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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

FORM 10-Q

|(Mark One)
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For the transition period from ______________ to ______________

Commission File
Number   000-22283

|Virginia Financial Group, Inc.                        
|------------------------------------------------------
|                                                      
|(Exact name of registrant as specified in its charter)

|Virginia                                                        |  | 54-1829288                           
|--------------------------------------------------------------- |  | -------------------------------------
|                                                                |  |                                      
|(State or other jurisdiction of  Incorporation or organization) |  | (I.R.S. Employer  Identification No.)
|                                                                |  |                                      
|102 South Main Street, Culpeper, Virginia                       |  | 22701                                
|                                                                |  |                                      
|(Address of principal executive offices)                        |  | (Zip Code)                           

(Registrants telephone number, including area code) 540-829-1603

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.    Yesx Noo.

As of August 2, 2002, there were
7,302,006 shares of common stock, $5.00 par value, outstanding and the aggregate market value of common stock of Virginia Financial Group, Inc. held by nonaffiliates was approximately $209,130,000.

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VIRGINIA FINANCIAL GROUP, INC.

INDEX

PART I - FINANCIAL INFORMATION

|       |                                                                                       | Page No.  
|------ | ------------------------------------------------------------------------------------- | ----------
|       |                                                                                       |           
|ITEM 1 | Consolidated Financial Statements (unaudited):                                        |           
|       |                                                                                       |           
|       | Consolidated Balance Sheets                                                           | 3         
|       |                                                                                       |           
|       | Consolidated Statements of Income                                                     | 4-5       
|       |                                                                                       |           
|       | Consolidated Statements of Changes in Stockholders Equity                            | 6         
|       |                                                                                       |           
|       | Consolidated Statements of Cash Flows                                                 | 7-8       
|       |                                                                                       |           
|       | Notes to Financial Statements                                                         | 9-12      
|       |                                                                                       |           
|ITEM 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations | 13-17     
|       |                                                                                       |           
|ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk                            | 18        
|       |                                                                                       |           
|       | PART II - OTHER INFORMATION                                                           |           
|       |                                                                                       |           
|ITEM 1 | Legal Proceedings                                                                     | 18        
|       |                                                                                       |           
|ITEM 2 | Change in Securities                                                                  | 18        
|       |                                                                                       |           
|ITEM 3 | Defaults Upon Senior Securities                                                       | 18        
|       |                                                                                       |           
|ITEM 4 | Submission of Matters to a Vote of Security Holders                                   | 18        
|       |                                                                                       |           
|ITEM 5 | Other Information                                                                     | 19        
|       |                                                                                       |           
|ITEM 6 | Exhibits and Reports on Form 8-K                                                      | 19        
|       |                                                                                       |           
|       |                                                                                       | SIGNATURES
|       |                                                                                       |           

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (000 OMITTED)

|                                                                                                                                               |                                              | JUNE 30, 2002 |           | DECEMBER 31, 2001 |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------- | --------- | ----------------- | -
|                                                                                                                                               |                                              |               |           |                   |  
|                                                                                                                                               |                                              | (unaudited)   |           |                   |  
|ASSETS                                                                                                                                         |                                              |               |           |                   |  
|Cash and due from depository institutions                                                                                                      |                                              | $             | 37,491    |                   | $
|Federal funds sold                                                                                                                             |                                              |               | 29,227    |                   |  
|Interest-bearing deposits in banks                                                                                                             |                                              |               | 519       |                   |  
|Securities (market value: 2002, $300,862; 2001, $266,082)                                                                                      |                                              |               | 300,358   |                   |  
|Loans held for sale                                                                                                                            |                                              |               | 6,926     |                   |  
|Loans receivable, net                                                                                                                          |                                              |               | 659,147   |                   |  
|Bank premises and equipment                                                                                                                    |                                              |               | 19,796    |                   |  
|Interest receivable                                                                                                                            |                                              |               | 5,857     |                   |  
|Other real estate owned                                                                                                                        |                                              |               | 100       |                   |  
|Intangibles                                                                                                                                    |                                              |               | 1,787     |                   |  
|Other assets                                                                                                                                   |                                              |               | 7,809     |                   |  
|                                                                                                                                               |                                              |               |           |                   |  
|Total Assets                                                                                                                                   |                                              | $             | 1,069,017 |                   | $
|                                                                                                                                               |                                              |               |           |                   |  
|LIABILITIES                                                                                                                                    |                                              |               |           |                   |  
|Deposits:                                                                                                                                      |                                              |               |           |                   |  
|                                                                                                                                               | Noninterest-bearing demand deposits          |               | $         | 161,621           |  
|                                                                                                                                               | Savings and interest-bearing demand deposits |               |           | 351,570           |  
|                                                                                                                                               | Time deposits                                |               |           | 407,778           |  
|                                                                                                                                               |                                              |               |           |                   |  
|                                                                                                                                               | Total deposits                               |               |           | 920,969           |  
|                                                                                                                                               |                                              |               |           |                   |  
|Securities sold under agreements to repurchase                                                                                                 |                                              |               | 16,325    |                   |  
|Federal funds purchased                                                                                                                        |                                              |               |          |                   |  
|Federal Home Loan Bank advances                                                                                                                |                                              |               | 12,260    |                   |  
|Short-term borrowings                                                                                                                          |                                              |               | 903       |                   |  
|Interest payable                                                                                                                               |                                              |               | 2,179     |                   |  
|Other liabilities                                                                                                                              |                                              |               | 3,892     |                   |  
|                                                                                                                                               |                                              |               |           |                   |  
|                                                                                                                                               | Total Liabilities                            |               |           | 956,528           |  
|                                                                                                                                               |                                              |               |           |                   |  
|STOCKHOLDERS EQUITY                                                                                                                           |                                              |               |           |                   |  
|Preferred stock, no par value; (Authorized 5,000,000 shares, no shares outstanding)                                                            |                                              |               |          |                   |  
|Common stock, par value $5.00 per share; (Authorized 25,000,000 shares; issued and outstanding 7,302,006 shares in 2002 and 7,286,400 in 2001) |                                              |               | 36,510    |                   |  
|Capital surplus                                                                                                                                |                                              |               | 11,516    |                   |  
|Retained earnings                                                                                                                              |                                              |               | 60,508    |                   |  
|Accumulated other comprehensive income                                                                                                         |                                              |               | 3,955     |                   |  
|                                                                                                                                               |                                              |               |           |                   |  
|                                                                                                                                               | Total Stockholders Equity                   |               |           | 112,489           |  
|                                                                                                                                               |                                              |               |           |                   |  
|Total Liabilities and Stockholders Equity                                                                                                     |                                              | $             | 1,069,017 |                   | $
|                                                                                                                                               |                                              |               |           |                   |  
|                                                                                                                                               |                                              |               |           |                   |  

See accompanying notes to consolidated financial statements.

