge-off experience and general improvement in asset quality during the period.

UPDATE ON SUPERVISORY AGREEMENT REGARDING BANK SECRECY ACT COMPLIANCE

VFG has received verbal notification from the Federal Reserve Bank of Richmond that it now is in full compliance with Bank Secrecy Act (“BSA”) regulations, and has recommended the lifting of the supervisory agreement to the Federal Reserve Board. VFG continues to anticipate this event occurring in the near future, but can give no assurances as to the timing of such event.

ABOUT VFG

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-five 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.

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 gain on sale of securities. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. 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”.

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, or VFG may not be released from its supervisory agreement with the Federal Reserve related to Bank Secrecy Compliance within anticipated timeframes, (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)
	9/30/2005			9/30/2004
INCOME STATEMENT
Interest income - taxable equivalent	$	21,091		$	18,372		14.80	%
Interest expense		6,040			4,775		26.49	%
Net interest income - taxable equivalent		15,051			13,597		10.69	%
Less: taxable equivalent adjustment		394			436		-9.63	%
Net interest income		14,657			13,161		11.37	%
Provision for loan and lease losses		503			636		-20.91	%
Net interest income after provision for loan and lease losses		14,154			12,525		13.01	%
Noninterest income		3,870			3,642		6.26	%
Noninterest expense		11,094			10,433		6.34	%
Provision for income taxes		2,211			1,743		26.85	%
Net income	$	4,719		$	3,991		18.24	%
PER SHARE DATA
Basic earnings	$	0.66		$	0.56		17.86	%
Diluted earnings	$	0.65		$	0.55		18.18	%
Shares outstanding		7,170,828			7,160,417
Weighted average shares -
Basic		7,170,525			7,160,417
Diluted		7,218,383			7,201,641
Dividends paid on common shares	$	0.21		$	0.20
PERFORMANCE RATIOS
Return on average assets		1.26	%		1.11	%	13.51	%
Return on average equity		14.03	%		12.99	%	8.01	%
Return on average realized equity (A)		14.03	%		13.12	%	6.94	%
Net interest margin (taxable equivalent)		4.36	%		4.14	%	5.31	%
Efficiency (taxable equivalent) (B)		58.29	%		60.25	%	-3.26	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	12,664		$	10,799
Provision for loan losses		503			636
Charge offs		(84	)		(184	)
Recoveries		44			49
End of period	$	13,127		$	11,300

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 securities gains (losses) and 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)
	9/30/2005			9/30/2004
INCOME STATEMENT
Interest income - taxable equivalent	$	60,002		$	53,917		11.29	%
Interest expense		17,173			14,356		19.62	%
Net interest income - taxable equivalent		42,829			39,561		8.26	%
Less: taxable equivalent adjustment		1,199			1,346		-10.92	%
Net interest income		41,630			38,215		8.94	%
Provision for loan and lease losses		1,595			1,953		-18.33	%
Net interest income after provision for loan and lease losses		40,035			36,262		10.40	%
Noninterest income		11,643			11,048		5.39	%
Noninterest expense		32,424			31,503		2.92	%
Provision for income taxes		6,051			4,676		29.41	%
Net income	$	13,203		$	11,131		18.61	%
PER SHARE DATA
Basic earnings	$	1.84		$	1.56		17.95	%
Diluted earnings	$	1.83		$	1.55		18.06	%
Shares outstanding		7,170,828			7,160,417
Weighted average shares -
Basic		7,166,947			7,157,833
Diluted		7,215,668			7,201,815
Dividends paid on common shares	$	0.62		$	0.58
PERFORMANCE RATIOS
Return on average assets		1.20	%		1.05	%	14.29	%
Return on average equity		13.60	%		12.24	%	11.11	%
Return on average realized equity (A)		13.67	%		12.55	%	8.92	%
Net interest margin (taxable equivalent)		4.25	%		4.09	%	3.91	%
Efficiency (taxable equivalent) (B)		59.64	%		62.13	%	-4.01	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	11,706		$	9,743
Provision for loan losses		1,595			1,953
Charge offs		(403	)		(538	)
Recoveries		229			142
End of period	$	13,127		$	11,300
Non-performing assets:
Non-accrual loans	$	1,422		$	2,116
Loans 90+ days past due and still accruing		—			1
Other real estate owned		41			5
Troubled debt restructurings		173			1,937
Total non-performing assets	$	1,636		$	4,059
to total assets:		0.11	%		0.28	%
to total loans plus OREO:		0.14	%		0.39	%
Allowance for loan losses to total loans		1.13	%		1.09	%
Net charge-offs (recoveries)	$	174		$	396
Net charge-offs to average loans outstanding		0.02	%		0.04	%

