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): April 24, 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 April 24, 2006, Virginia Financial Group, Inc. (VFG) issued a press release regarding its results of operations and financial condition for the quarter ended March 31, 2006. 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 April 24, 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

April 25, 2006

2

EXHIBIT INDEX

Exhibit
99.1	Virginia Financial Group, Inc. press release dated April 24, 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 11%

GROWTH IN FIRST QUARTER EARNINGS

Culpeper, VA-Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported first quarter 2006 earnings of $4.5 million, an increase of 11.2% compared to earnings of $4.0 million for the first quarter of 2005. Net income per diluted share was $.62, up 10.7% compared to $.56 for the same period in 2005. VFG’S earnings for the first quarter of 2006 produced an annualized return on average assets (ROA) of 1.19% and an annualized return on average equity (ROE) of 13.08%, compared to prior year ratios of 1.13% and 12.74%, respectively.

O.R. Barham, Jr., President and CEO, commented, “We are pleased with our financial results for the first quarter, with stronger than expected loan growth, solid core revenue growth and a continuation of excellent asset quality. Our results were positive in spite of several reorganization events that impacted earnings during the period and are discussed below. Our net interest margin was down slightly on a sequential basis, as interest bearing liability costs continue to catch up to short term rate movements over the past year. Double digit growth in fees from fiduciary and brokerage operations were a highlight, as was continued strength in mortgage revenue for the period. Our efficiency ratio began to increase as anticipated, but came in at a respectable 59.50%. We had our first branch open in Lynchburg during the quarter, and plan to open one additional branch in both Charlottesville and Lynchburg during the second quarter.”

REVENUE GROWTH

Total revenue, comprised of net interest income and noninterest income, was $18.1 million for the first quarter of 2006, an increase of $1.2 million or 7.4% over $16.9 million in 2005. The largest component, net interest income, amounted to $14.9 million for the first quarter, up $1.7 million or 12.7% compared with $13.2 million for the same quarter in 2005. Improvements in the growth and mix of average earning assets, coupled with net interest margin expansion over the past year, were primarily contributors to this growth. The net interest margin for the first quarter of 2006 was 4.35%, down five basis points sequentially compared to 4.40% for the fourth quarter of 2005, and up twenty basis points when compared to 4.15% for

the first quarter of 2005. As interest rates have continued to increase over the past year, interest costs associated with interest bearing liabilities have accelerated. The average rate on interest bearing liabilities for the first quarter was 2.60%, up 21 basis points sequentially compared to 2.39% for the fourth quarter of 2005, and up 56 basis points when compared to the first quarter of 2005. Management anticipates the net interest margin to decline modestly for the foreseeable future as continuing pressures on deposit pricing in VFG’s markets are anticipated.

Total noninterest income was $3.3 million for the first quarter of 2006, a decrease of $431 thousand or 11.7% compared to $3.7 million for the first quarter of 2005. The 2006 results include a loss of $181 thousand on sale of securities available for sale associated with branch realignment within the company. Approximately $20 million in securities sold were reinvested at a yield pickup of approximately 120 basis points. Included in the 2005 results is a net gain of $408 thousand in connection with the sales of two branches located in Tazewell County. Trust and brokerage fee income rose to $1.04 million for the quarter, an increase of $133 thousand or 14.7% over the same period in 2005. Gross mortgage banking fees amounted to $633 thousand, an increase of $158 thousand or 33.3% when compared to $475 thousand for the first quarter of 2005, but down sequentially $277 thousand or 30.4% from the fourth quarter of 2005.

