Virginia Financial Group, Inc. Announces Growth in Second Quarter Earnings and Dividend

Virginia Financial Group, Inc. Announces Growth in Second Quarter
Earnings and Dividend 


CULPEPER, Va., July 21  /PRNewswire-FirstCall/ -- Virginia Financial Group,
Inc. (NASDAQ:VFGI) today reported second quarter 2004 earnings of $3.7 million,
an increase of 2.7% compared to earnings of $3.6 million for the second quarter
of 2003. Net income per diluted share was $.51, up 2.0% compared to $.50 for
the same period in 2003. VFG'S earnings for the second quarter of 2004 produced
an annualized return on average assets (ROA) of 1.05% and an annualized return
on average equity (ROE) of 12.20%, compared to prior year ratios of 1.28% and
12.41%, respectively. For the first six months of 2004, net income was $7.1
million, up 3.7% from $6.9 million for the same period in 2003. Net income per
diluted share was $.99, up 3.1% from $.96 for the first six months of 2003. ROA
and ROE for the six month period was 1.02% and 11.86%, respectively.

Analysis of Financial Performance

Revenues for the second quarter of 2004 were $16.5 million, an increase of $2.2
million or 15.4% over $14.3 million in 2003. The largest component, net
interest income, amounted to $12.6 million for the second quarter, up $2.2
million or 20.3% compared with $10.4 million for the same quarter in 2003. For
the six months ended June 30, 2004, net interest income was $25.1 million, an
increase of $4.3 million or 20.9% from $20.7 million for the same period in
2003. Significant growth in average earning assets from loan production offices
in Charlottesville and Lynchburg, and nine new branches opened or purchased in
2003, were primarily contributors to this growth. The net interest margin for
the second quarter of 2004 was 4.05%, down four basis points compared to 4.09%
for the first quarter of 2004, and down sixteen basis points when compared to
4.21% for the second quarter of 2003. The decline is largely due to lower
yields associated with significant loan growth over the past twelve month
period. The net interest margin for the six month period ended June 30, 2004
was 4.07%, compared to 4.24% for the same period in 2003.

Average loans for the second quarter were $976.6 million, up $252.0 million or
34.8% from the second quarter of 2003, and average assets were $1.41 billion,
up 279.0 million or 24.7% from the second quarter of 2003. Loan growth for the
first six months of 2004 was $72.4 million or 7.8%. This 2004 growth was funded
predominately from maturities and pay downs in the securities portfolio and
short term borrowings. Average interest bearing deposits for the quarter were
$991.7 million, up 23.8% from the second quarter of 2003.

VFG's provision for loan losses for the second quarter were $636 thousand, up
$314 thousand or almost 100% from the same period in 2003. For the six month
period, the provision for loan losses was $1.3 million, up $672 thousand or
over 100% from the same period in 2003. The increases are directly attributed
to the aforementioned higher rates of loan growth for each period.
Nonperforming assets and net charge-offs were at improved levels, with non-
performing assets as a percentage of total assets of .31% at June 30, 2004,
compared to .63% at June 30, 2003. Net charge-offs for the second quarter were
$120 thousand, compared to net-charges of $345 thousand for the same period in
2003. Net charge-offs as a percentage of average loans were .01% for the second
quarter and .03% for the six month period, compared to .05% and .07 % for the
same periods in 2003. At June 30, 2004, the allowance for loan losses as a
percentage of non-performing assets was 248.8%, while the allowance as a
percentage of total loans amounted to 1.08%.

Total noninterest income was $4.0 million for the second quarter of 2004, an
increase of $100 thousand or 2.0% compared to $3.9 million for the second
quarter of 2003.  Growth in retail banking fees offset the decline in mortgage
revenue for the quarter, with revenue of $2.1 million, up $610 thousand or
42.4% from the same period in 2003. Fees and net gains from mortgages sold were
$836 thousand for the second quarter of 2004, a decrease of $423 thousand or
33.6% from the second quarter of 2003. Originations were $50.4 million for the
second quarter of 2004, down 20.9% compared to $63.7 million for the same
period in 2003. Refinance loans represented $27.8 million or 55.2% of total
originations for the second quarter of 2004.

