- The Washington Times - Monday, July 31, 2006

Investment analysts’ confidence in Virginia Financial Group Inc. is slipping as the loan-lucrative housing market loses steam.

The Culpeper, Va., bank holding company, with 36 bank offices throughout the central region of the commonwealth, saw second-quarter earnings rise 17.2 percent (72 cents per diluted share) to $5.2 million from $4.5 million (62 cents) a year ago, the company reported last week.

But investment analysts’ recommendations are all stuck at hold — telling investors to hang on to the stock they have but not to buy more.

That’s because Virginia Financial’s loan division grew only 0.9 percent during the quarter when compared with a previous year. During the first quarter of the year, it grew 4 percent.

“It looks like they’ve done a good job managing what they’ve been dealt,” said Mark A. Muth, a research analyst at FTN Midwest Securities Corp. in Nashville, Tenn. “The real estate markets are slowing down. It’s a really difficult operating environment.”

Mr. Muth does not own stock in the company and FTN has no banking relationship with Virginia Financial.

The National Association of Realtors reported last week that sales of previously owned homes and condominiums fell 1.3 percent in June. It was the eighth time during the past 10 months that sales fell.

“We are maintaining our hold rating on VFGI,” Stifel, Nicolaus and Co. Inc. analyst P. Carter Bundy said in a recent report. “… Shares are undervalued at current levels but not sufficient to warrant a buy rating under Stifel Nicolaus guidelines.”

Stifel Nicolaus has an investment banking relationship with the company.

SunTrust Robinson Humphrey and New Constructs investment companies just downgraded the stock from buy to neutral last week.

“We are proud of our results for the quarter particularly with earnings contributions from our Virginia Commonwealth Trust Company affiliate and our mortgage division,” said President and Chief Executive Officer O.R. Barham Jr., who bought 500 additional shares Thursday, bringing his total ownership to about one-eighth of 1 percent of total shares. “Our real estate markets have slowed, impacting our loan growth for the quarter. While we anticipate a challenging environment during the remainder of the year, we accept the challenge and remain confident in our ability to continue our success.”

Mortgage sales, which made up about 4 percent of the company’s total revenue during the quarter, are affected by not only how many loans are sold, but at what rate.

“Obviously a lot of variable-rate loans that were made three or four years ago when interest rates first dropped — we’re getting to the point where they’re being adjusted for the first time,” Mr. Muth said. “There’s a little bit of a benefit on the mortgage side.”

Virginia Financial Group holds Planters Bank & Trust Company of Virginia, Second Bank & Trust, Virginia Heartland Bank and Virginia Commonwealth Trust Company.

Shares of Virginia Financial Group rose 56 cents yesterday to close at $42.00 on the Nasdaq Stock Market.

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