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

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	9/30/2005			9/30/2004			Percent Increase (Decrease)
SELECTED BALANCE SHEET DATA
End of period balances
Cash and Cash Equivalents	$	52,874		$	52,662		0.40	%
Securities available for sale		215,070			292,096		-26.37	%
Securities held to maturity		4,284			5,846		-26.72	%
Total securities		219,354			297,942		-26.38	%
Real estate - construction		132,073			106,356		24.18	%
Real estate - 1-4 family residential		325,860			316,425		2.98	%
Real estate - commercial and multifamily		577,243			479,760		20.32	%
Commercial, financial and agricultural		84,951			82,307		3.21	%
Consumer loans		41,943			45,587		-7.99	%
All other loans		2,496			2,740		-8.91	%
Total loans		1,164,566			1,033,175		12.72	%
Deferred loan costs		476			333		42.94	%
Allowance for loan losses		(13,127	)		(11,300	)	16.17	%
Net loans		1,151,915			1,022,208		12.69	%
Other assets		133,624			119,606		11.72	%
Total assets		1,504,893			1,439,756		4.52	%
Non-interest bearing deposits		257,019			220,355		16.64	%
Money market & interest checking		379,579			389,970		-2.66	%
Savings		129,051			141,508		-8.80	%
CD’s and other time deposits		503,180			498,888		0.86	%
Total deposits		1,268,829			1,250,721		1.45	%
Short-term borrowed funds		37,481			20,400		83.73	%
Trust preferred capital notes		20,619			20,000		3.10	%
Federal Home Loan Bank advances		35,000			14,080		148.58	%
Other liabilities		8,856			8,876		-0.23	%
Total liabilities		1,370,785			1,314,077		4.32	%
Total stockholders’ equity	$	134,108		$	125,679		6.71	%
Accumulated Comprehensive Income (Loss)	$	(480	)	$	2,903		-116.53	%
Average balances
	For the Nine Months Ended						Percent Increase (Decrease)
	9/30/2005			9/30/2004
Total assets	$	1,465,144		$	1,411,928		3.77	%
Total stockholders’ equity	$	129,799		$	121,472		6.86	%
	For the Three Months Ended
	9/30/2005			9/30/2004
Total assets	$	1,480,148		$	1,425,341		3.85	%
Total stockholders’ equity	$	133,444		$	122,230		9.17	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended				Percent Increase (Decrease)
	9/30/2005		9/30/2004
Interest Income
Interest and fees on loans	$	18,335	$	14,969	22.49	%
Interest on deposits in other banks		5		1	400.00	%
Interest and dividends on securities:
Taxable		1,530		2,115	-27.66	%
Tax-exempt		642		696	-7.76	%
Dividends		79		132	-40.15	%
Interest income on federal funds sold		106		23	360.87	%
Total interest income		20,697		17,936	15.39	%
Interest Expense
Interest on deposits		5,195		4,322	20.20	%
Interest on federal funds repurchased and securities sold under agreements to repurchase		135		47	187.23	%
Interest on Federal Home Loan Bank advances		313		181	72.93	%
Interest on trust preferred capital notes		328		220	49.09	%
Interest on other short-term borrowings		69		5	1280.00	%
Total interest expense		6,040		4,775	26.49	%
Net interest income		14,657		13,161	11.37	%
Provision for loan losses		503		636	-20.91	%
Net interest income after provision for loan losses		14,154		12,525	13.01	%
Noninterest Income
Retail banking fees		1,745		2,011	-13.23	%
Commissions and fees from fiduciary activities		696		676	2.96	%
Investment fee income		158		169	-6.51	%
Other operating income		247		252	-1.98	%
Gains (losses) on sale of fixed assets		2		—	—
Gains (losses) on securities available for sale		—		—	—
Gains (losses) on sale of other real estate owned		—		—	—
Gains (losses) on sale of branches		—		—	—
Gain on sale of mortgage loans		1,022		534	91.39	%
Total noninterest income		3,870		3,642	6.26	%
Noninterest Expense
Compensation and employee benefits		6,456		5,793	11.44	%
Net occupancy expense		787		697	12.91	%
Supplies and equipment expenses		919		1,085	-15.30	%
Amortization-intangible assets		158		173	-8.67	%
Marketing		296		165	79.39	%
State franchise taxes		208		145	43.45	%
Data processing		315		350	-10.00	%
Telecommunications		273		227	20.26	%
Professional fees		232		162	43.21	%
Other operating expenses		1,450		1,636	-11.37	%
Total noninterest expense		11,094		10,433	6.34	%
Income before income taxes		6,930		5,734	20.86	%
Income tax expense		2,211		1,743	26.85	%
Net income	$	4,719	$	3,991	18.24	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Nine Months Ended				Percent Increase (Decrease)
	9/30/2005		9/30/2004
Interest Income
Interest and fees on loans	$	51,501	$	43,263	19.04	%
Interest on deposits in other banks		11		3	266.67	%
Interest and dividends on securities:
Taxable		4,955		6,859	-27.76	%
Tax-exempt		1,949		2,158	-9.68	%
Dividends		261		256	1.95	%
Interest income on federal funds sold		126		32	293.75	%
Total interest income		58,803		52,571	11.85	%
Interest Expense
Interest on deposits		14,815		13,093	13.15	%
Interest on federal funds repurchased and securities sold under agreements to repurchase		423		161	162.73	%
Interest on Federal Home Loan Bank advances		742		519	42.97	%
Interest on trust preferred capital notes		904		442	104.52	%
Interest on other short-term borrowings		289		141	104.96	%
Total interest expense		17,173		14,356	19.62	%
Net interest income		41,630		38,215	8.94	%
Provision for loan losses		1,595		1,953	-18.33	%
Net interest income after provision for loan losses		40,035		36,262	10.40	%
Noninterest Income
Retail banking fees		5,219		5,610	-6.97	%
Commissions and fees from fiduciary activities		2,207		2,136	3.32	%
Investment fee income		519		514	0.97	%
Other operating income		1,220		773	57.83	%
Gains (losses) on sale of fixed assets		1		—	—
Gains (losses) on securities available for sale		296		—	—
Gains (losses) on sale of other real estate owned		—		—	—
Gains (losses) on sale of branches		—		—	—
Gain on sale of mortgage loans		2,181		2,015	8.24	%
Total noninterest income		11,643		11,048	5.39	%
Noninterest Expense
Compensation and employee benefits		18,552		17,601	5.40	%
Net occupancy expense		2,184		2,073	5.35	%
Supplies and equipment expenses		3,127		3,224	-3.01	%
Amortization-intangible assets		485		520	-6.73	%
Marketing		754		467	61.46	%
State franchise taxes		662		455	45.49	%
Data processing		942		1,091	-13.66	%
Telecommunications		770		794	-3.02	%
Professional fees		629		653	-3.68	%
Other operating expenses		4,319		4,624	-6.60	%
Total noninterest expense		32,424		31,502	2.93	%
Income before income taxes		19,254		15,808	21.80	%
Income tax expense		6,051		4,677	29.38	%
Net income	$	13,203	$	11,131	18.61	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(Dollars in thousands)

