VFGI Virginia Financial Grp. (MM)

Virginia Financial Group, Inc. Announces Record Earnings for Fourth Quarter and Year 2004 CULPEPER, Va., Jan. 21 /PRNewswire-FirstCall/ -- Virginia Financial Group, Inc. (NASDAQ:VFGI) today reported record earnings of $4.1 million, an increase of 32.3% over 2003 earnings of $3.1 million. For the year ended December 31, 2004, VFG also achieved record earnings of $15.2 million, an increase of 12.7% over 2003 earnings of $13.5 million. Diluted earnings per share for the fourth quarter and year 2004 amounted to $.56 and $2.11 per share, compared to $.43 and $1.88 per share in 2003. Earnings for the three- month period produced a return on average assets of 1.11% and a return on average equity of 12.84%. Earnings for the twelve-month period produced a return on average assets of 1.07% and a return on average equity of 12.40%. "We are pleased to report record earnings for the year," said President and Chief Executive Officer O.R. Barham, Jr. "We had many accomplishments in 2004, both financial and non-financial. We have worked hard to assimilate our family of banks and trust company to maximize the customer experience, and position ourselves for future growth. Our earnings growth was achieved in spite of a significant reduction in contribution from our mortgage operations, which experienced reductions in volume consistent with the industry. Non- financial accomplishments included adding management strength, improving our overall effectiveness and efficiency, and enhancing our overall control environment. We are poised to accelerate our growth initiatives in 2005 and look to maintaining our earnings momentum." Review of Financial Performance Revenue Growth Revenues for the fourth quarter of 2004 were $16.8 million, an increase of $1.1 million or 7.1% over $15.6 million in 2003. The largest component, net interest income, amounted to $13.3 million for the fourth quarter, up $1.1 million or 9.4% compared with $12.1 million for the same quarter in 2003. Growth in average earning assets and an improving net interest margin were primary contributors to this growth. For the year ended December 31, 2004, net interest income was $51.5 million, an increase of $7.9 million or 18.0% from $43.6 million for the same period in 2003. The net interest margin for the fourth quarter of 2004 was 4.09%, compared to 4.02% for the same quarter in 2003. The net interest margin for the twelve-month period ended December 31, 2004 was 4.09%, compared to 4.16% for the same period in 2003. Noninterest income was $3.5 million for the fourth quarter of 2004, equal to the $3.5 million realized for the same period in 2003. For the year ended December 31, 2004, noninterest income was $14.5 million, a decrease of $683 thousand or 4.5% from $15.2 million realized in 2003. Mortgage banking revenue continued to contract consistent with refinance activity, with revenues of $448 thousand for the quarter, compared to $582 thousand for the same period in 2003 and $534 thousand for the third quarter of 2004. Other sources of noninterest income experienced growth for the quarter, with retail banking services up $283 thousand or 17.4% and fees from trust and brokerage services up $46 thousand or 6.0%. Overhead and Efficiency Noninterest expense was $10.2 million for the quarter, a decrease of $535 thousand or 5.0% from the $10.8 million for the fourth quarter of 2003. For the year ended December 31, 2004, noninterest expense increased to $41.7 million, an increase of $2.7 million or 7.0% compared to $39.0 million for the year 2003. Included in the 2003 results are non-operating expenses of $476 thousand for the fourth quarter and $708 thousand for the year associated with the integration of eight First Virginia Branches purchased in September 2003. Excluding these nonrecurring costs, fourth quarter overhead was