Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contact:
Jeffrey W. Farrar
Executive Vice President and CFO
(540) 829-1603
farrarj@vfgi.net
VIRGINIA FINANCIAL GROUP, INC. ANNOUNCES 16.2% GROWTH IN FIRST QUARTER EARNINGS
Culpeper, VA-Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported first quarter 2005 earnings of $4.0 million or $.56 per diluted share, an increase of 16.2% compared to earnings of $3.5 million or $.48 per diluted share for the first quarter of 2004. Diluted earnings per share growth represented an increase of 16.7% compared to first quarter 2004 results.
VFG’S earnings for the first quarter of 2005 produced an annualized return on average assets of 1.13% and an annualized return on average equity of 12.74%, compared to prior year ratios of .99% and 11.51%, respectively.
“We are pleased with our financial results for the first quarter of 2005” stated O.R. Barham, Jr. President and Chief Executive Officer of VFG. “Highlights included continuing strong loan growth, improving margins, a highly successful branch divestiture and solid expense control. While our mortgage and asset management related revenue components were down for the quarter, we are encouraged by business activity in these revenue streams late in the quarter, which should result in improved growth in the second quarter.
REVENUE GROWTH
Total tax equivalent revenues for the first quarter of 2005 were $17.3 million, an increase of $876 thousand or 5.3% over the $15.9 million in 2004. The largest component, net interest income, amounted to $13.6 million for the first quarter, up $639 thousand or 4.9% compared with $13.0 million for the same quarter in 2004. Continuing growth in average earning assets and improvement in net interest margin were contributors to this growth. Average earning assets grew to $1.33 billion, an increase of $54.6 million or 4.3% from March 2004. The net interest margin for the first quarter of 2005 was 4.15%, an improvement of six basis points when compared to 4.09% for the first quarter of 2004.
Total noninterest income was $3.7 million for the first quarter of 2005, an increase of $237 thousand or 6.9% compared to $3.5 million for the first quarter of 2004. Included in the 2005 results is a net gain of $408 thousand in connection with the sales of two branches located in Tazewell County. Retail banking fees increased $116 thousand or 7.5% to $1.7 million, compared to $1.5 million in the first quarter of 2004. VFG experienced lower revenues from mortgage operations, with mortgage banking fees amounting to $475, a decrease of $170 thousand or 26.4%, as compared to $645 thousand for the first quarter of 2004. While revenues were down, closings and mortgage pipelines showed solid growth. Mortgage loans available for sale increased to $9.7 million, an increase of $4.0 million or 70% from December 31, 2004. In addition, the pipeline of mortgage loans in process increased $37.1 million or 52.4% from December 31, 2004. Trust and brokerage revenues were down $69 thousand or 7.1% compared to the first quarter of 2004, with brokerage and estate related fees showing declines for the quarter.
NONINTEREST EXPENSE AND EFFICIENCY
Noninterest expense for the first quarter of 2005 amounted to $10.5 million, an increase of $99 thousand or 1.0% compared to $10.4 million for the same period in 2004. Compensation and benefits increased $187 thousand or 3.2%, but was partially offset by a decrease in professional fees of $71 thousand or 35.3%. Included in noninterest expense for the first quarter of 2005 were $120 thousand in non-recurring expenses associated with severance benefits and conversion costs associated with Virginia Commonwealth Trust Company. VFG’s efficiency ratio was 60.8% for the quarter, compared to 63.5% for the same quarter in 2004.
BALANCE SHEET GROWTH
The Company continues to see improvement in its asset mix, with loan growth of $120.5 million or 12.5% from $965.2 million at March 31, 2004 to $1.09 billion at March 31, 2005, and growth of $24.4 million or 2.3% for the first quarter of 2005 from $1.06 billion at December 31, 2004. Adjusting for the sale of $8.8 million of loans in connection with the Tazewell branch sale, first quarter loan growth would have been $33.2 million for an annualized growth rate of 12.5%. The major component of loan growth during the past twelve months occurred in the non-residential real estate portfolio, which grew $96.0 million or 22.8% from $421.9 million at March 31, 2004 to $517.9 million at March 31, 2005. Construction lending represented the next largest percentage increase, with growth of $22.4 million or 21.4% from $104.8 million to $127.2 million. For the quarter ended March 31, 2005, real estate construction loans increased $10.4 million or 8.9%, residential real estate loans increased $16.2 million or 5.5%, nonresidential real estate loans increased $10.2 million or 2.0% and commercial loans increased $2.1 million or 2.5%.
