VFGI Virginia Financial Grp. (MM)

Virginia Financial Group, Inc. Announces 5% Growth In First Quarter Earnings CULPEPER, Va., April 19 /PRNewswire-FirstCall/ -- Virginia Financial Group, Inc. today reported first quarter 2004 earnings of $3.5 million or $.48 per diluted share, an increase of 4.9% compared to earnings of $3.3 million or $.46 per diluted share for the first quarter of 2003. Diluted earnings per share growth represented an increase of 4.4% compared to first quarter 2003 results. VFG'S earnings for the first quarter of 2004 produced an annualized return on average assets of .99% and an annualized return on average equity of 11.51%, compared to prior year ratios of 1.20% and 11.62%, respectively. Total revenues for the first quarter of 2004 were $15.9 million, an increase of $2.0 million or 14.4% over the $13.9 million in 2003. The largest component, net interest income, amounted to $12.5 million for the first quarter, up $2.2 million or 21.5% compared with $10.3 million for the same quarter in 2003. Continuing loan growth and contributions from eight new branches purchased late in 2003 were primarily contributors to this growth. The net interest margin for the first quarter of 2004 was 4.09%, an improvement of .18% when compared to 3.91% for the fourth quarter of 2003, but down .18% when compared to 4.27% for the first quarter of 2003. Total noninterest income was $3.5 million for the first quarter of 2004, a decrease of $202 thousand or 5.5% compared to $3.7 million for the first quarter of 2003. Lower revenues from VFG's mortgage operations where the primary contributor to this decline. Fees and net gains from mortgages sold were $645 thousand for the first quarter of 2004, a decrease of $418 thousand or 39.3% from the first quarter of 2003. Originations were down $20.9 million or 32.9%, from $63.5 million for the three months ended March 31, 2003 to $42.6 million for the three months ended March 31, 2004. Refinance loans represented $51.2 million or 80.6% and $27.7 million or 65.1% of total originations for the three-month periods ended March 31, 2003 and 2004, respectively. Offsetting much of this decline were retail banking fees, which increased $301 thousand to $1.5 million, compared to $1.2 million in 2003. Noninterest expense for the first quarter of 2004 amounted to $10.4 million, an increase of $1.3 million or 14.0% compared $9.2 million for the same period in 2003. This increase is largely attributable to the Company's expansion efforts, and the incremental costs associated with the eight purchased branches, loan production offices in Charlottesville and Lynchburg and a de novo branch in Fishersville, Virginia. The Company continues to see improvement in its asset mix, with loan growth of $249.0 million or 34.8% from $716.1 million at March 31, 2003 to $965.2 million at March 31, 2004, and growth of $42.1 million or 4.4% for the first quarter of 2004 from $923.1 million at December 31, 2003. Total asset growth was $275.1 million or 24.2% from $1.14 billion at March 31, 2003, to $1.41 billion at March 31, 2004, and growth of $23.7 million or 1.7% from $1.39 billion at December 31, 2003. Deposits grew $229.5 million or 23.4% from $980.2 million at March 31, 2003 to $1.21 billion at March 31, 2004, and remained essentially flat for the first quarter of 2004. A significant component of the twelve month growth relates to the branch purchase in September 2003, which initially accounted for approximately $201 million in asset and deposit growth, and $79 million in loan growth for the period. The major component of loan growth during the past twelve months occurred in the non-residential real estate portfolio, which grew $115.4 million or 37.6% from $306.5 million at March 31, 2003 to $421.9 million at March 31, 2004. Construction lending represented the largest percentage increase, with growth of $44.6 million or 74.0% from $60.2 million to $104.8 million. Commercial lending and residential real estate portfolios also experience double-digit growth year to year. For the quarter ended March 31, 2004, real estate construction loans increased $10.4 million or 11.1%, residential real estate loans decreased $1.5 million or .5%, nonresidential real estate loans increased $17.6 million or 4.4% and commercial loans increased $6.3 million or 8.6%. The Company's asset quality remains sound, with VFG's ratio of non- performing assets as a percentage of total assets amounting to .49% as of March 31, 2004, compared to .79% at March 31, 2003 and .53% at December 31, 2003. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter ended March 31, 2004, compared to .02% for the quarter ended March 31, 2003 and .03% for the previous quarter ended December 31, 2003. At March 31, 2004, the allowance for loan losses as a percentage of non-performing assets was 148.5%, while the allowance as a percentage of total loans amounted to 1.07%. The Company increased its provision for loan losses by $358 thousand or over 100%, from $323 thousand for the three months ended March 31, 2003 to $681 thousand for the three months ended March 31, 2004, consistent with the loan growth experienced for the period. 