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 11%
GROWTH IN FIRST QUARTER EARNINGS
Culpeper, VA-Virginia Financial Group, Inc. (NASDAQ: VFGI) today reported first quarter 2006 earnings of $4.5 million, an increase of 11.2% compared to earnings of $4.0 million for the first quarter of 2005. Net income per diluted share was $.62, up 10.7% compared to $.56 for the same period in 2005. VFG’S earnings for the first quarter of 2006 produced an annualized return on average assets (ROA) of 1.19% and an annualized return on average equity (ROE) of 13.08%, compared to prior year ratios of 1.13% and 12.74%, respectively.
O.R. Barham, Jr., President and CEO, commented, “We are pleased with our financial results for the first quarter, with stronger than expected loan growth, solid core revenue growth and a continuation of excellent asset quality. Our results were positive in spite of several reorganization events that impacted earnings during the period and are discussed below. Our net interest margin was down slightly on a sequential basis, as interest bearing liability costs continue to catch up to short term rate movements over the past year. Double digit growth in fees from fiduciary and brokerage operations were a highlight, as was continued strength in mortgage revenue for the period. Our efficiency ratio began to increase as anticipated, but came in at a respectable 59.50%. We had our first branch open in Lynchburg during the quarter, and plan to open one additional branch in both Charlottesville and Lynchburg during the second quarter.”
REVENUE GROWTH
Total revenue, comprised of net interest income and noninterest income, was $18.1 million for the first quarter of 2006, an increase of $1.2 million or 7.4% over $16.9 million in 2005. The largest component, net interest income, amounted to $14.9 million for the first quarter, up $1.7 million or 12.7% compared with $13.2 million for the same quarter in 2005. Improvements in the growth and mix of average earning assets, coupled with net interest margin expansion over the past year, were primarily contributors to this growth. The net interest margin for the first quarter of 2006 was 4.35%, down five basis points sequentially compared to 4.40% for the fourth quarter of 2005, and up twenty basis points when compared to 4.15% for
the first quarter of 2005. As interest rates have continued to increase over the past year, interest costs associated with interest bearing liabilities have accelerated. The average rate on interest bearing liabilities for the first quarter was 2.60%, up 21 basis points sequentially compared to 2.39% for the fourth quarter of 2005, and up 56 basis points when compared to the first quarter of 2005. Management anticipates the net interest margin to decline modestly for the foreseeable future as continuing pressures on deposit pricing in VFG’s markets are anticipated.
Total noninterest income was $3.3 million for the first quarter of 2006, a decrease of $431 thousand or 11.7% compared to $3.7 million for the first quarter of 2005. The 2006 results include a loss of $181 thousand on sale of securities available for sale associated with branch realignment within the company. Approximately $20 million in securities sold were reinvested at a yield pickup of approximately 120 basis points. Included in the 2005 results is a net gain of $408 thousand in connection with the sales of two branches located in Tazewell County. Trust and brokerage fee income rose to $1.04 million for the quarter, an increase of $133 thousand or 14.7% over the same period in 2005. Gross mortgage banking fees amounted to $633 thousand, an increase of $158 thousand or 33.3% when compared to $475 thousand for the first quarter of 2005, but down sequentially $277 thousand or 30.4% from the fourth quarter of 2005.
NONINTEREST EXPENSE AND EFFICIENCY
Noninterest expense for the first quarter of 2006 amounted to $11.2 million, up $649 thousand or 6.2% from $10.5 million for the same period in 2005. Compensation and employee benefits increased $554 thousand or 9.2% over the same quarter a year ago. This increase reflects new positions for the openings of the Seminole Trail and Graves Mill branches during the fourth quarter 2005 and first quarter 2006, respectively. It also reflects approximately $160 thousand in non-recurring severance benefits associated with a reorganization of management within our Virginia Commonwealth Trust Company affiliate during the first quarter. Management would anticipate some increase in operating expenses as two new branches open middle to late second quarter. VFG’s efficiency ratio was 59.5% for the quarter, compared to 60.8% for the same quarter in 2005.
