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): January 23, 2006

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 January 23, 2006 Virginia Financial Group, Inc. (VFG) issued a press release regarding its results of operations and financial condition for the quarter and twelve months ended December 31, 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 January 23, 2006.

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

January 25, 2006

2

EXHIBIT INDEX

Exhibit
99.1	Virginia Financial Group, Inc. press release dated January 23, 2006.

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 RECORD FOURTH QUARTER AND ANNUAL EARNINGS

Culpeper, VA-Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported record fourth quarter 2005 earnings of $5.0 million, an increase of 23.1% compared to earnings of $4.1 million for the fourth quarter of 2004. Net income per diluted share was $.69, up 23.2% compared to $.56 for the same period in 2004. VFG’S earnings for the fourth quarter of 2005 produced an annualized return on average assets (ROA) of 1.31% and an annualized return on average equity (ROE) of 14.59%, compared to prior year ratios of 1.11% and 12.84%, respectively. For the twelve months of 2005, net income was a record $18.2 million, up 19.8% from $15.2 million for the same period in 2004. Net income per diluted share was $2.52, up 19.4% from $2.11 for the twelve months of 2004. ROA and ROE for the twelve month period was 1.23% and 13.86%, respectively, compared to 1.07% and 12.40% for the same period in 2004.

O.R. Barham, Jr., President and CEO, commented, “We are quite pleased with our financial results for 2005, making progress on many fronts and achieving a record level of earnings for the Company. The fourth quarter continued to show positive trends with margin expansion, excellent asset quality, improvement in efficiency and solid contribution from our mortgage division. We again saw our efficiency ratio drop to its lowest level in several years, and our return on average equity approached 15% for the fourth quarter. Balance sheet growth could frankly have been better, and we are seeing an acceleration of loan pay-off activity as increased real estate valuations have shortened the duration of many of our commercial customer’s anticipated holding periods. We see this trend continuing in the first quarter of 2006. Nevertheless, we are excited about our plans for 2006 and look forward to executing our strategies with optimism and enthusiasm.”

REVENUE GROWTH

Total revenue, comprised of net interest income and noninterest income, was $19.0 million for the fourth quarter of 2005, an increase of $2.3 million or 13.4% over $16.8 million in 2004. The largest component, net interest income, amounted to $15.2 million for the fourth quarter, up $1.9 million or 14.7% compared

with $13.3 million for the same quarter in 2004. For the twelve months ended December 31, 2005, net interest income was $56.8 million, an increase of $5.4 million or 10.4% from $51.5 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 fourth quarter of 2005 was 4.40%, up four basis points sequentially compared to 4.36% for the third quarter of 2005, and up thirty-one basis points when compared to 4.09% for the fourth quarter of 2004. The net interest margin for the twelve months ended December 31, 2005 was 4.29%, compared to 4.04% for the same period in 2004.

Total noninterest income was $3.8 million for the fourth quarter of 2005, an increase of $304 thousand or 8.7% compared to $3.5 million for the fourth quarter of 2004. Trust and brokerage fee income rose to $951 thousand for the quarter, an increase of $134 thousand or 16.4% over the same period in 2004. VFG experienced higher revenues and profitability from mortgage operations, with gross mortgage banking fees amounting to $910 thousand, an increase of $462 thousand or 103.1% when compared to $448 thousand for the fourth quarter of 2004, but down sequentially $112 thousand or 11.0% from the third quarter of 2005.

NONINTEREST EXPENSE AND EFFICIENCY

Noninterest expense for the fourth quarter of 2005 amounted to $11.3 million, up $1.1 million or 10.4% from $10.2 million for the same period in 2004, and up sequentially $185 thousand or 1.7% from the third quarter of 2005. For the twelve month period ended December 31, 2005, noninterest expense amounted to $43.7 million, an increase of $2.7 million or 6.5% over $41.0 million for the same period in 2004. As noted in our previous quarter, expenses accelerated in the fourth quarter due to increased costs associated with sales and credit training initiatives and incentive compensation related costs. The modest increase for the year is attributable to a fairly stable full-time equivalent employee count, no significant expansion activities during the period, and general improvements in overall efficiency. VFG’s efficiency ratio was 57.8% for the quarter, compared to 59.4% for the same quarter in 2004. For the twelve month period ended December 31, 2005, the efficiency ratio was 59.1%, compared to 61.4% for the same period in 2004.

BALANCE SHEET

Average loans for the fourth quarter were $1.15 billion, up $108.2 million or 10.4% from the fourth quarter of 2004, and average total assets were $1.52 billion, up $60 million or 4.1% from the fourth quarter of 2004. Loans receivable decreased $22.0 million or 1.9% growth for the fourth quarter of 2005 on increased pay-off activity. The securities portfolio increased $28.3 million or 12.9% to $247.7 million.