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)

|                                |                                                                                        | THREE MONTHS ENDED  JUNE 30, |      
|------------------------------- | -------------------------------------------------------------------------------------- | ---------------------------- | -----
|                                |                                                                                        | 2002                         |      
|                                |                                                                                        |                              |      
|                                |                                                                                        | (unaudited)                  |      
|Interest Income                 |                                                                                        |                              |      
|                                | Interest and fees on loans                                                             |                              | $    
|                                | Interest on deposits in other banks                                                    |                              |      
|                                | Interest on investment securities:                                                     |                              |      
|                                | Taxable                                                                                |                              |      
|                                | Interest and dividends on securities available for sale:                               |                              |      
|                                | Taxable                                                                                |                              |      
|                                | Nontaxable                                                                             |                              |      
|                                | Dividends                                                                              |                              |      
|                                | Interest income on federal funds sold                                                  |                              |      
|                                |                                                                                        |                              |      
|                                | Total Interest Income                                                                  |                              |      
|Interest Expense                |                                                                                        |                              |      
|                                | Interest on deposits                                                                   |                              |      
|                                | Interest on Federal Home Loan Bank advances                                            |                              |      
|                                | Interest on federal funds purchased and securities sold under agreements to repurchase |                              |      
|                                | Interest on other short-term borrowings                                                |                              |      
|                                |                                                                                        |                              |      
|                                | Total Interest Expense                                                                 |                              |      
|                                |                                                                                        |                              |      
|                                | Net Interest Income                                                                    |                              |      
|Less: Provision for loan losses |                                                                                        |                              | 400  
|                                |                                                                                        |                              |      
|                                | Net Interest Income after Provision for Loan Losses                                    |                              |      
|Other Income                    |                                                                                        |                              |      
|                                | Service charges on deposit accounts                                                    |                              |      
|                                | Commissions and fees from fiduciary activities                                         |                              |      
|                                | Investment fee income                                                                  |                              |      
|                                | Other operating income                                                                 |                              |      
|                                | Gain on sale of available for sale securities                                          |                              |      
|                                | Gain on sale of other real estate owned                                                |                              |      
|                                | Gain on sale of mortgage loans                                                         |                              |      
|                                |                                                                                        |                              |      
|                                | Total Other Income                                                                     |                              |      
|                                |                                                                                        |                              |      
|Other Expense                   |                                                                                        |                              |      
|                                | Compensation and employee benefits                                                     |                              |      
|                                | Net occupancy and equipment expense                                                    |                              |      
|                                | Computer services                                                                      |                              |      
|                                | Professional fees                                                                      |                              |      
|                                | Other operating expenses                                                               |                              |      
|                                |                                                                                        |                              |      
|                                | Total Other Expense                                                                    |                              |      
|                                |                                                                                        |                              |      
|                                | Income Before Income Tax Expense                                                       |                              |      
|Income tax expense              |                                                                                        |                              | 1,000
|                                |                                                                                        |                              |      
|                                | Net Income                                                                             |                              | $    
|                                |                                                                                        |                              |      
|Earnings per Share, basic       |                                                                                        | $                            | .40  
|                                |                                                                                        |                              |      
|Earnings per Share, diluted     |                                                                                        | $                            | .40  
|                                |                                                                                        |                              |      
|Dividends per Share             |                                                                                        | $                            | .18  
|                                |                                                                                        |                              |      
|                                |                                                                                        |                              |      

See accompanying notes to consolidated financial statements.

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)

|                                |                                                                                        | SIX MONTHS ENDED JUNE 30, |      
|------------------------------- | -------------------------------------------------------------------------------------- | ------------------------- | -----
|                                |                                                                                        | 2002                      |      
|                                |                                                                                        |                           |      
|                                |                                                                                        | (unaudited)               |      
|Interest Income                 |                                                                                        |                           |      
|                                | Interest and fees on loans                                                             |                           | $    
|                                | Interest on deposits in other banks                                                    |                           |      
|                                | Interest on investment securities:                                                     |                           |      
|                                | Taxable                                                                                |                           |      
|                                | Interest and dividends on securities available for sale:                               |                           |      
|                                | Taxable                                                                                |                           |      
|                                | Nontaxable                                                                             |                           |      
|                                | Dividends                                                                              |                           |      
|                                | Interest income on federal funds sold                                                  |                           |      
|                                |                                                                                        |                           |      
|                                | Total Interest Income                                                                  |                           |      
|                                |                                                                                        |                           |      
|Interest Expense                |                                                                                        |                           |      
|                                | Interest on deposits                                                                   |                           |      
|                                | Interest on Federal Home Loan Bank advances                                            |                           |      
|                                | Interest on federal funds purchased and securities sold under agreements to repurchase |                           |      
|                                | Interest on other short-term borrowings                                                |                           |      
|                                |                                                                                        |                           |      
|                                | Total Interest Expense                                                                 |                           |      
|                                |                                                                                        |                           |      
|                                | Net Interest Income                                                                    |                           |      
|Less: Provision for loan losses |                                                                                        |                           | 801  
|                                |                                                                                        |                           |      
|                                | Net Interest Income after Provision for Loan Losses                                    |                           |      
|Other Income                    |                                                                                        |                           |      
|                                | Service charges on deposit accounts                                                    |                           |      
|                                | Commissions and fees from fiduciary activities                                         |                           |      
|                                | Investment fee income                                                                  |                           |      
|                                | Other operating income                                                                 |                           |      
|                                | Gain on sale of available for sale securities                                          |                           |      
|                                | Gain on sale of other real estate owned                                                |                           |      
|                                | Gain on sale of mortgage loans                                                         |                           |      
|                                |                                                                                        |                           |      
|                                | Total Other Income                                                                     |                           |      
|                                |                                                                                        |                           |      
|Other Expense                   |                                                                                        |                           |      
|                                | Compensation and employee benefits                                                     |                           |      
|                                | Net occupancy and equipment expense                                                    |                           |      
|                                | Computer services                                                                      |                           |      
|                                | Professional fees                                                                      |                           |      
|                                | Other operating expenses                                                               |                           |      
|                                |                                                                                        |                           |      
|                                | Total Other Expense                                                                    |                           |      
|                                |                                                                                        |                           |      
|                                | Income Before Income Tax Expense                                                       |                           |      
|Income tax expense              |                                                                                        |                           | 2,104
|                                |                                                                                        |                           |      
|                                | Net Income                                                                             |                           | $    
|                                |                                                                                        |                           |      
|Earnings per Share, basic       |                                                                                        | $                         | .84  
|                                |                                                                                        |                           |      
|Earnings per Share, diluted     |                                                                                        | $                         | .83  
|                                |                                                                                        |                           |      
|Dividends per Share             |                                                                                        | $                         | .36  
|                                |                                                                                        |                           |      
|                                |                                                                                        |                           |      