BALANCE SHEET
Average loans for the first quarter were $1.16 billion, up $85.8 million or 8.0% from the first quarter of 2005. Loans receivable were $1.19 billion at March 31, 2006, up $46.1 million or 4.0% from December 31, 2005. The first quarter growth occurred in real estate construction, non-residential real estate and commercial loan portfolios.
Average deposits for the first quarter were $1.25 billion, up $10 million or .8% from the first quarter of 2005. Excluding the impact of the sale of branches in Tazewell, Virginia during first quarter 2005, the growth rate was 2.0%. Sequentially, deposits increased $17.5 million or 1.4% to $1.27 billion from December 31, 2005. Certificate of deposit balances were up $45.4 million or 8.7% for the quarter, reflecting consumer preferences in the current rate environment as well as promotions conducted during the period. Savings, money market and interest checking accounts all experienced decreases during the period. Noninterest bearing demand deposits were up $7.1 million or 2.9% for the quarter, and represent 20.2% of total deposits at March 31, 2006.
At March 31, 2006 VFG had total assets of $1.55 billion, compared to $1.45 billion at March 31, 2005. Shareholder’s equity at March 31, 2006 was $139.3 million, an increase of $10.3 million or 8.0% compared to March 31, 2005. Shareholder’s equity represented 8.98% of total assets at March 31, 2006, while tangible equity capital represented 7.90% of tangible assets at March 31, 2006. Book value at March 31, 2006 was $19.40 per share, compared to $18.00 at March 31, 2005.
ASSET QUALITY
Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .13% as of March 31, 2006, compared to .15% at March 31, 2005 and .12% at December 31, 2005. Net charge-offs as a percentage of average loans receivable amounted to .01% for the quarter, unchanged when compared to the same period in 2005. At March 31, 2006, the allowance for loan losses was approximately seven times the level of non-performing assets, while the allowance as a percentage of total loans amounted to 1.17%. VFG decreased its provision for loan losses by $36 thousand or 6.6%, from $546 thousand for the three months ended March 31, 2005 to $510 thousand for the three months ended March 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 thirty-six branches serving Central and Southwest Virginia and 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 noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income excluding gain (loss) on sale of securities and other real estate owned. 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 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 Increase (Decrease) | ||||||||||
3/31/2006 | 3/31/2005 | ||||||||||
INCOME STATEMENT | |||||||||||
Interest income - taxable equivalent | $ | 22,631 | $ | 18,991 | 19.17 | % | |||||
Interest expense | 7,308 | 5,398 | 35.38 | % | |||||||
Net interest income - taxable equivalent | 15,323 | 13,593 | 12.73 | % | |||||||
Less: taxable equivalent adjustment | 458 | 407 | 12.53 | % | |||||||
Net interest income | 14,865 | 13,186 | 12.73 | % | |||||||
Provision for loan and lease losses | 510 | 546 | -6.59 | % | |||||||
Net interest income after provision for loan and lease losses | 14,355 | 12,640 | 13.57 | % | |||||||
Noninterest income | 3,263 | 3,694 | -11.67 | % | |||||||
Noninterest expense | 11,183 | 10,534 | 6.16 | % | |||||||
Provision for income taxes | 1,971 | 1,787 | 10.30 | % | |||||||
Net income | $ | 4,464 | $ | 4,013 | 11.24 | % | |||||
