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 22, 2007

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 22, 2007, 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, 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 January 22, 2007.

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 22, 2007

2

EXHIBIT INDEX

Exhibit
99.1	Virginia Financial Group, Inc. press release dated January 22, 2007.

3

EX-99.1

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE

Contact:

Jeffrey W. Farrar

Executive Vice President and CFO

(434) 964-2217

farrarj@vfgi.net

VIRGINIA FINANCIAL GROUP, INC.

ANNOUNCES 2006 EARNINGS

Culpeper, VA, January 22, 2007 - Virginia Financial Group, Inc. (NASDAQ: VFGI) (VFG) today reported annual 2006 earnings of $19.5 million, up 7.0% from $18.2 million for the same period in 2005. Net income per diluted share was $1.80, up 7.1% from $1.68 for the twelve months of 2005. VFG’s earnings for 2006 produced an annualized return on average assets (ROA) of 1.24% and an annualized return on average equity (ROE) of 13.57%, compared to prior year ratios of 1.23% and 13.86%, respectively. For the fourth quarter of 2006 net income was $4.7 million, a decrease of 5.7% compared to earnings of $5.0 million for the fourth quarter of 2005. Net income per diluted share was $.44, a decrease of 4.4% compared to $.46 for the same period in 2005. VFG’s earnings for the fourth quarter of 2006 produced an ROA of 1.16% and ROE of 12.57%, compared to prior year ratios of 1.31% and 14.59%, respectively.

O.R. Barham, Jr., President and CEO, commented, “We are quite pleased with our financial results for 2006, particularly in light of a difficult operating environment for the banking industry in general. We successfully added needed infrastructure, management depth and opened four full service retail branches during 2006, all while still achieving a respectable 7% growth in earnings over 2005. These investments in our future success, coupled with margin compression, did impact earnings for the fourth quarter. Asset quality continues to remain solid, while our mortgage and asset management units enjoyed another solid quarter of earnings contribution. Further margin compression is likely due to an inverted yield curve and competitive pressures. This market condition coupled with our growth initiatives will likely pressure 2007 earnings growth as compared to the growth we have enjoyed for the last several years. Nevertheless, we are excited about our plans for 2007 and look forward to executing our strategies with optimism and enthusiasm.”

Net Interest Income

Net interest income amounted to $14.9 million for the fourth quarter, down $346 thousand or 2.2% compared with $15.2 million for the same quarter in 2005. For the twelve months ended December 31, 2006, net interest income was $60.1 million, an increase of $3.3 million or 5.8% from $56.8 million for the same period in 2005. Improvements in the growth and mix of average earning assets were

offset by margin compression during the fourth quarter, but outpaced this compression for the year. The net interest margin for the fourth quarter of 2006 was 4.08%, down thirteen basis points sequentially compared to 4.21% for the third quarter of 2006, and down thirty-two basis points when compared to 4.40% for the fourth quarter of 2005. The net interest margin for the twelve month period ended December 31, 2006 was 4.24%, compared to 4.29% for the same period in 2005. Average cost of interest bearing deposits continue to rise, with the average cost increasing to 3.13% for the fourth quarter of 2006, as compared to 2.89% for the third quarter of 2006 and 2.19% for the fourth quarter of 2005. The Company’s strategy has included more aggressive pricing of deposits with durations of nine months or less to minimize exposure to a potential downward cycle in short term rates. Another strategy which has impacted margin is the issuance of commercial paper. Average balances in VFG commercial paper increased to $66.5 million for the fourth quarter of 2006 at a cost of 4.67%, compared to $56.1 million at a cost of 4.65% sequentially, and $20.0 million at a cost of 3.42% for the fourth quarter of 2005. Asset yields were fairly constant sequentially, with an average yield on assets of 6.82% for the fourth quarter of 2006, compared to 6.78% for the third quarter of 2006 and 6.29% for the fourth quarter of 2005.