essentially flat for 2004 vs. 2003, and annual overhead increased 8.9%. The annual increase can be attributed to growth in expenses and amortization of intangibles associated with a full year of operations for loan production offices in Charlottesville and Lynchburg, and the eight branches purchased from First Virginia. These expenses were offset somewhat by decreases in costs associated with mortgage related commissions, medical benefit claims experience, and other incentive related accruals. VFG's efficiency ratio improved to 59.39% for the fourth quarter of 2004, compared to 64.09% for the same quarter in 2003 and 60.25% in the third quarter of 2004. For the year ended December 31, 2004, VFG's efficiency ratio also improved to 61.45%, compared to 63.64% for the same period in 2003, adjusted for the aforementioned non-recurring expenses incurred in 2003. Asset Quality VFG's credit quality continues to be sound and compares favorably with its peer group. Nonperforming assets were $4.0 million at December 31, 2004, representing a ratio of non-performing assets to total assets of .28%, and a ratio to period-end loans and other real estate owned of .38%, compared to .53% and .80% for year end 2003. Net charge-offs as a percentage of average loans receivable amounted to .02% for the quarter, compared to .03% on a linked-quarter comparison and .03% for the fourth quarter in 2003. Net charge-offs were .06% of average loans for the year ended December 31, 2004, compared to .09% for the year ended December 31, 2003. The allowance for loan losses represented 1.10% of loans receivable at December 31, 2004, compared to 1.06% at December 31, 2003. Increases noted in the provision for loan losses for the quarter and year was consistent with the level of loan growth and change in loan mix experienced in 2004. Balance Sheet VFG's loan portfolio increased $139.9 million or 15.2% to $1.063 billion at December 31, 2004, compared to $923.1 million as of the same date in 2003. For the fourth quarter of 2004, VFG's loan portfolio grew $28.0 million or 2.7%. The growth in loans for the quarter was fairly distributed between our Culpeper, Fredericksburg, Charlottesville and Lynchburg lending units. Annual loans growth was funded with deposit growth of $58.8 million, long term borrowings of $24.9 million, and proceeds from maturities in its securities portfolio of $64.1 million. VFG ended the year with assets of $1.449 billion, compared to $1.387 billion at the same date last year, representing growth of $62 million or 4.4%. Virginia Commonwealth Trust Company ended the year with fiduciary and brokerage assets of $515 million, up $27.0 million or 7.2% from 2003. 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, changes in the lending environment, 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/. This press release refers to the efficiency ratio, which is computed by dividing non-interest expense excluding expenses on other real estate owned by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. This press release also contains financial information that excludes non- operating charges incurred in 2003 to arrive at what management considers being core operating results. 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." QUARTERLY PERFORMANCE SUMMARY Virginia Financial Group, Inc. (NASDAQ:VFGI) (Dollars in thousands, except per share data) Percent For the Three Months Ended Increase 12/31/2004 12/31/2003 (Decrease) INCOME STATEMENT Interest income -- taxable equivalent $18,972 $17,606 7.76% Interest expense 5,272 4,980 5.86% Net interest income -- taxable equivalent 13,700 12,626 8.51% Less: taxable equivalent adjustment 434 502 -13.55% Net interest income 13,266 12,124 9.42% Provision for loan and lease losses 581 322 80.43% Net interest income after provision for loan and lease losses 12,685 11,802 