PER SHARE DATA | |||||||||||
Basic earnings | $ | 0.62 | $ | 0.56 | 10.71 | % | |||||
Diluted earnings | $ | 0.62 | $ | 0.56 | 10.71 | % | |||||
Shares outstanding | 7,178,964 | 7,163,735 | |||||||||
Weighted average shares - | |||||||||||
Basic | 7,176,815 | 7,163,198 | |||||||||
Diluted | 7,231,617 | 7,210,848 | |||||||||
Dividends paid on common shares | $ | 0.22 | $ | 0.20 | |||||||
PERFORMANCE RATIOS | |||||||||||
Return on average assets | 1.19 | % | 1.13 | % | 5.31 | % | |||||
Return on average equity | 13.08 | % | 12.74 | % | 2.67 | % | |||||
Return on average realized equity (A) | 12.95 | % | 12.88 | % | 0.54 | % | |||||
Net interest margin (taxable equivalent) | 4.35 | % | 4.15 | % | 4.82 | % | |||||
Efficiency (taxable equivalent) (B) | 59.50 | % | 60.79 | % | -2.12 | % | |||||
ASSET QUALITY | |||||||||||
Allowance for loan losses | |||||||||||
Beginning of period | $ | 13,581 | $ | 11,706 | |||||||
Provision for loan losses | 510 | 546 | |||||||||
Charge offs | (173 | ) | (189 | ) | |||||||
Recoveries | 23 | 118 | |||||||||
End of period | $ | 13,941 | $ | 12,181 | |||||||
Non-performing assets: | |||||||||||
Non-accrual loans | $ | 1,787 | $ | 1,917 | |||||||
Loans 90+ days past due and still accruing | — | — | |||||||||
Other real estate owned | 79 | 55 | |||||||||
Troubled debt restructurings | 134 | 218 | |||||||||
Total non-performing assets | $ | 2,000 | $ | 2,190 | |||||||
to total assets: | 0.13 | % | 0.15 | % | |||||||
to total loans plus OREO: | 0.17 | % | 0.20 | % | |||||||
Allowance for loan losses to total loans | 1.17 | % | 1.12 | % | |||||||
Net charge-offs (recoveries) | $ | 149 | $ | 71 | |||||||
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 securities gains (losses) and foreclosed property expense for all periods. |
QUARTERLY PERFORMANCE SUMMARY
Virginia Financial Group, Inc. (NASDAQ: VFGI)
(Dollars in thousands, except per share data)
3/31/2006 | 3/31/2005 | Percent Increase (Decrease) | |||||||||
SELECTED BALANCE SHEET DATA | |||||||||||
End of period balances | |||||||||||
Cash and cash equivalents | $ | 40,923 | $ | 59,775 | -31.54 | % | |||||
Securities available for sale | 228,462 | 242,774 | -5.90 | % | |||||||
Securities held to maturity | 3,321 | 5,853 | -43.26 | % | |||||||
Total securities | 231,783 | 248,627 | -6.77 | % | |||||||
Real estate - construction | 166,924 | 127,248 | 31.18 | % | |||||||
Real estate - 1-4 family residential | 303,639 | 310,062 | -2.07 | % | |||||||
Real estate - commercial and multifamily | 586,054 | 517,913 | 13.16 | % | |||||||
Commercial, financial and agricultural | 93,503 | 85,745 | 9.05 | % | |||||||
Consumer loans | 36,909 | 40,942 | -9.85 | % | |||||||
All other loans | 1,558 | 3,205 | -51.39 | % | |||||||
Total loans | 1,188,587 | 1,085,115 | 9.54 | % | |||||||
Deferred loan costs | 659 | 493 | 33.67 | % | |||||||
Allowance for loan losses | (13,941 | ) | (12,181 | ) | 14.45 | % | |||||
Net loans | 1,175,305 | 1,073,427 | 9.49 | % | |||||||
Other assets | 103,109 | 71,550 | 44.11 | % | |||||||
Total assets | 1,551,120 | 1,453,379 | 6.73 | % | |||||||
Noninterest bearing deposits | 256,910 | 239,660 | 7.20 | % | |||||||
Money market & interest checking | 337,063 | 369,922 | -8.88 | % | |||||||
Savings | 112,905 | 133,919 | -15.69 | % | |||||||
CD’s and other time deposits | 566,174 | 492,950 | 14.85 | % | |||||||
Total deposits | 1,273,052 | 1,236,451 | 2.96 | % | |||||||
Federal Home Loan Bank advances | 60,000 | 14,040 | 327.35 | % | |||||||