See accompanying notes to consolidated financial statements.

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (000 OMITTED)

|                                        |                                                                                           | Common Stock |        | Capital Surplus |   | Accumulated Other Comprehensive Income |   | Retained Earnings |       | Comprehensive Income |   | Total  |  
|--------------------------------------- | ----------------------------------------------------------------------------------------- | ------------ | ------ | --------------- | - | -------------------------------------- | - | ----------------- | ----- | -------------------- | - | ------ | -
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, January 1, 2001                |                                                                                           | $            | 36,561 |                 | $ | 11,838                                 |   | $                 | 201   |                      | $ | 52,286 |  
|Net income                              |                                                                                           |              |       |                 |   |                                       |   |                   |      |                      |   | 5,416  |  
|Other Comprehensive Income, net of tax: |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                        | Unrealized gains on securities available for sale during the period, net of tax of $990   |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                        | Less: reclassification adjustment, net of tax of $59                                      |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Other comprehensive income              |                                                                                           |              |       |                 |   |                                       |   |                   | 1,808 |                      |   |        |  
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                        | Comprehensive income                                                                      |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Cash dividends                          |                                                                                           |              |       |                 |   |                                       |   |                   |      |                      |   | (2,555 | )
|Stock options exercised                 |                                                                                           |              | 61     |                 |   | 78                                     |   |                   |      |                      |   |       |  
|Repurchase of common stock              |                                                                                           |              | (104   | )               |   | (289                                   | ) |                   |      |                      |   |       |  
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, June 30, 2001                  |                                                                                           | $            | 36,518 |                 | $ | 11,627                                 |   | $                 | 2,009 |                      | $ | 55,147 |  
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, January 1, 2002                |                                                                                           | $            | 36,432 |                 | $ | 11,332                                 |   | $                 | 1,882 |                      | $ | 57,060 |  
|Net income                              |                                                                                           |              |       |                 |   |                                       |   |                   |      |                      |   | 6,087  |  
|Other Comprehensive Income, net of tax: |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                        | Unrealized gains on securities available for sale during the period, net of tax of $1,146 |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                        | Add: reclassification adjustment, net of tax of $79                                       |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                        | Other comprehensive income                                                                |              |        |                |   |                                        |  |                   |       | 2,073                |   |        |  
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                        | Comprehensive income                                                                      |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Cash dividends                          |                                                                                           |              |       |                 |   |                                       |   |                   |      |                      |   | (2,639 | )
|Stock options exercised                 |                                                                                           |              | 78     |                 |   | 206                                    |   |                   |      |                      |   |       |  
|Fractional shares paid in cash          |                                                                                           |              |       |                 |   | (22                                    | ) |                   |      |                      |   |       |  
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, June 30, 2002                  |                                                                                           | $            | 36,510 |                 | $ | 11,516                                 |   | $                 | 3,955 |                      | $ | 60,508 |  
|                                        |                                                                                           |              |        |                 |   |                                        |   |                   |       |                      |   |        |  

See accompanying notes to consolidated financial statements.

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (000 OMITTED)

|                     |                                                                                   | SIX MONTHS ENDED JUNE 30, |  
|-------------------- | --------------------------------------------------------------------------------- | ------------------------- | -
|                     |                                                                                   | 2002                      |  
|                     |                                                                                   |                           |  
|                     |                                                                                   | (unaudited)               |  
|OPERATING ACTIVITIES |                                                                                   |                           |  
|                     | Net income                                                                        |                           | $
|                     | Adjustments to reconcile net income to net cash provided by operating activities: |                           |  
|                     | Provision for loan losses                                                         |                           |  
|                     | Deferred tax benefit                                                              |                           |  
|                     | Depreciation and amortization                                                     |                           |  
|                     | Pension expense                                                                   |                           |  
|                     | Gain on sale of available for sale securities                                     |                           |  
|                     | Gain on sale of other real estate owned                                           |                           |  
|                     | Loss on sale of fixed assets                                                      |                           |  
|                     | Amortization of premiums and discounts on securities                              |                           |  
|                     | Gain on sale of mortgage loans                                                    |                           |  
|                     | Proceeds from sale of mortgage loans                                              |                           |  
|                     | Origination of loans for sale                                                     |                           |  
|                     | Changes in assets and liabilities:                                                |                           |  
|                     | (Increase) decrease in interest receivable                                        |                           |  
|                     | Increase in other assets                                                          |                           |  
|                     | Decrease in interest payable                                                      |                           |  
|                     | Increase in other liabilities                                                     |                           |  
|                     |                                                                                   |                           |  
|                     | Net cash provided by operating activities                                         |                           |  
|                     |                                                                                   |                           |  
|INVESTING ACTIVITIES |                                                                                   |                           |  
|                     | Proceeds from sale of securities available for sale                               |                           |  
|                     | Proceeds from maturities of investment securities                                 |                           |  
|                     | Proceeds from maturities and principal payments of securities available for sale  |                           |  
|                     | Purchase of securities available for sale                                         |                           |  
|                     | Purchase of premises and equipment                                                |                           |  
|                     | Proceeds from sale of premises and equipment                                      |                           |  
|                     | Additions to other real estate                                                    |                           |  
|                     | Proceeds from sale of other real estate                                           |                           |  
|                     | Net increase in loans                                                             |                           |  
|                     |                                                                                   |                           |  
|                     | Net cash (used in) provided by investing activities                               |                           |  
|                     |                                                                                   |                           |  
|                     |                                                                                   |                           |  