Deposits grew $26.8 million or 2.2% from $1.21 billion at March 31, 2004 to $1.24 billion at March 31, 2005, and decreased $20.7 million or 1.6% for the first quarter of 2005. Adjusting for the sale of $22.0 million of deposits in connection with the Tazewell branch sale, first quarter deposits were essentially flat with levels at December 31, 2004. Total asset growth was $42.5 million or 3.0% from $1.41 billion at March 31, 2004, to $1.45 billion at March 31, 2005, and essentially flat with $1.45 billion at December 31, 2004.
ASSET QUALITY
Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .15% as of March 31, 2005, compared to .49% at March 31, 2004 and .28% at December 31, 2004. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter ended March 31, 2005, compared to .01% for the quarter ended March 31, 2004. At March 31, 2005, the allowance for loan losses as a percentage of non-performing assets was 556.2%, while the allowance as a percentage of total loans amounted to 1.12%. The Company decreased its provision for loan losses by $135 thousand or 19.8%, from $681 thousand for the three months ended March 31, 2004 to $546 thousand for the three months ended March 31, 2005, consistent with a slightly decreased rate of growth and general improvement in asset quality during the period.
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 organization maintains a network of thirty-five branches serving Central and Southwest Virginia. It also has loan production offices located in Charlottesville and Lynchburg.
SUPERVISORY AGREEMENT RELATED TO BANK SECRECY ACT (BSA) COMPLIANCE
As previously reported, VFG continues to operate under a supervisory agreement with the Federal Reserve Bank related to improving controls over the monitoring of cash transactions. The Federal Reserve is currently conducted its regularly scheduled safety and soundness examination, which includes a follow-up examination of BSA compliance. Management anticipates a resolution to this matter during the second quarter.
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. 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, or VFG may not be released from its supervisory agreement with the Federal Reserve related to Bank Secrecy Compliance within anticipated timeframes, (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 atwww.vfgi.net.
QUARTERLY PERFORMANCE SUMMARY
Virginia Financial Group, Inc. (NASDAQ: VFGI)
(Dollars in thousands, except per share data)
For the Three Months Ended | Percent (Decrease) | ||||||||||
3/31/2005 | 3/31/2004 | ||||||||||
INCOME STATEMENT | |||||||||||
Interest income - taxable equivalent | $ | 18,991 | $ | 17,842 | 6.44 | % | |||||
Interest expense | 5,398 | 4,888 | 10.43 | % | |||||||
Net interest income - taxable equivalent | 13,593 | 12,954 | 4.93 | % | |||||||
Less: taxable equivalent adjustment | 407 | 462 | -11.90 | % | |||||||
Net interest income | 13,186 | 12,492 | 5.56 | % | |||||||
Provision for loan and lease losses | 546 | 681 | -19.82 | % | |||||||
Net interest income after provision for loan and lease losses | 12,640 | 11,811 | 7.02 | % | |||||||
Noninterest income | 3,694 | 3,457 | 6.86 | % | |||||||
Noninterest expense | 10,534 | 10,435 | 0.95 | % | |||||||