	Three months ended September 30,
	2005						2004
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,130,355	$	18,383	6.45	%	$	1,009,099	$	15,028	5.92	%
Investment securities
Taxable		164,792		1,610	3.88	%		226,491		2,249	3.95	%
Tax exempt		61,207		988	6.40	%		65,268		1,072	6.53	%
Total investments		225,999		2,598	4.56	%		291,759		3,321	4.53	%
Interest bearing deposits		823		4	1.93	%		323		1	1.03	%
Federal funds sold		12,422		106	3.39	%		5,962		22	0.92	%
		239,244		2,708	4.49	%		298,044		3,344	4.46	%
Total earning assets		1,369,599		21,091	6.11	%		1,307,143		18,372	5.59	%
Total nonearning assets		110,549						118,198
Total assets	$	1,480,148					$	1,425,341
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	189,899	$	202	0.42	%	$	196,015	$	185	0.38	%
Money market		176,364		601	1.35	%		181,754		414	0.91	%
Savings		130,959		222	0.67	%		144,072		233	0.64	%
Time deposits:
Less than $100,000		363,943		2,883	3.14	%		369,101		2,470	2.66	%
$100,000 and more		138,015		1,287	3.70	%		122,270		1,020	3.32	%
Total interest-bearing deposits		999,180		5,195	2.06	%		1,013,212		4,322	1.70	%
Federal funds purchased and securities sold under agreements to repurchase		17,607		135	3.04	%		21,755		46	0.84	%
Trust preferred capital notes		20,619		328	6.31	%		20,000		221	4.40	%
Other short term borrowings		11,702		69	2.34	%		1,293		5	1.54	%
Federal Home Loan Bank advances		31,105		313	3.99	%		13,505		181	5.33	%
		81,033		845	4.14	%		56,553		453	3.19	%
Total interest-bearing liabilities		1,080,213		6,040	2.22	%		1,069,765		4,775	1.78	%
Total noninterest-bearing liabilities		266,491						233,346
Total liabilities		1,346,704						1,303,111
Stockholders’ equity		133,444						122,230
Total liabilities and stockholders’ equity	$	1,480,148					$	1,425,341
Net interest income (tax equivalent)			$	15,051					$	13,597
Average interest rate spread					3.89	%					3.81	%
Interest expense as percentage of average earning assets					1.75	%					1.45	%
Net interest margin					4.36	%					4.14	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(Dollars in thousands)