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000 OMITTED)

|                                                      |                                                                    | SIX MONTHS ENDED JUNE 30, |  
|----------------------------------------------------- | ------------------------------------------------------------------ | ------------------------- | -
|                                                      |                                                                    | 2002                      |  
|                                                      |                                                                    |                           |  
|                                                      |                                                                    | (unaudited)               |  
|FINANCING ACTIVITIES                                  |                                                                    |                           |  
|                                                      | Net increase in demand, money market and savings deposits          |                           |  
|                                                      | Net (decrease) increase in time deposits                           |                           |  
|                                                      | Payments of Federal Home Loan Bank advances                        |                           |  
|                                                      | Net (decrease) increase in repurchase agreements                   |                           |  
|                                                      | Net decrease in federal funds purchased                            |                           |  
|                                                      | Net (decrease) increase in short-term borrowings                   |                           |  
|                                                      | Fractional shares paid                                             |                           |  
|                                                      | Repurchase of common stock                                         |                           |  
|                                                      | Stock options exercised                                            |                           |  
|                                                      | Cash dividends paid on common stock                                |                           |  
|                                                      |                                                                    |                           |  
|                                                      | Net cash provided by financing activities                          |                           |  
|                                                      |                                                                    |                           |  
|                                                      | Increase in cash and cash equivalents                              |                           |  
|CASH AND CASH EQUIVALENTS                             |                                                                    |                           |  
|                                                      | Beginning of the period                                            |                           |  
|                                                      |                                                                    |                           |  
|                                                      | End of the period                                                  |                           | $
|                                                      |                                                                    |                           |  
|Supplemental Schedule of Noncash Investing Activities |                                                                    |                           |  
|                                                      | Unrealized gain on securities available for sale                   |                           | $
|                                                      |                                                                    |                           |  
|                                                      | Other real estate acquired in settlement of loans                  |                           | $
|                                                      |                                                                    |                           |  
|                                                      | Transfer of securities from held to maturity to available for sale |                           | $
|                                                      |                                                                    |                           |  
|                                                      |                                                                    |                           |  

See accompanying notes to consolidated financial statements.

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 AND DECEMBER 31, 2001

|1. | In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the
financial position as of June 30, 2002 and December 31, 2001, and the results of operations and cash flows for the six months ended June 30, 2002 and 2001.  The statements should be read in conjunction with the Notes to Financial Statements
included in the Companys Annual Report for the year ended December 31, 2001. Certain reclassifications have been made to prior amounts to conform to the current period presentation.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | The results of operations for the six month period ended June 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | The Companys securities portfolio is composed of the following (000 omitted):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                               |                                                  |  |                   | Amortized Cost |  |   | Fair Value | 
|------------------------------ | ------------------------------------------------ |  | ----------------- | -------------- |  | - | ---------- | 
|                               |                                                  |  |                   |                |  |   |            | 
|Securities Held to Maturity:   |                                                  |  | June 30, 2002     |               
|                               |                                                  |  |                   |                | 
|                               |                                                  |  |                   | (unaudited)    | 
|                               | U.S. Treasury Securities                         |  | $                 | 2,499          |  | $ | 2,551      | 
|                               | Obligations of States and Political Subdivisions |  |                   | 7,544          |  |   | 7,996      | 
|                               |                                                  |  |                   |                |  |   |            | 
|                               |                                                  |  | $                 | 10,043         |  | $ | 10,547     | 
|                               |                                                  |  |                   |                |  |   |            | 
|                               |                                                  |  |                   |               
|                               |                                                  |  | December 31, 2001 |               
|                               |                                                  |  |                   |               
|                               | U.S. Treasury Securities                         |  | $                 | 2,497          |  | $ | 2,589      | 
|                               | Obligations of States and Political Subdivisions |  |                   | 7,789          |  |   | 8,006      | 
|                               |                                                  |  |                   |                |  |   |            | 
|                               |                                                  |  | $                 | 10,286         |  | $ | 10,595     | 
|                               |                                                  |  |                   |                |  |   |            | 
|                               |                                                  |  |                   |                |  |   |            | 
|Securities Available for Sale: |                                                  |  |                   |                |  |   |           
|                               |                                                  |  |                   | June 30, 2002  | 
|                               |                                                  |  |                   |                | 
|                               |                                                  |  |                   | (unaudited)    | 
|                               | U.S. Treasury Securities                         |  | $                 | 21,060         |  | $ | 21,538     | 
|                               | U.S. Government Securities                       |  |                   | 91,581         |  |   | 93,361     | 
|                               | Obligations of States and Political Subdivisions |  |                   | 84,924         |  |   | 87,602     | 
|                               | Corporate Bonds                                  |  |                   | 15,058         |  |   | 15,397     | 
|                               | Mortgage-backed securities                       |  |                   | 55,223         |  |   | 56,299     | 
|                               | Other Securities                                 |  |                   | 16,430         |  |   | 16,118     | 
|                               |                                                  |  |                   |                |  |   |            | 
|                               |                                                  |  | $                 | 284,276        |  | $ | 290,315    | 
|                               |                                                  |  |                   |                |  |   |            | 