Provision for income taxes | 1,787 | 1,378 | 29.68 | % | |||||||
Net income | $ | 4,013 | $ | 3,455 | 16.15 | % | |||||
PER SHARE DATA | |||||||||||
Basic earnings | $ | 0.56 | $ | 0.48 | 16.67 | % | |||||
Diluted earnings | $ | 0.56 | $ | 0.48 | 16.67 | % | |||||
Shares outstanding | 7,163,735 | 7,155,519 | |||||||||
Weighted average shares - | |||||||||||
Basic | 7,163,198 | 7,153,348 | |||||||||
Diluted | 7,211,444 | 7,202,328 | |||||||||
Dividends paid on common shares | $ | 0.20 | $ | 0.19 | |||||||
PERFORMANCE RATIOS | |||||||||||
Return on average assets | 1.13 | % | 0.99 | % | 14.14 | % | |||||
Return on average equity | 12.74 | % | 11.51 | % | 10.69 | % | |||||
Return on average realized equity (A) | 12.88 | % | 11.98 | % | 7.51 | % | |||||
Net yield on earning assets (taxable equivalent) | 4.15 | % | 4.09 | % | 1.47 | % | |||||
Efficiency (taxable equivalent) (B) | 60.79 | % | 63.54 | % | -4.33 | % | |||||
ASSET QUALITY | |||||||||||
Allowance for loan losses | |||||||||||
Beginning of period | $ | 11,706 | $ | 9,743 | |||||||
Provision for loan losses | 546 | 681 | |||||||||
Charge offs | (189 | ) | (176 | ) | |||||||
Recoveries | 118 | 35 | |||||||||
End of period | $ | 12,181 | $ | 10,283 | |||||||
Non-performing assets: | |||||||||||
Non-accrual loans | $ | 1,917 | $ | 2,121 | |||||||
Loans 90+ days past due and still accruing | — | 78 | |||||||||
Other real estate owned | 55 | 241 | |||||||||
Troubled debt restructurings | 218 | 4,483 | |||||||||
Total non-performing assets | 2,190 | $ | 6,923 | ||||||||
to total assets: | 0.15 | % | 0.49 | % | |||||||
to total loans plus OREO: | 0.20 | % | 0.72 | % | |||||||
Allowance for loan losses to total loans | |||||||||||
Net charge-offs (recoveries) | $ | 71 | $ | 141 | |||||||
Net charge-offs to average loans outstanding | 0.01 | % | 0.01 | % |
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 Three Months Ended | Percent Increase (Decrease) | ||||||||||
3/31/2005 | 3/31/2004 | ||||||||||
SELECTED BALANCE SHEET DATA | |||||||||||
End of period balances | |||||||||||
Securities available for sale | $ | 242,774 | $ | 325,001 | -25.30 | % | |||||
Securities held to maturity | 5,853 | 5,840 | 0.22 | % | |||||||
Total securities | 248,627 | 330,841 | -24.85 | % | |||||||
Real estate - construction | 127,248 | 104,804 | 21.42 | % | |||||||
Real estate - 1-4 family residential | 310,062 | 307,097 | 0.97 | % | |||||||
Real estate - commercial and multifamily | 517,913 | 421,887 | 22.76 | % | |||||||
Commercial, financial and agricultural | 85,745 | 80,173 | 6.95 | % | |||||||
Consumer loans | 40,942 | 47,428 | -13.68 | % | |||||||
All other loans | 3,698 | 3,761 | -1.68 | % | |||||||
Total loans | 1,085,608 | 965,150 | 12.48 | % | |||||||
Allowance for loan losses | (12,181 | ) | (10,283 | ) | 18.46 | % | |||||
Other earning assets | 10,478 | 8,935 | 17.27 | % | |||||||
Total earning assets | 1,344,713 | 1,304,926 | 3.05 | % | |||||||
Total assets | 1,453,379 | 1,410,928 | 3.01 | % | |||||||
Non-interest bearing deposits | 239,660 | 219,413 | 9.23 | % | |||||||
Money market & interest checking | 264,121 | 361,498 | -26.94 | % | |||||||
Savings | 239,720 | 139,807 | 71.46 | % | |||||||
