VFGI Virginia Financial Grp. (MM)

CULPEPER, Va., Jan. 22 /PRNewswire-FirstCall/ -- 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. Return on average assets (ROA) and return on average equity (ROE) for the twelve month period were 1.24% and 13.57%, respectively, compared to 1.23% and 13.86% for the same period in 2005. 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 annualized ROA of 1.16% and an annualized 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 http://www.vfgi.net/. QUARTERLY PERFORMANCE SUMMARY Virginia Financial Group, Inc. (NASDAQ:VFGI) (Dollars in thousands, except per share data) For the Three Months Percent Ended Increase 12/31/2006 12/31/2005 (Decrease) 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 Percent Ended Increase 12/31/2006 12/31/2005 (Decrease) 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 12/31/2006 12/31/2005 (Decrease) 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 Percent Ended Increase 12/31/2006 12/31/2005 (Decrease) 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 Percent Ended Increase 12/31/2006 12/31/2005 (Decrease) 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 Percent Ended Increase 12/31/2006 12/31/2005 (Decrease) 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 Average Interest Average Average Interest Average thousands Balance Inc/Exp Rates Balance Inc/Exp 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' $1,609,823 $1,515,012 equity Net interest income (tax equivalent) $15,348 $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 Average Interest Average Average Interest Average thousands Balance Inc/Exp Rates Balance Inc/Exp 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% DATASOURCE: Virginia Financial Group, Inc. CONTACT: Jeffrey W. Farrar, Executive Vice President and CFO of Virginia Financial Group, Inc., +1-434-964-2217, Web site: http://www.vfgi.net/

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