Noninterest expense for the second quarter of 2004 amounted to $10.6 million,
up $1.4 million or 15.7% from the same period in 2003, and up 1.9% from the
first quarter of 2004. For the six month period ended June 30, 2004,
noninterest expense amounted to $21.1 million, an increase of $2.8 million or
14.9% over the same period in 2003. The increases are largely attributable to
the Company's expansion efforts, and the incremental operating costs and
intangible amortization associated with the eight purchased branches, loan
production offices in Charlottesville and Lynchburg and a de novo branch in
Fishersville, Virginia.

At June 30, 2004 VFG had assets of $1.41 billion, compared to $1.15 billion at
June 30, 2003. Equity capital represented 8.59% of total assets at June 30,
2004. Book value at June 30, 2004 was $16.87 per share.

Dividend Increase

The Board of Directors has declared an increase in the quarterly cash dividend
on its common stock to $0.20 per common share, up 5.3% from the current
quarterly dividend of $0.19 per common share. The dividend is payable August
23, 2004, to shareholders of record on August 2, 2004. The new annual dividend
rate will be $.80 per share, representing a 2.5% annualized yield on the most
recent closing price.

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-seven branches serving Central and Southwest Virginia. It also
maintains five trust and investment service offices in its markets, and loan
production offices located in Charlottesville and Lynchburg.

This press release contains forward-looking statements as defined by federal
securities laws. These statements may address certain results that are expected
or anticipated to occur or otherwise state the company's predictions for the
future. These particular forward-looking statements and all other statements
that are not historical facts are subject to a number of risks and
uncertainties, and actual results may differ materially. Such factors include
but are not limited to: general economic conditions, significant fluctuations
in interest rates that could reduce net interest margin; difficulties in
executing integration plans: reduction of fee income from existing products due
to market conditions; and the amount of growth in the company's general and
administrative expenses. Consequently, these cautionary statements qualify all
forward-looking statements made herein. 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)
                                                                    Percent
                                       For the Three Months Ended  Increase
                                         06/30/2004   06/30/2003   Decrease)
  INCOME STATEMENT
   Interest income - taxable equivalent     $17,703      $15,789     12.12%
   Interest expense                           4,693        4,764     -1.49%
     Net interest income -
      taxable equivalent                     13,010       11,025     18.00%
   Less: taxable equivalent adjustment          448          586    -23.55%
     Net interest income                     12,562       10,439     20.34%
   Provision for loan and lease losses          636          322     97.52%
     Net interest income after provision
      for loan and lease losses              11,926       10,117     17.88%
   Noninterest income                         3,949        3,870      2.04%
   Noninterest expense                       10,635        9,195     15.66%
   Provision for income taxes                 1,555        1,203     29.26%
     Net income                              $3,685       $3,589      2.67%


  PER SHARE DATA
   Basic earnings                             $0.51        $0.50      2.00%
   Diluted earnings                           $0.51        $0.50      2.00%

   Shares outstanding                     7,160,417    7,149,659

   Weighted average shares -
     Basic                                7,159,654    7,154,236
     Diluted                              7,200,797    7,189,857

   Shares repurchased                             -       12,100
   Average price of shares repurchased           $-       $30.40

   Dividends paid on common shares            $0.19        $0.19

  PERFORMANCE RATIOS
   Return on average assets                   1.05%        1.28%    -17.97%
   Return on average equity                  12.20%       12.41%     -1.69%
   Return on average realized equity(A)      12.51%       13.22%     -5.37%
   Net yield on earning assets
    (taxable equivalent)                      4.05%        4.21%     -3.80%
   Efficiency (taxable equivalent)(B)        62.69%       61.85%      1.36%

  ASSET QUALITY
   Allowance for loan losses
   Beginning of period                      $10,283       $9,367
   Provision for loan losses                    636          323
   Charge offs                                 (178)        (416)
   Recoveries                                    58           70
   End of period                            $10,799       $9,344


  NOTES:  Applicable ratios are annualized
  (A) Excludes the effect on average shareholders' equity of unrealized
      gains (losses) that result from changes in market values of securities
      and other comprehensive pension expense.
  (B) Excludes foreclosed property expense and non-recurring items for all
      periods.