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 AND DECEMBER 31, 2001

| |                                                  |  | December 31, 2001 |        
| | ------------------------------------------------ |  | ----------------- | -------
| |                                                  |  |                   |        
| | U.S. Treasury Securities                         |  | $                 | 8,459  
| | U.S. Government agencies                         |  |                   | 46,562 
| | Obligations of States and Political Subdivisions |  |                   | 78,493 
| | Corporate Bonds                                  |  |                   | 12,964 
| | Mortgage-backed securities                       |  |                   | 80,983 
| | Other Securities                                 |  |                   | 25,156 
| |                                                  |  |                   |        
| |                                                  |  | $                 | 252,617
| |                                                  |  |                   |        

|4. | The Companys loan portfolio is composed of the following (000 omitted):
|-- | ------------------------------------------------------------------------

| |                                                                       |                                     |  |        |         | June 30, 2002 |         | December 31, 2001 |  
| | --------------------------------------------------------------------- | ----------------------------------- |  | ------ | ------- | ------------- | ------- | ----------------- | -
| |                                                                       |                                     |  |        |         |               |         |                   |  
| |                                                                       |                                     |  |        |         | (unaudited)   |         |                   |  
| | Real estate loans:                                                    |                                     |  |        |         |               |         |                  
| |                                                                       | Construction                        |  | $      | 49,857  |               | $       | 61,899            |  
| |                                                                       | Secured by farmland                 |  |        | 2,685   |               |         | 2,698             |  
| |                                                                       | Secured by 1  4 family residential |  |        | 244,672 |               |         | 248,877           |  
| |                                                                       | Other real estate loans             |  |        | 230,520 |               |         | 207,220           |  
| | Loans to farmers (except secured by real estate)                      |                                     |  | 1,823  |         |               | 2,615   |                  
| | Commercial and industrial loans (except those secured by real estate) |                                     |  | 74,017 |         |               | 75,057  |                  
| | Loans to individuals for personal expenditures                        |                                     |  | 55,434 |         |               | 60,180  |                  
| | All other loans                                                       |                                     |  | 9,733  |         |               | 9,041   |                  
| |                                                                       |                                     |  |        |         |               |         |                   |  
| |                                                                       |                                     |  |        |         |               | 668,741 |                   |  
| | Less:                                                                 |                                     |  |        |         |               |         |                  
| |                                                                       | Deferred loan fees                  |  |        | (780    | )             |         | (905              | )
| |                                                                       | Allowance for loan losses           |  |        | (8,814  | )             |         | (8,266            | )
| |                                                                       |                                     |  |        |         |               |         |                   |  
| |                                                                       |                                     |  |        |         | $             | 659,147 |                   | $
| |                                                                       |                                     |  |        |         |               |         |                   |  

|5. | Activity in the allowance for loan losses is as follows (000 omitted):
|-- | ----------------------------------------------------------------------

| |                                      |  | June 30, 2002 |             | December 31 2001 |   | June 30, 2001 |  
| | ------------------------------------ |  | ------------- | ----------- | ---------------- | - | ------------- | -
| |                                      |  |               |             |                  |   |               |  
| |                                      |  |               | (unaudited) |                  |   |               |  
| | Balance at January 1                 |  | $             | 8,266       |                  | $ | 7,383         |  
| | Recoveries added to the allowance    |  |               | 157         |                  |   | 608           |  
| | Loan losses charged to the allowance |  |               | (410        | )                |   | (1,103        | )
| | Provision recorded to expense        |  |               | 801         |                  |   | 1,378         |  
| |                                      |  |               |             |                  |   |               |  
| | Balance at end of period             |  | $             | 8,814       |                  | $ | 8,266         |  
| |                                      |  |               |             |                  |   |               |  

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 AND DECEMBER 31, 2001

|6. | Short-term Borrowings:                                         
|-- | ---------------------------------------------------------------
|   |                                                                
|   | Outstanding short-term borrowings consisted of (000s omitted):

| |                            |  |   | June 30, 2002 |  |   | December 31, 2001 | 
| | -------------------------- |  | - | ------------- |  | - | ----------------- | 
| |                            |  |   |               |  |   |                   | 
| |                            |  |   | (unaudited)   |  |   |                   | 
| | Federal Reserve borrowings |  | $ | 903           |  | $ | 1,053             | 
| |                            |  |   |               |  |   |                   | 

| | Second Bank & Trust has an agreement with the Federal Reserve where it can borrow funds deposited by its customers.  This agreement calls for variable interest and is
payable on demand.  U. S. Government securities and U. S. Treasury notes are pledged as collateral.  The maximum amount available under this agreement is $1,000,000.                                                                     
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold
under agreement to repurchase are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities.
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The average balance of short-term borrowings outstanding did not exceed 30 percent of stockholders equity for the three months ended June 30, 2002 or the year ended
December 31, 2001.                                                                                                                                                                                                                         

|7. | Federal Home Loan Bank Advances:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Corporations fixed-rate, long-term debt of $12,260,000 at June 30, 2002 matures through 2010.  At June 30, 2002, the interest rates on fixed-rate, long-term
debt ranged from 5.33% to 7.07%.  One advance totaling $260 thousand at June 30, 2002 requires quarterly principal payments totaling $80 thousand annually plus interest.  The remainder of the advances requires quarterly interest payments
with principal due upon maturity.  The average interest rate is 6.48% at June 30, 2002.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The contractual maturities of long-term debt are as follows (000s omitted):                                                                                                                                                                                                                                                                                                                                                                                                                           

| | 2002 |  | $ | 40     | 
| | ---- |  | - | ------ | 
| | 2003 |  |   | 3,080  | 
| | 2004 |  |   | 80     | 
| | 2005 |  |   | 4,060  | 
| | 2010 |  |   | 5,000  | 
| |      |  |   |        | 
| |      |  | $ | 12,260 | 
| |      |  |   |        | 

| | The advances are collateralized by a blanket lien on first mortgage loans of Second Bank and Trust and Virginia Heartland Bank.
| | -------------------------------------------------------------------------------------------------------------------------------

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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 AND DECEMBER 31, 2001

|8. | Earnings Per Share:                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                               
|   | The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common
stock for the three month periods ended June 30, 2002 and 2001.