	Nine months ended September 30,
	2005						2004
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,102,011	$	51,650	6.27	%	$	976,363	$	43,439	5.94	%
Investment securities
Taxable		178,407		5,216	3.91	%		242,746		7,115	3.92	%
Tax exempt		61,645		2,999	6.50	%		67,586		3,328	6.58	%
Total investments		240,052		8,215	4.58	%		310,332		10,443	4.49	%
Interest bearing deposits		524		11	2.81	%		458		3	0.78	%
Federal funds sold		6,417		126	2.63	%		3,357		32	0.93	%
		246,993		8,352	4.53	%		314,147		10,478	4.46	%
Total earning assets		1,349,004		60,002	5.95	%		1,290,510		53,917	5.58	%
Total nonearning assets		116,140						121,418
Total assets	$	1,465,144					$	1,411,928
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	194,863	$	601	0.41	%	$	193,991	$	754	0.52	%
Money market		172,382		1,544	1.20	%		173,922		1,195	0.92	%
Savings		132,972		665	0.67	%		140,716		718	0.68	%
Time deposits:
Less than $100,000		365,460		8,454	3.09	%		370,700		7,426	2.68	%
$100,000 and more		133,570		3,551	3.55	%		119,364		3,000	3.36	%
Total interest-bearing deposits		999,247		14,815	1.98	%		998,693		13,093	1.75	%
Federal funds purchased and securities sold under agreements to repurchase		22,868		423	2.47	%		25,919		161	0.83	%
Trust preferred capital notes		20,619		904	5.86	%		14,380		442	4.11	%
Other short term borrowings		13,503		289	2.86	%		12,798		141	1.47	%
Federal Home Loan Bank advances		21,913		742	4.53	%		12,585		519	5.51	%
		78,903		2,358	4.00	%		65,682		1,263	2.57	%
Total interest-bearing liabilities		1,078,150		17,173	2.13	%		1,064,375		14,356	1.80	%
Total noninterest-bearing liabilities		257,195						226,081
Total liabilities		1,335,345						1,290,456
Stockholders’ equity		129,799						121,472
Total liabilities and stockholders’ equity	$	1,465,144					$	1,411,928
Net interest income (tax equivalent)			$	42,829					$	39,561
Average interest rate spread					3.82	%					3.78	%
Interest expense as percentage of average earning assets					1.70	%					1.49	%
Net interest margin					4.25	%					4.09	%