NONINTEREST EXPENSE AND EFFICIENCY

Noninterest expense for the first quarter of 2006 amounted to $11.2 million, up $649 thousand or 6.2% from $10.5 million for the same period in 2005. Compensation and employee benefits increased $554 thousand or 9.2% over the same quarter a year ago. This increase reflects new positions for the openings of the Seminole Trail and Graves Mill branches during the fourth quarter 2005 and first quarter 2006, respectively. It also reflects approximately $160 thousand in non-recurring severance benefits associated with a reorganization of management within our Virginia Commonwealth Trust Company affiliate during the first quarter. Management would anticipate some increase in operating expenses as two new branches open middle to late second quarter. VFG’s efficiency ratio was 59.5% for the quarter, compared to 60.8% for the same quarter in 2005.

BALANCE SHEET

Average loans for the first quarter were $1.16 billion, up $85.8 million or 8.0% from the first quarter of 2005. Loans receivable were $1.19 billion at March 31, 2006, up $46.1 million or 4.0% from December 31, 2005. The first quarter growth occurred in real estate construction, non-residential real estate and commercial loan portfolios.

Average deposits for the first quarter were $1.25 billion, up $10 million or .8% from the first quarter of 2005. Excluding the impact of the sale of branches in Tazewell, Virginia during first quarter 2005, the growth rate was 2.0%. Sequentially, deposits increased $17.5 million or 1.4% to $1.27 billion from December 31, 2005. Certificate of deposit balances were up $45.4 million or 8.7% for the quarter, reflecting consumer preferences in the current rate environment as well as promotions conducted during the period. Savings, money market and interest checking accounts all experienced decreases during the period. Noninterest bearing demand deposits were up $7.1 million or 2.9% for the quarter, and represent 20.2% of total deposits at March 31, 2006.

At March 31, 2006 VFG had total assets of $1.55 billion, compared to $1.45 billion at March 31, 2005. Shareholder’s equity at March 31, 2006 was $139.3 million, an increase of $10.3 million or 8.0% compared to March 31, 2005. Shareholder’s equity represented 8.98% of total assets at March 31, 2006, while tangible equity capital represented 7.90% of tangible assets at March 31, 2006. Book value at March 31, 2006 was $19.40 per share, compared to $18.00 at March 31, 2005.

ASSET QUALITY

Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .13% as of March 31, 2006, compared to .15% at March 31, 2005 and .12% at December 31, 2005. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter, unchanged when compared to the same period in 2005. At March 31, 2006, 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 1.17%. VFG decreased its provision for loan losses by $36 thousand or 6.6%, from $546 thousand for the three months ended March 31, 2005 to $510 thousand for the three months ended March 31, 2006.

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 and five trust and investment service offices in its markets.

NON-GAAP FINANCIAL MEASURES

This report refers to the efficiency ratio, which is computed by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income excluding gain (loss) on sale of securities and other real estate owned. 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)
	3/31/2006			3/31/2005
INCOME STATEMENT
Interest income - taxable equivalent	$	22,631		$	18,991		19.17	%
Interest expense		7,308			5,398		35.38	%
Net interest income - taxable equivalent		15,323			13,593		12.73	%
Less: taxable equivalent adjustment		458			407		12.53	%
Net interest income		14,865			13,186		12.73	%
Provision for loan and lease losses		510			546		-6.59	%
Net interest income after provision for loan and lease losses		14,355			12,640		13.57	%
Noninterest income		3,263			3,694		-11.67	%
Noninterest expense		11,183			10,534		6.16	%
Provision for income taxes		1,971			1,787		10.30	%
Net income	$	4,464		$	4,013		11.24	%
PER SHARE DATA
Basic earnings	$	0.62		$	0.56		10.71	%
Diluted earnings	$	0.62		$	0.56		10.71	%
Shares outstanding		7,178,964			7,163,735
Weighted average shares -
Basic		7,176,815			7,163,198
Diluted		7,231,617			7,210,848
Dividends paid on common shares	$	0.22		$	0.20
PERFORMANCE RATIOS
Return on average assets		1.19	%		1.13	%	5.31	%
Return on average equity		13.08	%		12.74	%	2.67	%
Return on average realized equity (A)		12.95	%		12.88	%	0.54	%
Net interest margin (taxable equivalent)		4.35	%		4.15	%	4.82	%
Efficiency (taxable equivalent) (B)		59.50	%		60.79	%	-2.12	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	13,581		$	11,706
Provision for loan losses		510			546
Charge offs		(173	)		(189	)
Recoveries		23			118
End of period	$	13,941		$	12,181
Non-performing assets:
Non-accrual loans	$	1,787		$	1,917
Loans 90+ days past due and still accruing		—			—
Other real estate owned		79			55
Troubled debt restructurings		134			218
Total non-performing assets	$	2,000		$	2,190
to total assets:		0.13	%		0.15	%
to total loans plus OREO:		0.17	%		0.20	%
Allowance for loan losses to total loans		1.17	%		1.12	%
Net charge-offs (recoveries)	$	149		$	71
Net charge-offs to average loans outstanding		0.01	%		0.01	%