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 organization maintains a network of thirty-seven branches serving Central and Southwest Virginia. It also has 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) For the Three Percent Months Ended Increase 03/31/2004 03/31/2003 (Decrease) INCOME STATEMENT Interest income - taxable equivalent $ 17,842 $ 15,860 12.50% Interest expense 4,888 4,991 -2.06% Net interest income - taxable equivalent 12,954 10,869 19.18% Less: taxable equivalent adjustment 462 588 -21.43% Net interest income 12,492 10,281 21.51% Provision for loan and lease losses 681 323 110.84% Net interest income after provision for loan and lease losses 11,811 9,958 18.61% Noninterest income 3,457 3,659 -5.52% Noninterest expense 10,435 9,150 14.04% Provision for income taxes 1,378 1,173 17.48% Net income $ 3,455 $ 3,294 4.89% PER SHARE DATA Basic earnings $ 0.48 $ 0.46 4.35% Diluted earnings $ 0.48 $ 0.46 4.35% Shares Outstanding 7,155,519 7,161,234 Weighted average shares - Basic 7,153,348 7,168,741 Diluted 7,202,328 7,202,137 Dividends paid on common shares $ 0.19 $ 0.18 PERFORMANCE RATIOS Return on average assets 0.99% 1.20% -17.50% Return on average equity 11.51% 11.62% -0.95% Return on average realized equity(A) 11.98% 12.35% -3.00% Net yield on earning assets (taxable equivalent) 4.09% 4.27% -4.22% Efficiency (taxable equivalent)(B) 63.54% 62.89% 1.03% ASSET QUALITY Allowance for loan losses Beginning of period $ 9,743 $ 9,180 Provision for loan losses 681 323 Charge offs (176) (175) Recoveries 35 39 End of period $ 10,283 $ 9,367 Non-performing assets: Non-accrual loans $ 2,121 $ 1,085 Loans 90+ days past due and still accruing 78 46 Other real estate owned 241 576 Troubled debt restructurings 4,483 7,041 Total non-performing assets $ 6,923 $ 8,748 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. Consolidated Balance Sheets Selected Balance Sheet Data Virginia Financial Group, Inc. (NASDAQ:VFGI) (Dollars in thousands) Percent Increase 03/31/2004 03/31/2003 (Decrease) End of period balances Securities available for sale $ 325,001 $ 308,580 5.32% Securities held to maturity 5,840 7,053 -17.20% Total securities 330,841 315,633 4.82% Real estate - construction 104,804 60,243 73.97% Real estate - 1-4 family residential 307,097 219,682 39.79% Real estate - commercial and multifamily 421,887 306,510 37.64% Commercial, financial and agricultural 80,173 66,363 20.81% Consumer loans 47,428 51,109 -7.20% All other loans 3,761 12,211 -69.20% Total loans 965,150 716,118 34.78% Allowance for loan losses (10,283) (9,367) 9.78% Other earning assets 8,935 37,696 -76.30% Total earning assets 1,304,926 1,069,447 22.02% Total assets 1,410,928 1,135,793 24.22% Non-interest bearing deposits 219,413 181,807 20.68% Money market & interest checking 361,498 286,395 26.22% Savings 139,807 109,210 28.02% CD's and other time deposits 488,979 402,800 21.39% Total deposits 1,209,697 980,212 23.41% Short-term borrowed funds 34,038 21,938 55.16% Trust preferred capital notes 20,000 - 100.00% Federal Home Loan Bank advances 14,120 9,140 54.49% Total interest-bearing liabilities 1,058,442 849,483 24.60% Total shareholders' equity 123,429 115,566 6.80% Average balances Total assets 1,403,681 1,110,692 26.38% Total shareholder's equity $ 120,732 $ 115,058 4.93% Consolidated Statements of Income Virginia Financial Group, Inc. (NASDAQ:VFGI) (Dollars in thousands) For the Three Months Ended 03/31/2004 03/31/2003 Interest Income Interest and fees on loans $ 14,055 $ 12,208 Interest on deposits in other banks 1 2 Interest on investment securities: Taxable 95 114 Interest and dividends on securities available for sale: Taxable 2,431 1,920 Nontaxable 749 894 Dividends 47 55 Interest income on federal funds sold 2 79 Total Interest Income 17,380 15,272 Interest Expense Interest on deposits 4,534 4,750 Interest on trust preferred capital notes 28 - Interest on Federal Home Loan Bank advances 155 192 Interest on federal funds repurchased and securities sold under agreements to repurchase 100 48 Interest on other short-term borrowings 71 1 Total Interest Expense 4,888 4,991 Net Interest Income 12,492 10,281 Provision for loan losses 681 323 Net Interest Income after Provision for Loan Losses 11,811 9,958 Other Income Retail banking fees 1,549 1,248 Fees from fiduciary activities 776 779 Brokerage services 198 233 Other operating income 289 312 Gains (losses) on securities available for sale - 24 Gains (losses) on other real estate owned - - Gains (losses) on sale of fixed assets - - Fees on mortgage loans sold 645 1,063 Total Other Income 3,457 3,659 Other Expense Compensation and employee benefits 5,860 5,258 Net occupancy expense 706 570 Supplies and equipment 1,044 948 Amortization-intangible assets 173 39 Computer services 299 341 Professional fees 201 212 Other operating expenses 2,152 1,782 Total Other Expense 10,435 9,150 Income Before Income Tax Expense 4,833 4,467 Income tax expense 1,378 1,173 Net Income $ 3,455 $ 3,294 CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES VIRGINIA FINANCIAL GROUP, INC. (NASDAQ:VFGI) THREE MONTHS ENDED MARCH 31, 2004 AND 2003 2004 Interest Average Income/ Average Dollars in thousands Balance Expense Rates Assets Loans receivable, net $ 942,969,430 $ 14,114,179 6.02% Investment securities Taxable 257,815,886 2,573,977 4.02% Tax exempt 70,909,182 1,151,963 6.53% Total Investments 328,725,068 3,725,940 4.56% FHLB interest bearing 548,712 754 0.55% Federal funds sold 858,579 2,085 0.98% 330,132,359 3,728,779 4.54% Total Earning Assets $1,273,101,789 17,842,958 5.64% Liabilities and Stockholders' Equity Time and savings deposits Interest-bearing transaction accounts $ 196,532,271 $ 385,099 0.79% Money market deposit accounts 169,228,844 405,823 0.96% Passbook savings accounts 137,018,701 248,569 0.73% Certificates of deposit >$100k 115,851,857 986,679 3.43% Certificates of deposit