CD’s and other time deposits | 492,950 | 488,979 | 0.81 | % | |||||||
Total deposits | 1,236,451 | 1,209,697 | 2.21 | % | |||||||
Short-term borrowed funds | 42,955 | 34,038 | 26.20 | % | |||||||
Trust preferred capital notes | 20,619 | 20,000 | 100.00 | % | |||||||
Federal Home Loan Bank advances | 14,040 | 14,120 | -0.57 | % | |||||||
Total interest-bearing liabilities | 1,074,405 | 1,058,442 | 1.51 | % | |||||||
Total stockholders’ equity | $ | 128,965 | $ | 123,429 | 4.49 | % | |||||
Average balances | |||||||||||
Total assets | $ | 1,446,263 | $ | 1,403,681 | 3.03 | % | |||||
Total stockholders’ equity | $ | 127,751 | $ | 120,732 | 5.81 | % |
QUARTERLY PERFORMANCE SUMMARY
Virginia Financial Group, Inc. (NASDAQ: VFGI)
(Dollars in thousands)
For the Three Months Ended | Percent (Decrease) | ||||||||
3/31/2005 | 3/31/2004 | ||||||||
Interest Income | |||||||||
Interest and fees on loans | $ | 16,043 | $ | 14,055 | 14.14 | % | |||
Interest on deposits in other banks | 4 | 1 | 300.00 | % | |||||
Interest and dividends on securities: | |||||||||
Taxable | 1,806 | 2,526 | -28.50 | % | |||||
Tax-exempt | 656 | 749 | -12.42 | % | |||||
Dividends | 67 | 47 | 42.55 | % | |||||
Interest income on federal funds sold | 8 | 2 | 300.00 | % | |||||
Total Interest Income | 18,584 | 17,380 | 6.93 | % | |||||
Interest Expense | |||||||||
Interest on deposits | 4,752 | 4,534 | 4.81 | % | |||||
Interest on trust preferred | 265 | 28 | 846.43 | % | |||||
Interest on Federal Home Loan Bank advances | 180 | 155 | 16.13 | % | |||||
Interest on federal funds repurchased and securities sold under agreements to repurchase | 144 | 100 | 44.00 | % | |||||
Interest on other short-term borrowings | 57 | 71 | -19.72 | % | |||||
Total Interest Expense | 5,398 | 4,888 | 10.43 | % | |||||
Net Interest Income | 13,186 | 12,492 | 5.56 | % | |||||
Provision for loan losses | 546 | 681 | -19.82 | % | |||||
Net Interest Income after Provision for Loan Losses | 12,640 | 11,811 | 7.02 | % | |||||
Other Income | |||||||||
Retail banking fees | 1,665 | 1,549 | 7.49 | % | |||||
Fees from fiduciary activities | 724 | 776 | -6.70 | % | |||||
Brokerage services | 181 | 198 | -8.59 | % | |||||
Other operating income | 241 | 289 | -16.61 | % | |||||
Gains (losses) on securities available for sale | — | — | — | ||||||
Gains (losses) on other real estate owned | — | — | — | ||||||
Gains (losses) on sale of branches | 408 | — | — | ||||||
Fees on mortgage loans sold | 475 | 645 | -26.36 | % | |||||
Total Other Income | 3,694 | 3,457 | 6.86 | % | |||||
Other Expense | |||||||||
Compensation and employee benefits | 6,047 | 5,860 | 3.19 | % | |||||
Net occupancy expense | 751 | 706 | 6.37 | % | |||||
Supplies and equipment | 1,114 | 1,044 | 6.70 | % | |||||
Amortization-intangible assets | 168 | 173 | -2.89 | % | |||||
Computer services | 314 | 299 | 5.02 | % | |||||
Professional fees | 130 | 201 | -35.32 | % | |||||
Other operating expenses | 2,010 | 2,152 | -6.60 | % | |||||
Total Other Expense | 10,534 | 10,435 | 0.95 | % | |||||
Income Before Income Tax Expense | 5,800 | 4,833 | 20.01 | % | |||||
Income tax expense | 1,787 | 1,378 | 29.68 | % | |||||
Net Income | $ | 4,013 | $ | 3,455 | 16.15 | % |
VIRGINIA FINANCIAL GROUP INC.