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)

	3/31/2006			3/31/2005			Percent Increase (Decrease)
SELECTED BALANCE SHEET DATA
End of period balances
Cash and cash equivalents	$	40,923		$	59,775		-31.54	%
Securities available for sale		228,462			242,774		-5.90	%
Securities held to maturity		3,321			5,853		-43.26	%
Total securities		231,783			248,627		-6.77	%
Real estate - construction		166,924			127,248		31.18	%
Real estate - 1-4 family residential		303,639			310,062		-2.07	%
Real estate - commercial and multifamily		586,054			517,913		13.16	%
Commercial, financial and agricultural		93,503			85,745		9.05	%
Consumer loans		36,909			40,942		-9.85	%
All other loans		1,558			3,205		-51.39	%
Total loans		1,188,587			1,085,115		9.54	%
Deferred loan costs		659			493		33.67	%
Allowance for loan losses		(13,941	)		(12,181	)	14.45	%
Net loans		1,175,305			1,073,427		9.49	%
Other assets		103,109			71,550		44.11	%
Total assets		1,551,120			1,453,379		6.73	%
Noninterest bearing deposits		256,910			239,660		7.20	%
Money market & interest checking		337,063			369,922		-8.88	%
Savings		112,905			133,919		-15.69	%
CD’s and other time deposits		566,174			492,950		14.85	%
Total deposits		1,273,052			1,236,451		2.96	%
Federal Home Loan Bank advances		60,000			14,040		327.35	%
Trust preferred capital notes		20,619			20,619		0.00	%
Other borrowed funds		46,167			42,955		7.48	%
Other liabilities		11,995			10,349		15.90	%
Total liabilities		1,411,833			1,324,414		6.60	%
Total stockholders’ equity	$	139,287		$	128,965		8.00	%
Accumulated comprehensive income (loss)	$	(1,794	)	$	861		-308.36	%
Average balances
	For the Three Months Ended						Percent Increase (Decrease)
	3/31/2006			3/31/2005
Total assets	$	1,525,345		$	1,446,263		5.47	%
Total stockholders’ equity	$	138,364		$	127,751		8.31	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended					Percent Increase (Decrease)
	3/31/2006			3/31/2005
Interest Income
Interest and fees on loans	$	19,433		$	16,043	21.13	%
Interest on deposits in other banks		35			4	775.00	%
Interest and dividends on securities:
Taxable		1,499			1,806	-17.00	%
Tax-exempt		815			656	24.24	%
Dividends		115			67	71.64	%
Interest income on federal funds sold		276			8	3350.00	%
Total interest income		22,173			18,584	19.31	%
Interest Expense
Interest on deposits		5,960			4,752	25.42	%
Interest on federal funds repurchased and securities soldunder agreements to repurchase		86			144	-40.28	%
Interest on Federal Home Loan Bank advances		582			180	223.33	%
Interest on trust preferred capital notes		374			265	41.13	%
Interest on other borrowings		306			57	436.84	%
Total interest expense		7,308			5,398	35.38	%
Net interest income		14,865			13,186	12.73	%
Provision for loan losses		510			546	-6.59	%
Net interest income after provision for loan losses		14,355			12,640	13.57	%
Noninterest Income
Retail banking fees		1,607			1,665	-3.48	%
Commissions and fees from fiduciary activities		811			724	12.02	%
Brokerage fee income		227			181	25.41	%
Other operating income		170			241	-29.46	%
Loss on sale of fixed assets		(4	)		—	—
Loss on securities available for sale		(181	)		—	—
Gain on sale of branches		—			408	—
Gain on sale of mortgage loans		633			475	33.26	%
Total noninterest income		3,263			3,694	-11.67	%
Noninterest Expense
Compensation and employee benefits		6,601			6,047	9.16	%
Net occupancy expense		766			751	2.00	%
Supplies and equipment expenses		977			1,114	-12.30	%
Amortization-intangible assets		100			168	-40.48	%
Marketing		125			144	-13.19	%
State franchise taxes		248			199	24.62	%
Data processing		383			314	21.97	%
Telecommunications		274			268	2.24	%
Professional fees		130			130	0.00	%
Other operating expenses		1,579			1,399	12.87	%
Total noninterest expense		11,183			10,534	6.16	%
Income before income taxes		6,435			5,800	10.95	%
Income tax expense		1,971			1,787	10.30	%
Net income	$	4,464		$	4,013	11.24	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(Dollars in thousands)