|                               |  | 2002      |  | 2001             |    
|------------------------------ |  | --------- |  | ---------------- | ---
|                               |  |           |  |                  |    
|                               |  | Shares    |  | Per Share Amount |    
|                               |  |           |  |                  |    
|Basic earnings per share       |  | 7,291,941 |  | $                | .40
|                               |  |           |  |                  |    
|Effect of dilutive securities: |  |           |  |                  |    
|Stock options                  |  | 26,946    |  |                  |    
|                               |  |           |  |                  |    
|Diluted earnings per share     |  | 7,318,887 |  | $                | .40
|                               |  |           |  |                  |    

The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of
shares of diluted potential common stock for the six month periods ended June 30, 2002 and 2001.

|                               |  | 2002      |  | 2001 |                 
|------------------------------ |  | --------- |  | ---- | ----------------
|                               |  |           |  |      |                 
|                               |  | Shares    |  |      | Per Share Amount
|                               |  |           |  |      |                 
|Basic earnings per share       |  | 7,289,346 |  | $    | .84             
|                               |  |           |  |      |                 
|Effect of dilutive securities: |  |           |  |      |                 
|Stock options                  |  | 23,727    |  |      |                 
|                               |  |           |  |      |                 
|Diluted earnings per share     |  | 7,313,073 |  | $    | .83             
|                               |  |           |  |      |                 

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VIRGINIA FINANCIAL GROUP, INC.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

The following discussion provides information about the major components
of the results of operations, financial condition, liquidity and capital resources of Virginia Financial Group, Inc. (the Company). This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and
supplemental financial data.

In addition to historical information, statements contained in this report that are not historical facts may be construed as 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. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements analysis only as of the date thereof.

Critical Accounting Policies

General

The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP).  The financial
information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred.  A variety of factors could affect the
ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability.  We use historical loss factors as one factor in determining the inherent loss that may be present in our loan
portfolio.  Actual losses could differ significantly from the historical factors that we use.  In addition, GAAP itself may change from one previously acceptable method to another method.  Although the economics of our transactions
would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan Losses

The allowance for loan
losses is an estimate of the losses that may be sustained in our loan portfolio.  The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies,which requires that losses be accrued when they are
probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan,which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or
values that are observable in the secondary market and the loan balance.

The Companys affiliate Banks conduct an analysis of the loan portfolio on a regular basis.  This analysis
is used in assessing the sufficiency of the allowance for loan losses and in the determination of the necessary provision for loan losses.  The review process generally begins with lenders identifying problem loans to be reviewed on an
individual basis for impairment.  In addition to loans identified by lenders, all commercial loans also meet the Banks criteria for individual impairment testing.   Impairment testing includes consideration of the current
collateral value of the loan, as well as any known internal or external factors that may affect collectibility.  When a loan has been identified as impaired, then a specific reserve may be established based on the Banks calculation of the
loss embedded in the individual loan.  In addition to impairment testing, the Banks have a seven point grading system for each loan in the portfolio.  The loans meeting the criteria for special mention, substandard, doubtful and
loss, as well as, impaired loans are segregated from performing loans within the portfolio.  Loans are then grouped by loan type (i.e. commercial, installment) and by risk rating (i.e. substandard, doubtful).  Each loan type is assigned an
allowance factor based on the associated risk, complexity and size of the individual loans within the particular loan category.  Classified loans are assigned a higher allowance factor than non-rated loans within a

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VIRGINIA FINANCIAL GROUP, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

particular loan type due to managements concerns regarding collectibility or managements knowledge of particular elements surrounding the borrower.  Allowance factors grow with the degree of
classification.  Allowance factors used for unclassified loans are based on managements analysis of charge-off history and managements judgment based on the overall analysis of the lending environment including the general economic
conditions.  The total of specific reserves, the calculated reserve required for classified loans, by category, and the general reserves for each portfolio type is then compared to the recorded allowance for loan losses.  This is the
methodology used to determine the sufficiency of the allowance for loan losses and the amount of the provision for loan losses.

Results of Operations

Virginia Financial Group, Inc.s consolidated net income for the quarter ended June 30, 2002 amounted to $2.93 million or $.40 per share, compared to earnings of $2.59 million or $.35 per share for the quarter ended June
30, 2001.  Net income increased 12.9% and diluted earnings per share increased 14.3% compared to second quarter 2001 due to an increased net interest margin and average earnings assets, and continuing strength in non-interest income-producing
business units.  VFGIs earnings for the second quarter produced an annualized return on average assets of 1.12% and an annualized return on average equity of 10.74%, compared to prior year ratios of 1.08% and 10.03%,
respectively.

For the six months ended June 30, 2002, VFGIs earnings was $6.09 million of $.83 per diluted share, compared to $5.42 million or $.74 per diluted share in 2001.  This
earnings growth represents an increase of 12.4% in net income and a 12.2% increase in diluted earnings per share.

Net Interest Income

Net
interest income increased $854 thousand or 9.5% to $9.89 million for the three months ended June 30, 2002.  This improvement can be attributed to an increase in average earning assets generated through loan and investment growth as well as an
improved net interest margin.  The net interest margin for the three months ended June 30, 2002 was 4.27%, compared to 4.20% for the second quarter 2001. Average earning assets for the quarter ended June 30, 2002 increased $72.59 million to
$977.73 million, an increase of 8.0% over $905.14 million for the same quarter in 2001.  The increase in average earning assets can be attributed to growth in retail deposits, which were used to fund increases in loans receivable and
investments.  Last years falling rate environment continued to have some impact on net interest margin during the quarter, with interest-bearing retail deposits repricing at current lower interest rates.

The following table provides information on average earning assets and interest-bearing liabilities for the months ended June 30, 2002 and 2001 as well as amounts and rates of tax equivalent interest earned and interest
paid.  The tax equivalent adjustment, utilizing a federal statutory rate of 34%, amounted to $515 thousand and $457 thousand in 2002 and 2001, respectively.