7.48% Noninterest income 3,496 3,522 -0.74% Noninterest expense 10,220 10,755 -4.97% Provision for income taxes 1,889 1,492 26.61% Net income $4,072 $3,077 32.34% PER SHARE DATA Basic earnings $0.57 $0.43 32.56% Diluted earnings $0.56 $0.43 30.23% Shares outstanding 7,161,499 7,152,885 Weighted average shares -- Basic 7,160,782 7,150,864 Diluted 7,208,699 7,191,748 Shares repurchased - - Average price of shares repurchased $- $- Dividends paid on common shares $0.20 $0.19 PERFORMANCE RATIOS Return on average assets 1.11% 0.89% 24.72% Return on average equity 12.84% 10.36% 23.94% Return on average realized equity(A) 13.13% 10.69% 22.83% Net yield on earning assets (taxable equivalent) 4.09% 4.02% 1.74% Efficiency (taxable equivalent)(B) 59.39% 64.09% -7.33% ASSET QUALITY Allowance for loan losses Beginning of period $11,300 $9,658 Provision for loan losses 581 322 Charge offs (264) (277) Recoveries 89 40 End of period $11,706 $9,743 Allowance for loan losses to total loans Net charge-offs (recoveries) $175 $237 Net charge-offs to average loans outstanding 0.02% 0.03% 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 foreclosed property expense for all periods. QUARTERLY PERFORMANCE SUMMARY Virginia Financial Group, Inc. (NASDAQ:VFGI) (Dollars in thousands, except per share data) For the Twelve Months Percent Ended Increase 12/31/2004 12/31/2003 (Decrease) INCOME STATEMENT Interest income -- taxable equivalent $72,889 $65,168 11.85% Interest expense 19,628 19,357 1.40% Net interest income -- taxable equivalent 53,261 45,811 16.26% Less: taxable equivalent adjustment 1,780 2,200 -19.09% Net interest income 51,481 43,611 18.05% Provision for loan and lease losses 2,534 1,290 96.43% Net interest income after provision for loan and lease losses 48,947 42,321 15.66% Noninterest income 14,544 15,227 -4.49% Noninterest expense 41,723 39,007 6.96% Provision for income taxes 6,565 5,049 30.03% Net income $15,203 $13,492 12.68% PER SHARE DATA Basic earnings $2.12 $1.89 12.17% Diluted earnings $2.11 $1.88 12.23% Shares outstanding 7,161,499 7,152,885 Weighted average shares -- Basic 7,158,574 7,155,814 Diluted 7,203,540 7,192,484 Shares repurchased - 28,507 Average price of shares repurchased $- $28.68 Dividends paid on common shares $0.78 $0.76 PERFORMANCE RATIOS Return on average assets 1.07% 1.13% -5.31% Return on average equity 12.40% 11.47% 8.11% Return on average realized equity(A) 12.70% 12.12% 4.79% Net yield on earning assets (taxable equivalent) 4.09% 4.16% -1.68% Efficiency (taxable equivalent)(B) 61.44% 63.28% -2.91% ASSET QUALITY Non-performing assets: Non-accrual loans $2,552 $2,677 Loans 90+ days past due and still accruing - 25 Other real estate owned 5 136 Troubled debt restructurings 1,451 4,525 Total non-performing assets $4,008 $7,363 to total assets: 0.28% 0.53% to total loans plus OREO: 0.38% 0.80% Allowance for loan losses to total loans Net charge-offs (recoveries) $571 $727 Net charge-offs to average loans outstanding 0.06% 0.09% 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 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 Twelve Months Ended Increase 12/31/2004 12/31/2003 (Decrease) SELECTED BALANCE SHEET DATA End of period balances Securities available for sale $286,310 $359,124 -20.28% Securities held to maturity 5,848 5,174 13.03% Total securities 292,158 364,298 -19.80% Real estate -- construction 116,888 94,372 23.86% Real estate -- 1-4 family residential 315,736 303,408 4.06% Real estate -- commercial and multifamily 496,562 394,700 25.81% Commercial, financial and agricultural 85,324 76,075 12.16% Consumer loans 44,625 50,163 -11.04% All other loans 3,423 3,972 -13.82% Total loans 1,062,558 922,690 15.16% Allowance for loan losses (11,706) (9,743) 20.15% Other earning assets 1,794 1,459 22.96% Total earning assets 1,356,510 1,288,447 5.28% Total assets 