Non-Interest Income

Total non-interest income was $4.0 million for the fourth quarter of 2006, up slightly compared with $3.8 million for the fourth quarter of 2005 and $3.9 million for the third quarter of 2006. Retail banking fee income increased $81 thousand or 4.7% to $1.8 million, compared to $1.7 million in the fourth quarter of 2005. Mortgage banking revenue amounted to $697 thousand, a decrease of $213 thousand or 23.4%, as compared to $910 thousand for the fourth quarter of 2005, and up sequentially $10 thousand or 1.5% from the third quarter of 2006. Revenues from trust and brokerage for the fourth quarter were $978 thousand, up $27 thousand or 2.9% compared to $951 thousand in the fourth quarter of 2005, and up sequentially $81 thousand or 9.1% from the third quarter of 2006. Fiduciary and brokerage assets under management were $597 million at December 31, 2006, representing an increase of $85.0 million or 16.6% growth rate for the twelve month period. Included in non-interest income during fourth quarter 2006 was a net gain on sale of foreclosed properties of $39 thousand and income associated with an investment in bank owned life insurance of $112 thousand.

Non-interest Expense

Non-interest expense for the fourth quarter of 2006 amounted to $12.1 million, up $779 thousand or 6.9% from $11.3 million for the same period in 2005, and up sequentially $298 thousand or 2.5% from the third quarter of 2006. For the twelve month period ended December 31, 2006, non-interest expense amounted to $46.9 million, an increase of $3.2 million or 7.4% over $43.7 million for the same period in 2005. These increases reflect operating costs associated with the openings of Mill Creek, Langhorne Road, Arlington Boulevard and South High Street branches during the past twelve months. Marketing costs associated with the opening of the Arlington Boulevard and South High Street branches also added to the increase for the quarter. VFG’s efficiency ratio was 62.2% for the quarter, compared to 57.8% for the same quarter in 2005. For the twelve month period ended December 31, 2006 and 2005 the efficiency ratio was 60.5% and 59.1%, respectively.

Loan Portfolio

Average loans for the fourth quarter were $1.21 billion, up $62.6 million or 5.4% from the fourth quarter of 2005, and up sequentially from $1.19 billion for the third quarter of 2006. Period end loans were up $12.8 million or 1.1% for the quarter and $74.3 million or 6.5% for the twelve month period. Commercial real estate construction and commercial industrial reflect the largest increases for the twelve month period, while construction loans represented the largest quarterly sequential increase.

Deposits and Borrowings

Average deposits for the fourth quarter were $1.29 billion, up $22.4 million or 1.8% from the fourth quarter of 2005, and up sequentially from $1.28 billion for the third quarter of 2006. Average borrowings for the fourth quarter amounted to $155.8 million, an increase of $58.6 million or 60.2% compared to the same period in 2005, and up sequentially $7.6 million or 5.1% from the third quarter of 2006. Average balances in VFG commercial paper, which represents sweep funds of significant commercial demand deposit customers of each affiliate bank, increased to $66.5 million for the quarter, compared to $20.0 million for the same period in 2005.

Capital

At December 31, 2006 VFG had total assets of $1.63 billion, compared to $1.51 billion at December 31, 2005. Shareholder’s equity at December 31, 2006 was $150.7 million, an increase of $14.5 million or 10.7% compared to December 31, 2005. Shareholder’s equity represented 9.27% of total assets at December 31, 2006, while tangible equity capital represented 8.27% of tangible assets at December 31, 2006. Book value at December 31, 2006 was $13.97 per share, compared to $12.65 at December 31, 2005.

Asset Quality

Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .19% as of December 31, 2006, compared to .12% at December 31, 2005 and .18% at September 30, 2006. Net charge-offs (recoveries) as a percentage of average loans receivable amounted to none for the quarter and (.01)% for the year ended December 31, 2006, compared to (.01)% and .01% for the same periods in 2005. At December 31, 2006, the allowance for loan losses was approximately five times the level of non-performing assets, while the allowance as a percentage of total loans amounted to 1.19%. VFG recorded a provision for loan losses for the fourth quarter of $140 thousand, compared to $417 thousand for the three months ended December 31, 2005 and none for the third quarter of 2006. Factors that lead to the reduction in provision included the receipt of loss recoveries of $134 thousand during the quarter, as well as reduced loan growth and continuing strong asset quality during the period.

Branching

VFG had two new branches and a loan production office open during the fourth quarter. Our Planters Bank affiliate opened a branch located at 1391 South High Street in Harrisonburg, Virginia. This branch represents the third entry into that market. Planters Bank also established a loan production operation in the greater Winchester market. Additionally, VFG’s Second Bank affiliate opened its third branch in Charlottesville, a leased facility located at 1924 Arlington Boulevard in Charlottesville, Virginia. Construction continues as scheduled for a new main office facility located on Route 1 in Fredericksburg, Virginia.