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
THREE MONTHS ENDED MARCH, 2005 AND 2004
(Dollars in thousands)
| Three months Ending MARCH 31, 2005 | | | Three months Ending MARCH 31, 2004 | | |||||||||||||
Dollars in thousands | Average Balance | Interest Inc/Exp | Average Rates | Average Balance | Interest Inc/Exp | Average Rates | ||||||||||||
Assets | ||||||||||||||||||
Loans receivable, net | $ | 1,071,992 | $ | 16,096 | 6.09 | % | $ | 942,969 | $ | 14,113 | 6.02 | % | ||||||
Investment securities | ||||||||||||||||||
Taxable | 191,766 | 1,873 | 3.96 | % | 257,816 | 2,574 | 4.02 | % | ||||||||||
Tax exempt | 62,326 | 1,010 | 6.57 | % | 70,909 | 1,152 | 6.53 | % | ||||||||||
Total Investments | 254,092 | 2,883 | 4.60 | % | 328,725 | 3,726 | 4.56 | % | ||||||||||
FHLB int bearing | 521 | 4 | 3.11 | % | 549 | 1 | 0.55 | % | ||||||||||
Federal funds sold | 1,122 | 8 | 2.89 | % | 859 | 2 | 0.98 | % | ||||||||||
255,735 | 2,895 | 4.59 | % | 330,133 | 3,729 | 4.54 | % | |||||||||||
Total Earning Assets | 1,327,727 | 18,991 | 5.80 | %Tax Eql. | 1,273,102 | 17,842 | 5.64 | %Tax Eql. | ||||||||||
Non-Earning Assets | 118,536 | 130,579 | ||||||||||||||||
Total Assets | 1,446,263 | 1,403,681 | ||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||
Time and savings deposits | ||||||||||||||||||
Interest-bearing transaction accounts | $ | 198,834 | $ | 195 | 0.40 | % | $ | 196,532 | $ | 385 | 0.79 | % | ||||||
Money market deposit accounts | 174,238 | 481 | 1.12 | % | 169,229 | 406 | 0.96 | % | ||||||||||
Passbook savings accounts | 135,578 | 223 | 0.67 | % | 137,019 | 249 | 0.73 | % | ||||||||||
Certificates of deposit >$100k | 128,145 | 1,092 | 3.46 | % | 115,852 | 987 | 3.43 | % | ||||||||||
Certificates of deposit <$100k | 369,507 | 2,761 | 3.03 | % | 372,339 | 2,508 | 2.71 | % | ||||||||||
Total Time and Savings Deposits | 1,006,302 | 4,752 | 1.92 | % | 990,971 | 4,535 | 1.84 | % | ||||||||||
Federal funds purchased | 23,018 | 144 | 2.54 | % | 32,569 | 100 | 1.23 | % | ||||||||||
Trust Preferred Securities | 20,619 | 265 | 5.21 | % | 3,077 | 28 | 3.63 | % | ||||||||||
Other short term borrowings | 9,618 | 57 | 2.40 | % | 26,414 | 71 | 1.09 | % | ||||||||||
Federal Home Loan Bank advances | 14,058 | 180 | 5.19 | % | 9,522 | 154 | 6.54 | % | ||||||||||
67,313 | 646 | 3.89 | % | 71,582 | 353 | 1.98 | % | |||||||||||
Total Interest- Bearing Liabilities | 1,073,615 | 5,398 | 2.04 | % | 1,062,553 | 4,888 | 1.85 | % | ||||||||||
Non-Interest- Bearing Liabilities | 244,897 | 220,396 | ||||||||||||||||
Total Stockholders’ Equity | 127,751 | 120,732 | ||||||||||||||||
Total Liabilities and Stockholders’ Equity | 1,446,263 | 1,403,681 | ||||||||||||||||
Net interest income (tax equivalent) | $ | 13,593 | $ | 12,954 | ||||||||||||||
Average interest rate spread | 3.76 | % | 3.79 | % | ||||||||||||||
Interest expense as percentage of average earning assets | 1.65 | % | 1.54 | % | ||||||||||||||
Net interest margin | 4.15 | % | 4.09 | % | ||||||||||||||