1,449,000 1,387,211 4.45% Non-interest bearing deposits 238,497 216,560 10.13% Money market & interest checking 379,793 373,225 1.76% Savings 139,018 136,757 1.65% CD's and other time deposits 499,618 484,232 3.18% Total deposits 1,256,926 1,210,774 3.81% Short-term borrowed funds 21,970 39,681 -44.63% Trust preferred capital notes 20,000 - 100.00% Federal Home Loan Bank advances 14,060 9,140 53.83% Total interest-bearing liabilities 1,074,459 1,043,035 3.01% Total stockholders' equity $127,090 $119,830 6.06% Average balances Total assets $1,422,715 $1,196,873 18.87% Total stockholders' equity $122,650 $117,580 4.31% Average Balances For the Three Months Percent Ended Increase 12/31/2004 12/31/2003 (Decrease) Total assets $ 1,454,842 $1,372,613 5.99% Total stockholders' equity $126,157 $114,133 10.54% QUARTERLY PERFORMANCE SUMMARY Virginia Financial Group, Inc. (NASDAQ:VFGI) (Dollars in thousands) For the Three For the Twelve Months Ended Months Ended 12/31/04 12/31/03 12/31/04 12/31/03 Interest Income Interest and fees on loans $15,676 $13,609 $58,939 $49,990 Interest on deposits in other banks 1 28 4 59 Interest on investment securities: Taxable 61 103 340 440 Interest and dividends on securities available for sale: Taxable 1,850 2,455 8,430 8,411 Nontaxable 696 791 2,854 3,522 Dividends 134 99 390 358 Interest income on federal funds sold 120 19 152 188 Total Interest Income 18,538 17,104 71,109 62,968 Interest Expense Interest on deposits 4,766 4,753 17,859 18,434 Interest on trust preferred 241 - 683 - Interest on Federal Home Loan Bank advances 186 161 705 694 Interest on federal funds repurchased and securities sold under agreements to repurchase 77 30 238 189 Interest on other short-term borrowings 2 36 143 40 Total Interest Expense 5,272 4,980 19,628 19,357 Net Interest Income 13,266 12,124 51,481 43,611 Provision for loan losses 581 322 2,534 1,290 Net Interest Income after Provision for Loan Losses 12,685 11,802 48,947 42,321 Other Income Retail banking fees 1,912 1,629 7,522 5,772 Fees from fiduciary activities 668 640 2,804 2,802 Brokerage services 149 131 663 582 Other operating income 330 432 1,103 1,316 Gains (losses) on securities available for sale 3 6 3 441 Gains (losses) on other real estate owned (20) 6 (20) 26 Gains (losses) on sale of fixed assets 6 96 6 96 Fees on mortgage loans sold 448 582 2,463 4,192 Total Other Income 3,496 3,522 14,544 15,227 Other Expense Compensation and employee benefits 5,747 5,609 23,348 21,883 Net occupancy expense 648 639 2,721 2,318 Supplies and equipment 1,109 1,389 4,333 4,229 Amortization-intangible assets 174 173 694 291 Computer services 373 244 1,464 1,146 Professional fees 209 386 862 961 Other operating expenses 1,960 2,315 8,301 8,179 Total Other Expense 10,220 10,755 41,723 39,007 Income Before Income Tax Expense 5,961 4,569 21,768 18,541 Income tax expense 1,889 1,492 6,565 5,049 Net Income $4,072 $3,077 $15,203 $13,492 VIRGINIA FINANCIAL GROUP INC. CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES THREE MONTHS ENDED DECEMBER, 2004 AND 2003 Three months Ending DECEMBER 31, 2004 Average Interest Average Dollars in thousands Balance Inc/Exp Rates Assets Loans receivable, net $1,038,215 $15,731 6.03% Investment securities Taxable 205,682 2,036 3.94% Tax exempt 63,703 1,084 6.77% Total Investments 269,385 3,120 4.61% FHLB int bearing 289 1 0.85% Federal funds sold 25,984 120 1.83% 295,658 3,241 4.36% Total Earning Assets 1,333,873 18,972 5.66% Tax Eql. Non-Earning Assets 120,969 Total Assets 1,454,842 Liabilities and Stockholders' Equity Time and savings deposits Interest-bearing transaction accounts $198,527 $196 0.39% Money market deposit accounts 183,725 454 0.98% Passbook savings accounts 141,549 231 0.65% Certificates of deposit >$100k 126,407 1,079 3.40% Certificates of deposit $100k 121,135 4,079 3.37% Certificates of deposit