   QUARTERLY PERFORMANCE SUMMARY
   Virginia Financial Group, Inc. (NASDAQ:VFGI)
   (Dollars in thousands, except per share data)

                                                                   Percent
                                        For the Six Months Ended   Increase
                                         06/30/2004   06/30/2003  (Decrease)
  INCOME STATEMENT
   Interest income - taxable equivalent     $35,545      $31,649     12.31%
   Interest expense                           9,581        9,755     -1.78%
     Net interest income -
      taxable equivalent                     25,964       21,894     18.59%
   Less: taxable equivalent adjustment          910        1,174    -22.49%
     Net interest income                     25,054       20,720     20.92%
   Provision for loan and lease losses        1,317          645    104.19%
     Net interest income after provision
      for loan and lease losses              23,737       20,075     18.24%
   Noninterest income                         7,406        7,529     -1.63%
   Noninterest expense                       21,070       18,345     14.85%
   Provision for income taxes                 2,933        2,376     23.44%
     Net income                              $7,140       $6,883      3.73%


  PER SHARE DATA
   Basic earnings                             $1.00        $0.96      4.17%
   Diluted earnings                           $0.99        $0.96      3.13%

   Shares outstanding                     7,160,417    7,149,659

   Weighted average shares -
     Basic                                7,156,505    7,161,280
     Diluted                              7,199,256    7,196,207

   Shares repurchased                             -       28,507
   Average price of shares repurchased           $-       $28.68

   Dividends paid on common shares            $0.38        $0.37

  PERFORMANCE RATIOS
   Return on average assets                   1.02%        1.24%    -17.74%
   Return on average equity                  11.86%       11.97%     -0.92%
   Return on average realized equity(A)      12.24%       12.85%     -4.75%
   Net yield on earning assets
    (taxable equivalent)                      4.07%        4.24%     -4.01%
   Efficiency (taxable equivalent)(B)        63.11%       62.36%      1.20%

  ASSET QUALITY
   Allowance for loan losses
   Beginning of period                       $9,743       $9,180
   Provision for loan losses                  1,317          646
   Charge offs                                 (354)        (591)
   Recoveries                                    93          109
   End of period                            $10,799       $9,344

   Non-performing assets:
   Non-accrual loans                         $2,325       $1,257
   Loans 90+ days past due and still
    accruing                                     13          512
   Other real estate owned                        5        1,052
   Troubled debt restructurings               1,998        4,707
      Total non-performing assets            $4,341       $7,528


  NOTES:  Applicable ratios are annualized
  (A) Excludes the effect on average shareholders' equity of unrealized
      gains (losses) that result from changes in market values of securities
      and other comprehensive pension expense.
  (B) Excludes foreclosed property expense for all periods.



   QUARTERLY PERFORMANCE SUMMARY
   Virginia Financial Group, Inc. (NASDAQ:VFGI)
   (Dollars in thousands, except per share data)
                                                                   Percent
                                        For the Six Months Ended   Increase
                                         06/30/2004   06/30/2003  (Decrease)
  SELECTED BALANCE SHEET DATA
     End of period balances

     Securities available for sale         $294,003     $319,332    -7.93%
     Securities held to maturity              5,843        7,056   -17.19%

       Total securities                     299,846      326,388    -8.13%

     Real estate - construction             102,907       64,635    59.21%
     Real estate - 1-4 family
      residential                           311,626      234,621    32.82%
     Real estate - commercial and
      multifamily                           451,480      311,779    44.81%
     Commercial, financial and
      agricultural                           78,278       66,548    17.63%
     Consumer loans                          46,459       48,275    -3.76%
     All other loans                          4,685       17,812   -73.70%
       Total loans                          995,435      743,670    33.85%

     Allowance for loan losses              (10,799)      (9,344)   15.57%

     Other earning assets                       749        9,210   -91.87%

       Total earning assets               1,296,030    1,079,268    20.08%

       Total assets                       1,406,422    1,145,670    22.76%

     Non-interest bearing deposits          225,416      186,024    21.18%
     Money market & interest checking       362,894      286,186    26.80%
     Savings                                142,207      112,541    26.36%
     CD's and other time deposits           488,398      403,682    20.99%
       Total deposits                     1,218,915      988,433    23.32%

     Short-term borrowed funds               25,498       21,528    18.44%
     Trust preferred capital notes           20,000          -     100.00%
     Federal Home Loan Bank advances         14,100        9,180    53.59%

       Total interest-bearing
        liabilities                       1,053,097      833,117    26.40%