Charter Consolidation Approval

VFG has received regulatory approval to combine its Second Bank & Trust (Culpeper) affiliate and Virginia Heartland Bank (Fredericksburg) affiliate. This transaction will consummate on February 20, 2006. The combined bank will retain the Second Bank & Trust name and charter, with 15 branches and pro forma assets of $723 million at December 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 forty-one branches serving Central and Southwest Virginia. It also maintains 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 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)
	12/31/2006			12/31/2005
INCOME STATEMENT
Interest income - taxable equivalent	$	25,754		$	22,324		15.36	%
Interest expense		10,370			6,688		55.05	%
Net interest income - taxable equivalent		15,384			15,636		-1.61	%
Less: taxable equivalent adjustment		515			421		22.33	%
Net interest income		14,869			15,215		-2.27	%
Provision for loan and lease losses		140			417		-66.43	%
Net interest income after provision for loan and lease losses		14,729			14,798		-0.47	%
Noninterest income		3,982			3,800		4.79	%
Noninterest expense		12,057			11,279		6.90	%
Provision for income taxes		1,929			2,306		-16.35	%
Net income	$	4,725		$	5,013		-5.75	%
PER SHARE DATA
Basic earnings	$	0.44		$	0.47		-5.71	%
Diluted earnings	$	0.44		$	0.46		-4.35	%
Shares outstanding		10,784,303			10,759,101
Weighted average shares -
Basic		10,776,308			10,756,848
Diluted		10,852,495			10,837,445
Dividends paid on common shares	$	0.16		$	0.15
PERFORMANCE RATIOS
Return on average assets		1.16	%		1.31	%	-11.45	%
Return on average equity		12.57	%		14.59	%	-13.85	%
Return on average realized equity (A)		12.49	%		14.46	%	-13.62	%
Net interest margin (taxable equivalent)		4.08	%		4.40	%	-7.27	%
Efficiency (taxable equivalent) (B)		62.16	%		57.78	%	7.58	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	14,312		$	13,128
Provision for loan losses		140			417
Charge offs		(86	)		(49	)
Recoveries		134			85
End of period	$	14,500		$	13,581

NOTES:

(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.

(C) Individual amounts shown above are calculated from actual, not rounded amounts in the thousands, which appear above.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

	For the Twelve Months Ended						Percent Increase (Decrease)
	12/31/2006			12/31/2005
INCOME STATEMENT
Interest income - taxable equivalent	$	97,601		$	82,326		18.55	%
Interest expense		35,482			23,861		48.70	%
Net interest income - taxable equivalent		62,119			58,465		6.25	%
Less: taxable equivalent adjustment		1,974			1,620		21.85	%
Net interest income		60,145			56,845		5.81	%
Provision for loan and lease losses		750			2,012		-62.72	%
Net interest income after provision for loan and lease losses		59,395			54,833		8.32	%
Noninterest income		15,485			15,443		0.27	%
Noninterest expense		46,918			43,702		7.36	%
Provision for income taxes		8,465			8,358		1.28	%
Net income	$	19,497		$	18,216		7.03	%
PER SHARE DATA
Basic earnings	$	1.81		$	1.69		6.89	%
Diluted earnings	$	1.80		$	1.68		7.14	%
Shares outstanding		10,784,303			10,759,101
Weighted average shares -
Basic		10,770,969			10,752,041
Diluted		10,843,356			10,823,940
Dividends paid on common shares	$	0.61		$	0.56
PERFORMANCE RATIOS
Return on average assets		1.24	%		1.23	%	0.81	%
Return on average equity		13.57	%		13.86	%	-2.09	%
Return on average realized equity (A)		13.42	%		13.88	%	-3.31	%
Net interest margin (taxable equivalent)		4.24	%		4.29	%	-1.17	%
Efficiency (taxable equivalent) (B)		60.48	%		59.13	%	2.28	%
ASSET QUALITY
Allowance for loan losses
Beginning of period	$	13,581		$	11,706
Provision for loan losses		750			2,012
Charge offs		(400	)		(452	)
Recoveries		569			315
End of period	$	14,500		$	13,581
Non-performing assets:
Non-accrual loans	$	2,999		$	1,604
Loans 90+ days past due and still accruing		—			—
Other real estate owned		38			75
Troubled debt restructurings		—			154
Total non-performing assets	$	3,037		$	1,833
to total assets:		0.19	%		0.12	%
to total loans plus OREO:		0.25	%		0.16	%
Allowance for loan losses to total loans		1.19	%		1.19	%
Net charge-offs (recoveries)	$	(169	)	$	137
Net charge-offs (recoveries) to average loans outstanding		-0.01	%		0.01	%

NOTES:

(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.