Average deposits for the fourth quarter were $1.27 billion, up $6 million or .5% from the fourth quarter of 2004. Excluding the impact of the sale of branches in Tazewell, Virginia during first quarter 2005, the growth rate was 2.6%. Sequentially, deposits decreased $13.3 million or 1.1% to $1.26 billion from third quarter 2005. While certificate of deposit balances were up $17.6 million or 3.5% for the quarter, VFG experienced decreases in each of its demand deposit categories. Non-interest bearing demand deposits were down $7.2 million or 2.8% for the quarter, due to lower balances associated with real estate closings, but are up $11.0 million or 4.6% when compared to a year ago.

At December 31, 2005 VFG had total assets of $1.51 billion, compared to $1.45 billion at December 31, 2004. Shareholder’s equity at December 31, 2005 was $136.1 million, an increase of $9.0 million or 7.1% compared to December 31, 2004. Shareholder’s equity represented 9.04% of total assets at December 31, 2005, while tangible equity capital represented 7.92% of tangible assets at December 31, 2005. Book value at December 31, 2005 was $18.99 per share, compared to $17.75 at December 31, 2004.

ASSET QUALITY

Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .12% as of December 31, 2005, compared to ..28% at December 31, 2004 and .11% at September 30, 2005. Net (recoveries) charge-offs as a percentage of average loans receivable amounted to (.003)% for the quarter and .01% for the twelve month period ended December 31, 2005, compared to .02% and .06% for the same periods in 2004. At December 31, 2005, the allowance for loan losses was approximately seven times the level of non-performing assets, while the allowance as a percentage of total loans amounted to 1.19%. VFG decreased its provision for by loan losses by $164 thousand or 28.2%, from $581 thousand for the three months ended December 31, 2004 compared to $417 thousand for the three months ended December 31, 2005. It also decreased its provision by $86 thousand when compared to the provision recorded for the third quarter of 2005, consistent with charge-off experience and general improvement in asset quality during the period.

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-six branches serving Central and Southwest Virginia, with a thirty seventh branch scheduled to open in Lynchburg next month. 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, (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)
	12/31/2005			12/31/2004
INCOME STATEMENT
Interest income - taxable equivalent	$	22,324		$	18,972		17.67	%
Interest expense		6,687			5,272		26.84	%
Net interest income - taxable equivalent		15,637			13,700		14.14	%
Less: taxable equivalent adjustment		422			434		-2.76	%
Net interest income		15,215			13,266		14.69	%
Provision for loan and lease losses		417			581		-28.23	%
Net interest income after provision for loan and lease losses		14,798			12,685		16.66	%
Noninterest income		3,800			3,496		8.70	%
Noninterest expense		11,279			10,220		10.36	%
Provision for income taxes		2,307			1,889		22.13	%
Net income	$	5,012		$	4,072		23.08	%
PER SHARE DATA
Basic earnings	$	0.70		$	0.57		22.81	%
Diluted earnings	$	0.69		$	0.56		23.21	%
Shares outstanding		7,172,734			7,161,499
Weighted average shares -
Basic		7,171,232			7,160,782
Diluted		7,224,963			7,208,699
Dividends paid on common shares	$	0.22		$	0.20
PERFORMANCE RATIOS
Return on average assets		1.31	%		1.11	%	18.02	%
Return on average equity		14.59	%		12.84	%	13.63	%
Return on average realized equity (A)		14.46	%		13.13	%	10.13	%
Net interest margin (taxable equivalent)		4.40	%		4.09	%	7.58	%
Efficiency (taxable equivalent) (B)		57.78	%		59.39	%	-2.71	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	13,128		$	11,300
Provision for loan losses		417			581
Charge offs		(49	)		(264	)
Recoveries		85			89
End of period	$	13,581		$	11,706