Trust preferred capital notes | 20,619 | 20,619 | 0.00 | % | |||||||
Other borrowed funds | 46,167 | 42,955 | 7.48 | % | |||||||
Other liabilities | 11,995 | 10,349 | 15.90 | % | |||||||
Total liabilities | 1,411,833 | 1,324,414 | 6.60 | % | |||||||
Total stockholders’ equity | $ | 139,287 | $ | 128,965 | 8.00 | % | |||||
Accumulated comprehensive income (loss) | $ | (1,794 | ) | $ | 861 | -308.36 | % | ||||
Average balances | |||||||||||
For the Three Months Ended | Percent Increase (Decrease) | ||||||||||
3/31/2006 | 3/31/2005 | ||||||||||
Total assets | $ | 1,525,345 | $ | 1,446,263 | 5.47 | % | |||||
Total stockholders’ equity | $ | 138,364 | $ | 127,751 | 8.31 | % |
QUARTERLY PERFORMANCE SUMMARY
Virginia Financial Group, Inc. (NASDAQ: VFGI)
(Dollars in thousands)
For the Three Months Ended | Percent Increase (Decrease) | |||||||||
3/31/2006 | 3/31/2005 | |||||||||
Interest Income | ||||||||||
Interest and fees on loans | $ | 19,433 | $ | 16,043 | 21.13 | % | ||||
Interest on deposits in other banks | 35 | 4 | 775.00 | % | ||||||
Interest and dividends on securities: | ||||||||||
Taxable | 1,499 | 1,806 | -17.00 | % | ||||||
Tax-exempt | 815 | 656 | 24.24 | % | ||||||
Dividends | 115 | 67 | 71.64 | % | ||||||
Interest income on federal funds sold | 276 | 8 | 3350.00 | % | ||||||
Total interest income | 22,173 | 18,584 | 19.31 | % | ||||||
Interest Expense | ||||||||||
Interest on deposits | 5,960 | 4,752 | 25.42 | % | ||||||
Interest on federal funds repurchased and securities soldunder agreements to repurchase | 86 | 144 | -40.28 | % | ||||||
Interest on Federal Home Loan Bank advances | 582 | 180 | 223.33 | % | ||||||
Interest on trust preferred capital notes | 374 | 265 | 41.13 | % | ||||||
Interest on other borrowings | 306 | 57 | 436.84 | % | ||||||
Total interest expense | 7,308 | 5,398 | 35.38 | % | ||||||
Net interest income | 14,865 | 13,186 | 12.73 | % | ||||||
Provision for loan losses | 510 | 546 | -6.59 | % | ||||||
Net interest income after provision for loan losses | 14,355 | 12,640 | 13.57 | % | ||||||
Noninterest Income | ||||||||||
Retail banking fees | 1,607 | 1,665 | -3.48 | % | ||||||
Commissions and fees from fiduciary activities | 811 | 724 | 12.02 | % | ||||||
Brokerage fee income | 227 | 181 | 25.41 | % | ||||||
Other operating income | 170 | 241 | -29.46 | % | ||||||
Loss on sale of fixed assets | (4 | ) | — | — | ||||||
Loss on securities available for sale | (181 | ) | — | — | ||||||
Gain on sale of branches | — | 408 | — | |||||||
Gain on sale of mortgage loans | 633 | 475 | 33.26 | % | ||||||
Total noninterest income | 3,263 | 3,694 | -11.67 | % | ||||||
Noninterest Expense | ||||||||||
Compensation and employee benefits | 6,601 | 6,047 | 9.16 | % | ||||||
Net occupancy expense | 766 | 751 | 2.00 | % | ||||||
Supplies and equipment expenses | 977 | 1,114 | -12.30 | % | ||||||
Amortization-intangible assets | 100 | 168 | -40.48 | % | ||||||
Marketing | 125 | 144 | -13.19 | % | ||||||
State franchise taxes | 248 | 199 | 24.62 | % | ||||||
Data processing | 383 | 314 | 21.97 | % | ||||||
Telecommunications | 274 | 268 | 2.24 | % | ||||||
Professional fees | 130 | 130 | 0.00 | % | ||||||
Other operating expenses | 1,579 | 1,399 | 12.87 | % | ||||||
Total noninterest expense | 11,183 | 10,534 | 6.16 | % | ||||||
Income before income taxes | 6,435 | 5,800 | 10.95 | % | ||||||
Income tax expense | 1,971 | 1,787 | 10.30 | % | ||||||
Net income | $ | 4,464 | $ | 4,013 | 11.24 | % |
VIRGINIA FINANCIAL GROUP INC.