(C) Individual amounts shown above are calculated from actual, not rounded amounts in the thousands, which appear above.

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands, except per share data)

							Percent Increase (Decrease)
	12/31/2006			12/31/2005
SELECTED BALANCE SHEET DATA
(Dollars in thousands)
End of period balances
Cash and cash equivalents	$	57,635		$	48,016		20.03	%
Securities available for sale		268,922			243,364		10.50	%
Securities held to maturity		3,328			4,287		-22.37	%
Total securities		272,250			247,651		9.93	%
Real estate - construction		198,400			136,321		45.54	%
Real estate - 1-4 family residential		300,259			307,351		-2.31	%
Real estate - commercial and multifamily		573,652			573,366		0.05	%
Commercial, financial and agricultural		104,709			78,111		34.05	%
Consumer loans		33,030			40,860		-19.16	%
All other loans		6,755			6,521		3.59	%
Total loans		1,216,805			1,142,530		6.50	%
Deferred loan costs		827			546		51.47	%
Allowance for loan losses		(14,500	)		(13,581	)	6.77	%
Net loans		1,203,132			1,129,495		6.52	%
Bank owned life insurance		10,231			—
Other assets		92,972			80,022		16.18	%
Total assets		1,625,989			1,505,184		8.03	%
Noninterest bearing deposits		239,672			249,775		-4.04	%
Money market & interest checking		367,132			360,656		1.80	%
Savings		96,682			124,297		-22.22	%
CD’s and other time deposits		614,795			520,781		18.05	%
Total deposits		1,318,281			1,255,509		5.00	%
Federal funds purchased and securities sold under agreements to repurchase		—			15,890		-100.00	%
Federal Home Loan Bank advances		65,000			40,000		62.50	%
Trust preferred capital notes		20,619			20,619		0.00	%
Commercial paper		58,632			24,480		139.51	%
Other borrowed funds		561			842		-33.37	%
Other liabilities		12,244			11,739		4.30	%
Total liabilities		1,475,337			1,369,079		7.76	%
Total stockholders’ equity	$	150,652		$	136,105		10.69	%
Accumulated comprehensive loss	$	(1,026	)	$	(2,013	)	-49.03	%
Average balances
	For the Twelve Months Ended						Percent Increase (Decrease)
	12/31/2006			12/31/2005
Total assets	$	1,570,778		$	1,477,718		6.30	%
Total stockholders’ equity	$	143,722		$	131,437		9.35	%
	For the Three Months Ended
	12/31/2006			12/31/2005
Total assets	$	1,609,823		$	1,515,012		6.26	%
Total stockholders’ equity	$	149,171		$	136,282		9.46	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Three Months Ended						Percent Increase (Decrease)
	12/31/2006			12/31/2005
Interest Income
Interest and fees on loans	$	22,118		$	19,211		15.13	%
Interest on deposits in other banks		4			30		-86.67	%
Interest and dividends on securities:
Taxable		1,975			1,493		32.28	%
Tax-exempt		873			695		25.61	%
Dividends		129			136		-5.15	%
Interest income on federal funds sold		140			338		-58.58	%
Total interest income		25,239			21,903		15.23	%
Interest Expense
Interest on deposits		8,339			5,593		49.10	%
Interest on federal funds repurchased and securities sold under agreements to repurchase		45			145		-68.97	%
Interest on Federal Home Loan Bank advances		770			415		—
Interest on trust preferred capital notes		427			356		19.94	%
Interest on commercial paper		783			172		355.23	%
Interest on other borrowings		6			7		-14.29	%
Total interest expense		10,370			6,688		55.05	%
Net interest income		14,869			15,215		-2.27	%
Provision for loan losses		140			417		-66.43	%
Net interest income after provision for loan losses		14,729			14,798		-0.47	%
Noninterest Income
Retail banking fees		1,816			1,735		4.67	%
Commissions and fees from fiduciary activities		788			747		5.49	%
Brokerage fee income		191			204		-6.37	%
Other operating income		466			266		75.19	%
Losses on sale of fixed assets		(18	)		(62	)	-70.97	%
Gains on securities available for sale		3			—		—
Gains on sale of other real estate owned		39			—		—
Gain on sale of mortgage loans		697			910		-23.41	%
Total noninterest income		3,982			3,800		4.79	%
Noninterest Expense
Compensation and employee benefits		6,615			6,732		-1.74	%
Net occupancy		890			601		48.09	%
Supplies and equipment		1,085			929		16.79	%
Amortization-intangible assets		160			158		1.27	%
Marketing		448			133		236.84	%
State franchise tax		257			208		23.56	%
Data processing		365			447		-18.34	%
Telecommunications		231			248		-6.85	%
Professional fees		187			174		7.47	%
Other operating expenses		1,819			1,649		10.31	%
Total noninterest expense		12,057			11,279		6.90	%
Income before income taxes		6,654			7,319		-9.09	%
Income tax expense		1,929			2,306		-16.35	%
Net income	$	4,725		$	5,013		-5.75	%