	Three months ended March 31,
	2006						2005
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,157,736	$	19,453	6.81	%	$	1,071,992	$	16,096	6.09	%
Investment securities
Taxable		152,945		1,614	4.28	%		191,766		1,873	3.96	%
Tax exempt		80,623		1,253	6.30	%		62,326		1,010	6.57	%
Total investments		233,568		2,867	4.98	%		254,092		2,883	4.60	%
Interest bearing deposits		5,961		35	2.38	%		521		4	3.11	%
Federal funds sold		30,691		276	3.65	%		1,122		8	2.89	%
		270,220		3,178	4.77	%		255,735		2,895	4.59	%
Total earning assets		1,427,956		22,631	6.43	%		1,327,727		18,991	5.80	%
Total nonearning assets		96,907						118,536
Total assets	$	1,524,863					$	1,446,263
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	180,122	$	198	0.45	%	$	198,834	$	195	0.40	%
Money market		166,666		701	1.71	%		174,238		481	1.12	%
Savings		120,090		195	0.66	%		135,578		223	0.67	%
Time deposits:
Less than $100,000		372,152		3,185	3.47	%		369,507		2,761	3.03	%
$100,000 and more		175,314		1,681	3.89	%		128,145		1,092	3.46	%
Total interest-bearing deposits		1,014,344		5,960	2.38	%		1,006,302		4,752	1.92	%
Federal funds purchased and securities sold under agreements to repurchase		14,801		86	2.36	%		23,018		144	2.54	%
Federal Home Loan Bank advances		56,427		582	4.18	%		14,058		180	5.19	%
Trust preferred capital notes		20,619		374	7.36	%		20,619		265	5.21	%
Other borrowings		30,856		306	4.02	%		9,618		57	2.40	%
		122,703		1,348	4.46	%		67,313		646	3.89	%
Total interest-bearing liabilities		1,137,047		7,308	2.60	%		1,073,615		5,398	2.04	%
Total noninterest-bearing liabilities		249,452						244,897
Total liabilities		1,386,499						1,318,512
Stockholders’ equity		138,364						127,751
Total liabilities and stockholders’ equity	$	1,524,863					$	1,446,263
Net interest income (tax equivalent)			$	15,323					$	13,593
Average interest rate spread					3.82	%					3.76	%
Interest expense as percentage of average earning assets					2.08	%					1.65	%
Net interest margin					4.35	%					4.15	%