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VIRGINIA FINANCIAL GROUP, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

|                                                        |                                 |                                    |         |         | Quarter ended June 30, |               
|------------------------------------------------------- | ------------------------------- | ---------------------------------- | ------- | ------- | ---------------------- | --------------
|                                                        |                                 |                                    |         |         |                        |               
|                                                        |                                 |                                    |         |         | 2002                   |               
|                                                        |                                 |                                    |         |         |                        |               
|                                                        |                                 |                                    |         |         | Average Balance        |               
|                                                        |                                 |                                    |         |         |                        |               
|                                                        |                                 |                                    |         |         |                        | (in thousands)
|Securities                                              |                                 |                                    |         |         |                        |               
|                                                        | Taxable                         |                                    | $       | 209,925 |                        | $             
|                                                        | Tax-exempt (1)                  |                                    |         | 74,279  |                        |               
|                                                        |                                 |                                    |         |         |                        |               
|                                                        |                                 | Total securities                   |         |         | 284,204                |               
|Loans, net                                              |                                 |                                    | 664,316 |         |                        | 12,458        
|Interest earning bank deposits                          |                                 |                                    | 139     |         |                        | 2             
|Federal funds sold                                      |                                 |                                    | 29,071  |         |                        | 120           
|                                                        |                                 |                                    |         |         |                        |               
|                                                        |                                 | Total earning assets               |         | $       | 977,730                |               
|                                                        |                                 |                                    |         |         |                        |               
|Interest-bearing deposits:                              |                                 |                                    |         |         |                        |               
|                                                        | Checking                        |                                    | $       | 115,684 |                        | $             
|                                                        | Money market                    |                                    |         | 127,030 |                        |               
|                                                        | Savings                         |                                    |         | 100,329 |                        |               
|                                                        | Certificates of deposit:        |                                    |         |         |                        |               
|                                                        |                                 | Less than $100,000                 |         |         | 328,030                |               
|                                                        |                                 | $100,000 and more                  |         |         | 85,289                 |               
|                                                        |                                 |                                    |         |         |                        |               
|                                                        | Total interest-bearing deposits |                                    |         | 756,362 |                        |               
|Federal funds and repurchase agreements                 |                                 |                                    | 17,719  |         |                        | 63            
|Other short term borrowings                             |                                 |                                    | 541     |         |                        | 1             
|FHLB of Atlanta borrowings                              |                                 |                                    | 12,423  |         |                        | 200           
|                                                        |                                 |                                    |         |         |                        |               
|                                                        |                                 | Total interest-bearing liabilities |         | $       | 787,045                |               
|                                                        |                                 |                                    |         |         |                        |               
|Net interest income                                     |                                 |                                    |         |         | $                      | 10,405        
|Interest rate spread                                    |                                 |                                    |         |         |                        |               
|Interest expense as a percent of average earning assets |                                 |                                    |         |         |                        |               
|Net interest margin                                     |                                 |                                    |         |         |                        |               

|(1) income and yields are reported on a taxable-equivalent basis | 
|---------------------------------------------------------------- | 

Non Interest Income

Noninterest
income increased $397 thousand to $3.1 million for the three months ended June 30, 2002, an increase of 14.7% over the comparative period in 2001.  Income from service charges on deposit accounts totaled $1.1 million for the second quarter, an
increase of 20.2% over 2001.  Growth in deposit accounts, improved fee structure and higher transaction volume resulted in the increase for the three month period in 2002 over 2001.  VFGIs trust and investment advisory operations
reported a 12.1% increase in fee income for the quarter, with gross fees of $901 thousand compared to $804 thousand in 2001.  This increase was a result of substantially higher fee based assets as well as increased income from retail brokerage
fees.  Fee income from gains on sale of secondary market mortgages amounted to $560 thousand for the second quarter, a decrease of $122 thousand or 17.9% compared to $682 thousand in 2001.

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VIRGINIA FINANCIAL GROUP, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

Noninterest Expense

Operating expenses increased $929 thousand, or 12.0% to $8.7 million for the three months ended June 30, 2002, compared to $7.7
million for the same period in 2001.  Of this increase, approximately $487 thousand represents increases in compensation and benefits associated with increased pension costs, higher health insurance costs and a larger compensation base. 
Nonrecurring expenses amounted to $270 thousand for the quarter, consisting of compensation associated with the acceleration of vesting on restricted stock awards and integration expenses associated with the conversion of Caroline Savings Bank into
Virginia Heartland Bank.

Asset Quality

Non-performing assets, including loans past due 90 days and still accruing interest, amounted to
$3.0 million or .45% of loans and other property owned at June 30, 2002, compared to $4.3 million or .65% of loans and other property owned at June 30, 2001. The Company recorded a provision for loan losses of $400 thousand for the three month
period ended June 30, 2002, compared to a provision of $461 thousand for the three month period ended June 30, 2001.

The following table provides information on nonperforming assets and loans
contractually past due:

|                                                                  |                                                                                  |   |        | June 30, 2002 |   | December 31, 2001 |       | June 30, 2001 |       
|----------------------------------------------------------------- | -------------------------------------------------------------------------------- | - | ------ | ------------- | - | ----------------- | ----- | ------------- | ------
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|Non accrual loans                                                 |                                                                                  | $ | 2,938  |               | $ | 2,751             |       | $             | 1,729 
|Other real estate owned                                           |                                                                                  |   | 100    |               |   | 547               |       |               | 602   
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|                                                                  | Total nonperforming assets                                                       |   | $      | 3,038         |   | $                 | 3,298 |               | $     
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|                                                                  | Loans past due as to principal or interest for 90 days or more accruing interest |   | $      | 33            |   | $                 | 213   |               | $     
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|Nonperforming assets to total assets                              |                                                                                  |   | .28    | %             |   | .34               | %     |               | .43   
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|Nonperforming assets to loans and other property                  |                                                                                  |   | .45    | %             |   | .53               | %     |               | .65   
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|Allowance for loan losses as a percentage of loans receivable     |                                                                                  |   | 1.32   | %             |   | 1.24              | %     |               | 1.19  
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|Allowance for loan losses as a percentage of nonperforming assets |                                                                                  |   | 287.01 | %             |   | 235.43            | %     |               | 181.51
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       
|Net charge-offs as a percentage of average loans receivable       |                                                                                  |   | .04    | %             |   | .08               | %     |               | .07   
|                                                                  |                                                                                  |   |        |               |   |                   |       |               |       

The provision for loan losses recorded for the quarter was necessary to provide an adequate allowance for inherent estimated losses in an
increasing loan portfolio. The increase in the allowance for loan losses as a percentage of loans is attributable to several factors.  The increase is due partly to the changing composition of the portfolio, with an increase in higher risk
non-residential real estate loans of $23.3 million from December 31, 2001.  The portfolio makeup also has additional risk from a higher concentration of small business lending which is more sensitive to a recession.