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 Twelve Months Ended						Percent Increase (Decrease)
	12/31/2005			12/31/2004
INCOME STATEMENT
Interest income - taxable equivalent	$	82,326		$	72,889		12.95	%
Interest expense		23,861			19,628		21.57	%
Net interest income - taxable equivalent		58,465			53,261		9.77	%
Less: taxable equivalent adjustment		1,620			1,780		-8.99	%
Net interest income		56,845			51,481		10.42	%
Provision for loan and lease losses		2,012			2,534		-20.60	%
Net interest income after provision for loan and lease losses		54,833			48,947		12.03	%
Noninterest income		15,443			14,544		6.18	%
Noninterest expense		43,702			41,723		4.74	%
Provision for income taxes		8,358			6,565		27.31	%
Net income	$	18,216		$	15,203		19.82	%
PER SHARE DATA
Basic earnings	$	2.54		$	2.12		19.81	%
Diluted earnings	$	2.52		$	2.11		19.43	%
Shares outstanding		7,172,734			7,161,499
Weighted average shares -
Basic		7,168,027			7,158,574
Diluted		7,217,368			7,201,750
Dividends paid on common shares	$	0.84		$	0.78
PERFORMANCE RATIOS
Return on average assets		1.23	%		1.07	%	14.95	%
Return on average equity		13.86	%		12.40	%	11.77	%
Return on average realized equity (A)		13.88	%		12.70	%	9.29	%
Net interest margin (taxable equivalent)		4.29	%		4.09	%	4.89	%
Efficiency (taxable equivalent) (B)		59.15	%		61.44	%	-3.73	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	11,706		$	9,743
Provision for loan losses		2,012			2,534
Charge offs		(452	)		(802	)
Recoveries		315			231
End of period	$	13,581		$	11,706
Non-performing assets:
Non-accrual loans	$	1,604		$	2,552
Loans 90+ days past due and still accruing		—			—
Other real estate owned		75			5
Troubled debt restructurings		154			1,451
Total non-performing assets	$	1,833		$	4,008
to total assets:		0.12	%		0.28	%
to total loans plus OREO:		0.16	%		0.38	%
Allowance for loan losses to total loans		1.19	%		1.10	%
Net charge-offs (recoveries)	$	137		$	571
Net charge-offs to average loans outstanding		0.01	%		0.06	%

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)