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(Dollars in thousands)
Three months ended March 31, | ||||||||||||||||||
2006 | 2005 | |||||||||||||||||
Dollars in thousands | Average Balance | Interest Inc/Exp | Average Rates | Average Balance | Interest Inc/Exp | Average Rates | ||||||||||||
Assets | ||||||||||||||||||
Loans receivable, net | $ | 1,157,736 | $ | 19,453 | 6.81 | % | $ | 1,071,992 | $ | 16,096 | 6.09 | % | ||||||
Investment securities | ||||||||||||||||||
Taxable | 152,945 | 1,614 | 4.28 | % | 191,766 | 1,873 | 3.96 | % | ||||||||||
Tax exempt | 80,623 | 1,253 | 6.30 | % | 62,326 | 1,010 | 6.57 | % | ||||||||||
Total investments | 233,568 | 2,867 | 4.98 | % | 254,092 | 2,883 | 4.60 | % | ||||||||||
Interest bearing deposits | 5,961 | 35 | 2.38 | % | 521 | 4 | 3.11 | % | ||||||||||
Federal funds sold | 30,691 | 276 | 3.65 | % | 1,122 | 8 | 2.89 | % | ||||||||||
270,220 | 3,178 | 4.77 | % | 255,735 | 2,895 | 4.59 | % | |||||||||||
Total earning assets | 1,427,956 | 22,631 | 6.43 | % | 1,327,727 | 18,991 | 5.80 | % | ||||||||||
Total nonearning assets | 96,907 | 118,536 | ||||||||||||||||
Total assets | $ | 1,524,863 | $ | 1,446,263 | ||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||
Interest checking | $ | 180,122 | $ | 198 | 0.45 | % | $ | 198,834 | $ | 195 | 0.40 | % | ||||||
Money market | 166,666 | 701 | 1.71 | % | 174,238 | 481 | 1.12 | % | ||||||||||
Savings | 120,090 | 195 | 0.66 | % | 135,578 | 223 | 0.67 | % | ||||||||||
Time deposits: | ||||||||||||||||||
Less than $100,000 | 372,152 | 3,185 | 3.47 | % | 369,507 | 2,761 | 3.03 | % | ||||||||||
$100,000 and more | 175,314 | 1,681 | 3.89 | % | 128,145 | 1,092 | 3.46 | % | ||||||||||
Total interest-bearing deposits | 1,014,344 | 5,960 | 2.38 | % | 1,006,302 | 4,752 | 1.92 | % | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 14,801 | 86 | 2.36 | % | 23,018 | 144 | 2.54 | % | ||||||||||
Federal Home Loan Bank advances | 56,427 | 582 | 4.18 | % | 14,058 | 180 | 5.19 | % | ||||||||||
Trust preferred capital notes | 20,619 | 374 | 7.36 | % | 20,619 | 265 | 5.21 | % | ||||||||||
Other borrowings | 30,856 | 306 | 4.02 | % | 9,618 | 57 | 2.40 | % | ||||||||||
122,703 | 1,348 | 4.46 | % | 67,313 | 646 | 3.89 | % | |||||||||||
Total interest-bearing liabilities | 1,137,047 | 7,308 | 2.60 | % | 1,073,615 | 5,398 | 2.04 | % | ||||||||||
Total noninterest-bearing liabilities | 249,452 | 244,897 | ||||||||||||||||
Total liabilities | 1,386,499 | 1,318,512 | ||||||||||||||||
Stockholders’ equity | 138,364 | 127,751 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,524,863 | $ | 1,446,263 | ||||||||||||||
Net interest income (tax equivalent) | $ | 15,323 | $ | 13,593 | ||||||||||||||
Average interest rate spread | 3.82 | % | 3.76 | % | ||||||||||||||
Interest expense as percentage of average earning assets | 2.08 | % | 1.65 | % | ||||||||||||||
Net interest margin | 4.35 | % | 4.15 | % |