QUARTERLY PERFORMANCE SUMMARY

Virginia Financial Group, Inc. (NASDAQ: VFGI)

(Dollars in thousands)

	For the Twelve Months Ended						Percent Increase (Decrease)
	12/31/2006			12/31/2005
Interest Income
Interest and fees on loans	$	84,003		$	70,712		18.80	%
Interest on deposits in other banks		74			41		80.49	%
Interest and dividends on securities:
Taxable		6,757			6,447		4.81	%
Tax-exempt		3,377			2,645		27.67	%
Dividends		486			397		22.42	%
Interest income on federal funds sold		930			464		100.43	%
Total interest income		95,627			80,706		18.49	%
Interest Expense
Interest on deposits		28,496			20,408		39.63	%
Interest on federal funds repurchased and securities sold under agreements to repurchase		219			568		-61.44	%
Interest on Federal Home Loan Bank advances		2,834			1,351		109.77	%
Interest on trust preferred capital notes		1,636			1,260		29.84	%
Interest on commercial paper		2,275			255		792.16	%
Interest on other borrowings		22			19		15.79	%
Total interest expense		35,482			23,861		48.70	%
Net interest income		60,145			56,845		5.81	%
Provision for loan losses		750			2,012		-62.72	%
Net interest income after provision for loan losses		59,395			54,833		8.32	%
Noninterest Income
Retail banking fees		6,982			6,954		0.40	%
Commissions and fees from fiduciary activities		3,108			2,954		5.21	%
Brokerage fee income		756			723		4.56	%
Other operating income		1,652			1,065		55.12	%
Gains (losses) on sale of fixed assets		274			(61	)	-549.18	%
Gains (losses) on securities available for sale		(196	)		296		-166.22	%
Gains on sale of other real estate owned		40			—		—
Gains on sale of branches		—			421		-100.00	%
Gain on sale of mortgage loans		2,869			3,091		-7.18	%
Total noninterest income		15,485			15,443		0.27	%
Noninterest Expense
Compensation and employee benefits		26,607			25,284		5.23	%
Net occupancy		3,147			2,888		8.97	%
Supplies and equipment		4,141			4,056		2.10	%
Amortization-intangible assets		578			643		-10.11	%
Marketing		1,214			887		36.87	%
State franchise tax		973			870		11.84	%
Data processing		1,389			1,389		0.00	%
Professional fees		823			804		2.36	%
Telecommunications		1,006			1,017		-1.08	%
Other operating expenses		7,040			5,864		20.05	%
Total noninterest expense		46,918			43,702		7.36	%
Income before income taxes		27,962			26,574		5.22	%
Income tax expense		8,465			8,358		1.28	%
Net income	$	19,497		$	18,216		7.03	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005

(Dollars in thousands)