	12/31/2005			12/31/2004			Percent Increase (Decrease)
SELECTED BALANCE SHEET DATA
End of period balances
Cash and cash equivalents	$	48,017		$	39,326		22.10	%
Securities available for sale		243,364			286,309		-15.00	%
Securities held to maturity		4,287			5,849		-26.71	%
Total securities		247,651			292,158		-15.23	%
Real estate - construction		115,944			116,888		-0.81	%
Real estate - 1-4 family residential		327,618			293,859		11.49	%
Real estate - commercial and multifamily		576,497			507,707		13.55	%
Commercial, financial and agricultural		78,110			94,887		-17.68	%
Consumer loans		40,876			44,379		-7.89	%
All other loans		3,485			3,448		1.07	%
Total loans		1,142,530			1,061,168		7.67	%
Deferred loan costs		546			407		34.15	%
Allowance for loan losses		(13,581	)		(11,706	)	16.02	%
Net loans		1,129,495			1,049,869		7.58	%
Other assets		80,021			68,255		17.24	%
Total assets		1,505,184			1,449,608		3.83	%
Noninterest bearing deposits		249,775			238,735		4.62	%
Money market & interest checking		360,656			379,793		-5.04	%
Savings		124,297			139,018		-10.59	%
CD’s and other time deposits		520,781			499,618		4.24	%
Total deposits		1,255,509			1,257,164		-0.13	%
Short-term borrowed funds		45,865			21,970		108.76	%
Trust preferred capital notes		20,619			20,619		0.00	%
Federal Home Loan Bank advances		35,000			14,060		148.93	%
Other liabilities		12,086			8,706		38.82	%
Total liabilities		1,369,079			1,322,519		3.52	%
Total stockholders’ equity	$	136,105		$	127,090		7.09	%
Accumulated comprehensive income (loss)	$	(2,013	)	$	1,639		-222.82	%
	For the Twelve Months Ended						Percent Increase (Decrease)
	12/31/2005			12/31/2004
Average balances
Total assets	$	1,477,718		$	1,423,204		3.83	%
Total stockholders’ equity	$	131,437		$	122,650		7.16	%
	For the Three Months Ended
	12/31/2005			12/31/2004
Total assets	$	1,515,012		$	1,454,842		4.14	%
Total stockholders’ equity	$	136,282		$	126,157		8.03	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended						Percent Increase (Decrease)
	12/31/2005			12/31/2004
Interest Income
Interest and fees on loans	$	19,211		$	15,676		22.55	%
Interest on deposits in other banks		30			1		—
Interest and dividends on securities:
Taxable		1,493			1,911		-21.87	%
Tax-exempt		695			696		-0.14	%
Dividends		136			134		1.49	%
Interest income on federal funds sold		338			120		181.67	%
Total interest income		21,903			18,538		18.15	%
Interest Expense
Interest on deposits		5,593			4,766		17.35	%
Interest on federal funds repurchased and securities sold under agreements to repurchase		145			77		88.31	%
Interest on other short-term borrowings		179			2		—
Interest on Federal Home Loan Bank advances		415			186		123.12	%
Interest on trust preferred capital notes		356			241		47.72	%
Total interest expense		6,688			5,272		26.86	%
Net interest income		15,215			13,266		14.69	%
Provision for loan losses		417			581		-28.23	%
Net interest income after provision for loan losses		14,798			12,685		16.66	%
Noninterest Income
Retail banking fees		1,735			1,912		-9.26	%
Commissions and fees from fiduciary activities		747			668		11.83	%
Brokerage fee income		204			149		36.91	%
Other operating income		266			330		-19.39	%
Gains (losses) on sale of fixed assets		(62	)		6		—
Gains (losses) on securities available for sale		—			3		—
Gains (losses) on sale of other real estate owned		—			(20	)	—
Gains (losses) on sale of branches		—			—		—
Gain on sale of mortgage loans		910			448		103.13	%
Total noninterest income		3,800			3,496		8.70	%
Noninterest Expense
Compensation and employee benefits		6,732			5,747		17.14	%
Net occupancy expense		601			648		-7.25	%
Supplies and equipment expenses		929			1,109		-16.23	%
Amortization-intangible assets		158			174		-9.20	%
Marketing		133			145		-8.28	%
State franchise taxes		208			144		44.44	%
Data processing		447			373		19.84	%
Telecommunications		248			261		-4.98	%
Professional fees		174			209		-16.75	%
Other operating expenses		1,649			1,410		16.95	%
Total noninterest expense		11,279			10,220		10.36	%
Income before income taxes		7,319			5,961		22.78	%
Income tax expense		2,307			1,889		22.13	%
Net income	$	5,012		$	4,072		23.08	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Twelve Months Ended						Percent Increase (Decrease)
	12/31/2005			12/31/2004
Interest Income
Interest and fees on loans	$	70,712		$	58,232		21.43	%
Interest on deposits in other banks		41			4		—
Interest and dividends on securities:
Taxable		6,447			8,770		-26.49	%
Tax-exempt		2,645			2,854		-7.32	%
Dividends		397			390		1.79	%
Interest income on federal funds sold		464			152		205.26	%
Total interest income		80,706			70,402		14.64	%
Interest Expense
Interest on deposits		20,408			17,859		14.27	%
Interest on federal funds repurchased and securities sold under agreements to repurchase		568			238		138.66	%
Interest on other short-term borrowings		468			143		227.27	%
Interest on Federal Home Loan Bank advances		1,157			705		64.11	%
Interest on trust preferred capital notes		1,260			683		84.48	%
Total interest expense		23,861			19,628		21.57	%
Net interest income		56,845			50,774		11.96	%
Provision for loan losses		2,012			2,534		-20.60	%
Net interest income after provision for loan losses		54,833			48,240		13.67	%
Noninterest Income
Retail banking fees		6,954			7,522		-7.55	%
Commissions and fees from fiduciary activities		2,954			2,804		5.35	%
Brokerage fee income		723			663		9.05	%
Other operating income		1,065			1,102		-3.36	%
Gains (losses) on sale of fixed assets		(61	)		6		—
Gains (losses) on securities available for sale		296			3		—
Gains (losses) on sale of other real estate owned		—			(20	)	—
Gains (losses) on sale of branches		421			—		—
Gain on sale of mortgage loans		3,091			2,464		25.45	%
Total noninterest income		15,443			14,544		6.18	%
Noninterest Expense
Compensation and employee benefits		25,284			22,669		11.54	%
Net occupancy expense		2,888			2,721		6.14	%
Supplies and equipment expenses		4,056			4,333		-6.39	%
Amortization-intangible assets		643			694		-7.35	%
Marketing		887			636		39.47	%
State franchise taxes		870			599		45.24	%
Data processing		1,389			1,464		-5.12	%
Telecommunications		1,017			1,055		-3.60	%
Professional fees		804			922		-12.80	%
Other operating expenses		5,864			5,923		-1.00	%
Total noninterest expense		43,702			41,016		6.55	%
Income before income taxes		26,574			21,768		22.08	%
Income tax expense		8,358			6,565		27.31	%
Net income	$	18,216		$	15,203		19.82	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED DECEMMBER 31, 2005 AND 2004

(Dollars in thousands)