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VIRGINIA FINANCIAL GROUP, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

Liquidity and Capital Resources

The Companys capital base provides the resource and ability to support the assets of the Company and provide
capital for future expansion.  Stockholders equity as of June 30, 2002 of $112.49 million increased $5.78 million or approximately 5.4% from $106.71 million at December 31, 2001.  This increase is primarily attributable to net
income earned for the six months ended June 30, 2002.  The Companys Tier I capital consists primarily of common stockholders equity.  Risk weighted assets are determined by assigning various risk levels to each asset type. The
Companys Tier 1 risk based capital ratio was 14.71% at June 30, 2002, compared to 13.98% at December 31, 2001, placing the Company in a well capitalized position as defined by regulators.

The
following table includes information with respect to the Companys risk-based capital as of June 30, 2002 (000 omitted):

| | Tier 1 capital                |                                                                  | $ | 106,747   |      
| | ----------------------------- | ---------------------------------------------------------------- | - | --------- | -----
| | Tier 2 capital                |                                                                  |   | 8,814     |      
| | Total risk-based capital      |                                                                  |   | 115,561   |      
| | Total risk-weighted assets    |                                                                  |   | 725,615   |      
| | Average adjusted total assets |                                                                  |   | 1,050,825 |      
|
| | Capital ratios:               |                                                                  |   |           |      
| |                               | Tier 1 risk-based capital ratio                                  |   |           | 14.71
| |                               | Total risk-based capital ratio                                   |   |           | 15.93
| |                               | Leverage ratio (Tier 1 capital to average adjusted total assets) |   |           | 10.16
| |                               | Equity to assets ratio                                           |   |           | 10.52

Liquidity is identified as the ability to generate or acquire sufficient amounts of cash when needed
and at reasonable cost to accommodate withdrawals, payments of debt, and increased loan demand.  These events may occur daily or at other short-term intervals in the normal operation of the business.  Experience helps management predict
time cycles in the amount of cash required.  In assessing liquidity, management gives consideration to relevant factors including stability of deposits, quality of assets, economy of markets served, concentrations of business and industry,
competition, and the Companys overall financial condition.

The Companys primary sources of liquidity are cash, due from banks, fed funds sold and securities in our available for sale
portfolio.  In addition, the affiliate banks have substantial lines of credit from their correspondent banks and access to the Federal Reserve discount window and Federal Home Loan Bank to support liquidity.  The Corporation does not
solicit brokered deposits, and is of the belief that predominantly all deposits are from established core depositors.

In the judgment of management, the Company maintains the ability to generate
sufficient amounts of cash to cover normal requirements and any additional funds as needs may arise.

Effects of Inflation

The effect of
changing prices on financial institutions is typically different from other industries as the Companys assets and liabilities are monetary in nature. Interest rates and thus the Companys asset liability management is impacted by changes
in inflation, but there is not a direct correlation between the two measures. Management monitors the impact of inflation on the financial markets.

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VIRGINIA FINANCIAL GROUP, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

ITEM 3 -
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to the quantitative and qualitative market risk disclosures in the
Companys Form 10K for the year ended December 31, 2001.

PART II  OTHER INFORMATION

|ITEM 1. | LEGAL PROCEEDINGS.                                                                                                                                                                                                                                                                                                                                                                              
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | There are no material legal proceedings to which the Registrant or any of its subsidiaries, directors, or officers is a party or by which they, or any of them, are
threatened.  Any legal proceeding presently pending or threatened against Virginia Financial Group, Inc. and its subsidiaries are either not material in respect to the amount in controversy or fully covered by insurance.
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|ITEM 2. | CHANGES IN SECURITIES.                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | None.                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | None.                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | The annual meeting of stockholders of Virginia Financial Group, Inc. was held on April 17, 2002.                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | The following directors were elected for terms expiring in 2005:                                                                                                                                                                                                                                                                                                                                

| |                         |  | FOR       |  | AGAINST | 
| | ----------------------- |  | --------- |  | ------- | 
| |                         |  |           |  |         | 
| | E. Page Butler          |  | 5,008,978 |  | 77,427  | 
| | Gregory L. Fisher       |  | 5,016,727 |  | 69,678  | 
| | Christopher M. Hallberg |  | 5,034,457 |  | 51,948  | 
| | Martin F. Lightsey      |  | 5,035,883 |  | 50,522  | 
| | James S. Quarforth      |  | 4,904,066 |  | 182,339 | 

| | The following directors term of office continued after the meeting:
| | --------------------------------------------------------------------

| | Harry V. Boney, Jr.   | Lee S. Baker           
| | --------------------- | -----------------------
| | Fred D. Bowers        | O.R. Barham, Jr.       
| | Taylor E. Gore        | Benham M. Black        
| | Jan S. Hoover         | Presley W. Moore, Jr.  
| | W. Robert Jebson, Jr. | Thomas F. Williams, Jr.
| | H. Wayne Parrish      |                        

| | Votes were cast in ratification of the selection of Yount, Hyde & Barbour, P.C. as external auditors of the Company for fiscal 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents

VIRGINIA FINANCIAL GROUP, INC. PART II  OTHER INFORMATION

|ITEM 5. | OTHER INFORMATION.                                                                                     
|------- | -------------------------------------------------------------------------------------------------------
|        |                                                                                                        
|        | Not applicable.                                                                                        
|        |                                                                                                        
|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8K.                                                                      
|        |                                                                                                        
|        | The following exhibits either are filed as part of this Report or are incorporated herein by reference:
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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|VIRGINIA FINANCIAL GROUP, INC.
|------------------------------
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