	Three months ended December 31,
	2006						2005
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,213,929	$	22,162	7.24	%	$	1,146,423	$	19,258	6.66	%
Investment securities
Taxable		181,710		2,104	4.59	%		159,606		1,628	4.05	%
Tax exempt		90,711		1,344	5.88	%		67,135		1,070	6.32	%
Total investments		272,421		3,448	5.03	%		226,741		2,698	4.72	%
Interest bearing deposits		431		4	3.68	%		3,135		30	3.80	%
Federal funds sold		10,791		140	5.15	%		32,408		338	4.14	%
		283,643		3,592	5.03	%		262,284		3,066	4.64	%
Total earning assets		1,497,572		25,754	6.82	%		1,408,707		22,324	6.29	%
Total nonearning assets		112,251						106,305
Total assets	$	1,609,823					$	1,515,012
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	160,517	$	81	0.20	%	$	187,417	$	206	0.44	%
Money market		189,015		1,335	2.80	%		189,142		781	1.64	%
Savings		100,276		305	1.21	%		126,811		215	0.67	%
Time deposits:
Less than $100,000		404,378		4,265	4.18	%		362,229		3,019	3.31	%
$100,000 and more		203,022		2,353	4.60	%		147,962		1,372	3.68	%
Total interest-bearing deposits		1,057,208		8,339	3.13	%		1,013,561		5,593	2.19	%
Federal funds purchased and securities sold under agreements to repurchase		3,348		45	5.33	%		16,209		145	3.55	%
Federal Home Loan Bank advances		65,000		770	4.70	%		40,000		415	4.12	%
Trust preferred capital notes		20,619		427	8.22	%		20,619		356	6.85	%
Commercial paper		66,518		783	4.67	%		19,951		172	3.42	%
Other borrowings		355		6	6.71	%		502		7	5.53	%
		155,840		2,031	5.17	%		97,281		1,095	4.47	%
Total interest-bearing liabilities		1,213,048		10,370	3.39	%		1,110,340		6,688	2.39	%
Total noninterest-bearing liabilities		247,604						268,390
Total liabilities		1,460,652						1,378,730
Stockholders’ equity		149,171						136,282
Total liabilities and stockholders’ equity	$	1,609,823					$	1,515,012
Net interest income (tax equivalent)			$	15,384					$	15,636
Average interest rate spread					3.43	%					3.90	%
Interest expense as percentage of average earning assets					2.75	%					1.88	%
Net interest margin					4.08	%					4.40	%

VIRGINIA FINANCIAL GROUP INC.

CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

TWELVE MONTHS ENDED DECEMBER 31, 2006 AND 2005

(Dollars in thousands)

	Twelve months ended December 31,
	2006						2005
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	1,188,388	$	84,159	7.08	%	$	1,113,206	$	70,908	6.37	%
Investment securities
Taxable		165,083		7,243	4.39	%		173,668		6,844	3.94	%
Tax exempt		85,020		5,195	6.11	%		63,029		4,069	6.46	%
Total investments		250,103		12,438	4.98	%		236,697		10,913	4.61	%
Interest bearing deposits		2,681		74	2.76	%		1,256		41	3.26	%
Federal funds sold		23,025		930	4.04	%		12,968		464	3.58	%
		275,809		13,442	4.88	%		250,921		11,418	4.55	%
Total earning assets		1,464,197		97,601	6.67	%		1,364,127		82,326	6.04	%
Total nonearning assets		106,581						113,591
Total assets	$	1,570,778					$	1,477,718
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	170,204	$	764	0.45	%	$	192,987	$	807	0.42	%
Money market		170,892		3,734	2.19	%		176,606		2,325	1.32	%
Savings		108,659		853	0.79	%		131,420		880	0.67	%
Time deposits:
Less than $100,000		393,897		15,099	3.83	%		364,645		11,473	3.15	%
$100,000 and more		189,353		8,045	4.25	%		137,197		4,923	3.59	%
Total interest-bearing deposits		1,033,005		28,495	2.76	%		1,002,855		20,408	2.03	%
Federal funds purchased and securities sold under agreements to repurchase		9,875		219	2.22	%		21,189		568	2.68	%
Federal Home Loan Bank advances		61,612		2,834	4.60	%		33,056		1,351	4.09	%
Trust preferred capital notes		20,619		1,637	7.94	%		20,619		1,260	6.11	%
Commercial paper		50,530		2,275	4.50	%		7,724		255	3.30	%
Other borrowings		363		22	6.06	%		947		19	2.01	%
		142,999		6,987	4.89	%		83,535		3,453	4.13	%
Total interest-bearing liabilities		1,176,004		35,482	3.02	%		1,086,390		23,861	2.20	%
Total noninterest-bearing liabilities		251,052						259,891
Total liabilities		1,427,056						1,346,281
Stockholders’ equity		143,722						131,437
Total liabilities and stockholders’ equity	$	1,570,778					$	1,477,718
Net interest income (tax equivalent)			$	62,119					$	58,465
Average interest rate spread					3.65	%					3.84	%
Interest expense as percentage of average earning assets					2.43	%					1.75	%
Net interest margin					4.24	%					4.29	%