	Three months ended December 31,
	2005						2004
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,146,423	$	19,258	6.66	%	$	1,038,215	$	15,731	6.03	%
Investment securities
Taxable		159,606		1,628	4.05	%		205,682		2,036	3.94	%
Tax exempt		67,135		1,070	6.32	%		63,703		1,084	6.77	%
Total investments		226,741		2,698	4.72	%		269,385		3,120	4.61	%
Interest bearing deposits		3,135		30	3.80	%		289		1	1.03	%
Federal funds sold		32,408		338	4.14	%		25,984		120	0.92	%
		262,284		3,066	4.64	%		295,658		3,241	4.36	%
Total earning assets		1,408,707		22,324	6.2872	%		1,333,873		18,972	5.66	%
Total nonearning assets		106,305						120,969
Total assets	$	1,515,012					$	1,454,842
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	187,417	$	206	0.44	%	$	198,527	$	196	0.39	%
Money market		189,142		781	1.64	%		183,725		454	0.98	%
Savings		126,811		215	0.67	%		141,549		231	0.65	%
Time deposits:
Less than $100,000		362,229		3,019	3.31	%		370,884		2,806	3.01	%
$100,000 and more		147,962		1,372	3.68	%		126,407		1,079	3.40	%
Total interest-bearing deposits		1,013,561		5,593	2.19	%		1,021,092		4,766	1.86	%
Federal funds purchased and securities sold under agreements to repurchase		16,209		145	3.55	%		20,073		77	1.53	%
Trust preferred capital notes		20,619		356	6.85	%		20,000		241	4.79	%
Other short term borrowings		25,337		178	2.79	%		188		2	4.23	%
Federal Home Loan Bank advances		35,000		415	4.70	%		14,076		186	5.26	%
		97,165		1,094	4.47	%		54,337		506	3.70	%
Total interest-bearing liabilities		1,110,726		6,687	2.3895	%		1,075,429		5,272	1.95	%
Total noninterest-bearing liabilities		268,004						253,256
Total liabilities		1,378,730						1,328,685
Stockholders’ equity		136,282						126,157
Total liabilities and stockholders’ equity	$	1,515,012					$	1,454,842
Net interest income (tax equivalent)			$	15,637					$	13,700
Average interest rate spread					3.90	%					3.71	%
Interest expense as percentage of average earning assets					1.88	%					1.57	%
Net interest margin					4.40	%					4.09	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2004

(Dollars in thousands)

	Twelve months ended December 31,
	2005						2004
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,113,206	$	70,908	6.37	%	$	991,911	$	58,463	5.89	%
Investment securities
Taxable		173,668		6,844	3.94	%		233,429		9,160	3.92	%
Tax exempt		63,029		4,069	6.46	%		66,610		4,403	6.61	%
Total investments		236,697		10,913	4.61	%		300,039		13,563	4.52	%
Interest bearing deposits		1,256		41	3.26	%		416		4	0.96	%
Federal funds sold		12,968		464	3.58	%		9,044		152	1.68	%
		250,921		11,418	4.55	%		309,499		13,719	4.43	%
Total earning assets		1,364,127		82,326	6.04	%		1,301,410		72,182	5.55	%
Total nonearning assets		113,591						121,794
Total assets	$	1,477,718					$	1,423,204
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	192,987	$	807	0.42	%	$	195,131	$	950	0.49	%
Money market		176,606		2,325	1.32	%		176,386		1,649	0.94	%
Savings		131,420		880	0.67	%		140,925		948	0.67	%
Time deposits:
Less than $100,000		364,645		11,473	3.15	%		370,746		10,233	2.76	%
$100,000 and more		137,197		4,923	3.59	%		121,135		4,079	3.37	%
Total interest-bearing deposits		1,002,855		20,408	2.03	%		1,004,323		17,859	1.78	%
Federal funds purchased and securities sold under agreements to repurchase		21,189		568	2.68	%		23,801		238	1.00	%
Trust preferred capital notes		20,619		1,260	6.11	%		16,281		683	4.20	%
Other short term borrowings		16,486		468	2.84	%		10,277		143	1.39	%
Federal Home Loan Bank advances		25,212		1,157	4.59	%		12,960		705	5.44	%
		83,506		3,453	4.14	%		63,319		1,769	2.79	%
Total interest-bearing liabilities		1,086,361		23,861	2.19	%		1,067,642		19,628	1.84	%
Total noninterest-bearing liabilities		259,920						232,912
Total liabilities		1,346,281						1,300,554
Stockholders’ equity		131,437						122,650
Total liabilities and stockholders’ equity	$	1,477,718					$	1,423,204
Net interest income (tax equivalent)			$	58,465					$	52,554
Average interest rate spread					3.85	%					3.71	%
Interest expense as percentage of average earning assets					1.75	%					1.51	%
Net interest margin					4.29	%					4.04	%