       Total shareholders' equity          $120,769     $119,501     1.06%

     Average balances

       Total assets                      $1,405,147   $1,120,681    25.38%


       Total shareholders' equity          $121,089     $115,955     4.43%


                                                                   Percent
     Average Balances                   For the Three Months Ended Increase
                                         06/30/2004   06/30/2003  (Decrease)


        Total assets                     $1,406,614   $1,127,594    24.74%


       Total shareholders' equity          $121,446     $115,952     4.74%



   QUARTERLY PERFORMANCE SUMMARY
   Virginia Financial Group, Inc. (NASDAQ:VFGI)
   (Dollars in thousands)

                                           For the Three     For the Six
                                           Months Ended      Months Ended
                                          06/30/   06/30/   06/30/   06/30/
                                           2004     2003     2004     2003
  Interest Income
    Interest and fees on loans           $14,239  $12,006  $28,294  $24,214
    Interest on deposits in other banks        1      -          2        2
    Interest on investment securities:
      Taxable                                 92      114      187      228
    Interest and dividends on
     securities available for sale:
      Taxable                              2,126    1,970    4,557    3,890
      Nontaxable                             713      940    1,462    1,834
      Dividends                               77      108      124      163
    Interest income on
     federal funds sold                        7       65        9      144
        Total Interest Income             17,255   15,203   34,635   30,475

  Interest Expense
    Interest on deposits                   4,237    4,535    8,771    9,285
    Interest on trust preferred              194      -        222      -
    Interest on Federal Home Loan Bank
     advances                                183      178      338      370
    Interest on federal funds
     repurchased and securities sold
     under agreements to repurchase           35       49      106       97
    Interest on other short-term
     borrowings                               44        2      144        3
        Total Interest Expense             4,693    4,764    9,581    9,755

    Net Interest Income                   12,562   10,439   25,054   20,720
  Provision for loan losses                  636      322    1,317      645
    Net Interest Income after Provision
     for Loan Losses                      11,926   10,117   23,737   20,075

  Other Income
    Retail banking fees                    2,050    1,440    3,599    2,688
    Fees from fiduciary activities           684      710    1,460    1,489
    Brokerage services                       147      115      345      348
    Other operating income                   232      300      521      612
    Gains (losses) on securities
     available for sale                      -         46      -         70
    Gains (losses) on other
     real estate owned                       -        -        -        -
    Gains (losses) on sale of
     fixed assets                            -        -        -        -
    Fees on mortgage loans sold              836    1,259    1,481    2,322
        Total Other Income                 3,949    3,870    7,406    7,529

  Other Expense
    Compensation and employee benefits     5,948    5,326   11,808   10,584
    Net occupancy expense                    670      548    1,376    1,118
    Supplies and equipment                 1,095      999    2,139    1,947
    Amortization-intangible assets           174       40      347       79
    Computer services                        442      291      741      632
    Professional fees                        290      144      491      356
    Other operating expenses               2,016    1,847    4,168    3,629
        Total Other Expense               10,635    9,195   21,070   18,345

    Income Before Income Tax Expense       5,240    4,792   10,073    9,259
  Income tax expense                       1,555    1,203    2,933    2,376
    Net Income                            $3,685   $3,589   $7,140   $6,883



   VIRGINIA FINANCIAL GROUP INC.
   CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
   THREE MONTHS ENDED JUNE 30, 2004 AND 2003

                                                      2004
                                                         Interest
                                          Average        Income/   Average
  Dollars in thousands                    Balance        Expense    Rates

  Assets

  Loans receivable, net                  $976,562,652  $14,297,176  5.89%
  Investment securities
            Taxable                       244,109,495    2,299,787  3.79%
            Tax exempt                     66,607,619    1,096,467  6.62%
  Total Investments                       310,717,114    3,396,254  4.40%

  FHLB int bearing                            504,116        1,291  1.03%
  Federal funds sold                        3,220,790        7,378  0.92%
                                          314,442,020    3,404,923  4.36%

  Total Earning Assets                 $1,291,004,672   17,702,099  5.51%


  Liabilities and Stockholders' Equity
  Time and savings deposits
      Interest-bearing transaction
       accounts                          $189,402,247     $184,872  0.39%
      Money market deposit accounts       170,697,590      375,130  0.88%
      Passbook savings accounts           141,020,480      235,474  0.67%
      Certificates of deposit >$100k      119,938,527      993,335  3.33%
      Certificates of deposit $100k      117,895,192    1,980,014  3.38%
      Certificates of deposit