================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

                                       OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

                        Commission File Number 000-22283

                         VIRGINIA FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

                    Virginia                          54-1829288
       (State or other jurisdiction of             (I.R.S. Employer
        incorporation or organization)          Identification Number)

                 24 South Augusta Street, Staunton, Virginia       24401
                  (Address of principal executive offices)       (Zip Code)

        Registrant's telephone number, including area code (540) 885-1232

                                      NONE
                          (Former name, former address
             and former fiscal year, if changed since last report.)

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  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.     Yes     X          No
                                            --------          --------

Indicate the number of shares of each of the issuer's  classes of common  stock,
as of the latest practicable date:

                      Class: Common Stock, $5.00 par value
                  Outstanding as of October 31, 1998: 4,000,000

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<PAGE>
<TABLE>

                                           VIRGINIA FINANCIAL CORPORATION

                                                        INDEX

<S> <C>
                                                                                       Page No.
Part I.  Financial Information

         Item 1.  Financial Statements

                  Consolidated Statements of Income                                        3

                  Consolidated Balance Sheets                                              5

                  Consolidated Statements of Cash Flows                                    6

                  Consolidated Statements of Changes in Stockholders' Equity               8

                  Notes to Consolidated Financial Statements                               9

         Item 2.  Management's Discussion and Analysis of Results of Operations
                  and Financial Condition                                                 11

Part II. Other Information

         Item 1.  Legal Proceedings                                                       15

         Item 4.  Submission of Matters to a Vote of Security Holders                     15

         Item 6.  Exhibits and Reports on Form 8-K                                        15

         Signature                                                                        15


</TABLE>

<PAGE>
<TABLE>

                                             VIRGINIA FINANCIAL CORPORATION
                                            CONSOLIDATED STATEMENTS OF INCOME
                                   (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
                                                                            Three Months Ended
                                                            SEPTEMBER 30                              SEPTEMBER 30
                                                               1998                                        1997
                                                       -------------------                        -------------------  
<S>                                                    <C>                                        <C>             
Interest Income:
Interest and Fee Income on Loans:
   Secured by Real Estate                              $         4,138                            $          3,850
   To Finance Agriculture & Farmers                                 79                                          71
   Commercial & Industrial                                         859                                         821
   Individuals for Household & Personal                            944                                         889
   Obligations of State & Political
     Tax-Exempt                                                      3                                           5

Interest and Dividend Income on Securities:
   U.S. Treas & U.S. Gov't Agencies                              1,381                                       1,503
   State & Political-Taxable                                        25                                          26
   State & Political-Tax Exempt                                    250                                         168
   Other Domestic Debt Securities                                    0                                           1
   Equity Securities                                                74
Interest on Federal Funds Sold                                     125                                          78
                                                            -----------                                 -----------
Total Interest Income                                            7,878                                       7,412

Interest Expense:
Interest on Deposits:
   NOW Accounts                                                    293                                         272
   Money Market Accounts                                           588                                         538
   Other Savings Deposits                                          266                                         258
   CD's of 100M or More                                            344                                         331
   All Other Time Deposits                                       2,002                                       2,047

Interest on Fed Funds Purch'd
   & Repurchase Agreements                                         121                                          70
                                                            -----------                                 -----------
Total Interest Expense                                           3,614                                       3,516
Net Interest Income                                              4,264                                       3,896
Provision for Loan Losses                                          604                                         247

Non-Interest Income:
   Fiduciary Income                                                296                                         234
   Service Charges on Deposit Accts.                               302                                         167
   Other Fee Income                                                366                                         281
   All Other Non-Interest Income                                    20                                          33
                                                            -----------                                 -----------
Total Non-Interest Income                                          984                                         715
Realized Gain (Losses) on AFS Securities                             0                                           0
Non-Interest Expense:
  Salaries & Employee Benefits                                   1,408                                       1,475
  Expense of Premise & Fixed Assets                                315                                         273
  Other Non-Interest Expense                                       809                                         721
                                                            -----------                                 -----------
Total Non-Interest Expense                                       2,532                                       2,469
Income Before Income Taxes                                       2,112                                       1,895
Applicable Income Taxes                                            646                                         592
                                                            -----------                                 -----------
Net Income                                             $         1,466                            $          1,303
                                                            ===========                                 ===========
Per Share Data Net Income, basic and diluted *         $          0.37                            $           0.33
Cash Dividends*                                        $          0.15                            $           0.14
</TABLE>
* Adjusted for 100% Stock Dividend,  December 1997 The accompanying notes are an
integral part of these statements

                                                           3
<PAGE>
<TABLE>
                                             VIRGINIA FINANCIAL CORPORATION
                                            CONSOLIDATED STATEMENTS OF INCOME
                                   (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
                                                                          Nine Months Ended
                                                         SEPTEMBER 30                               SEPTEMBER 30
                                                            1998                                        1997
                                                       -------------------                        -------------------  
<S>                                                  <C>                                       <C>             
Interest Income:
Interest and Fee Income on Loans:
   Secured by Real Estate                            $       12,403                            $         11,031
   To Finance Agriculture & Farmers                             226                                         208
   Commercial & Industrial                                    2,619                                       2,507
   Individuals for Household & Personal                       2,780                                       2,567
   Obligations of State & Political
     Tax-Exempt                                                   9                                          15

Interest and Dividend Income on Securities:
   U.S. Treas & U.S. Gov't Agencies                           4,152                                       4,412
   State & Political-Taxable                                     99                                          65
   State & Political-Tax Exempt                                 613                                         526
   Other Domestic Debt Securities                                 0                                           8
   Equity Securities                                             79
Interest on Federal Funds Sold                                  264                                         105
                                                         -----------                                 -----------
Total Interest Income                                        23,244                                      21,444

Interest Expense:
Interest on Deposits:
   NOW Accounts                                                 879                                         828
   Money Market Accounts                                      1,708                                       1,628
   Other Savings Deposits                                       778                                         798
   CD's of 100M or More                                         960                                         907
   All Other Time Deposits                                    6,015                                       5,392

Interest on Fed Funds Purch'd
   & Repurchase Agreements                                      286                                         248
                                                         -----------                                 -----------
Total Interest Expense                                       10,626                                       9,801
Net Interest Income                                          12,618                                      11,643
Provision for Loan Losses                                     1,012                                         560

Non-Interest Income:
   Fiduciary Income                                             918                                         836
   Service Charges on Deposit Accts.                            737                                         478
   Other Fee Income                                           1,140                                         806
   All Other Non-Interest Income                                 73                                          92
                                                         -----------                                 -----------
Total Non-Interest Income                                     2,868                                       2,212
Realized Gain (Losses) on AFS Securities                          0                                           0
Non-Interest Expense:
  Salaries & Employee Benefits                                4,316                                       4,207
  Expense of Premise & Fixed Assets                             893                                         823
  Other Non-Interest Expense                                  2,303                                       2,130
                                                         -----------                                 -----------
Total Non-Interest Expense                                    7,512                                       7,160
Income Before Income Taxes                                    6,962                                       6,135
Applicable Income Taxes                                       2,188                                       1,922
                                                         -----------                                 -----------
Net Income                                           $        4,774                            $          4,213
                                                         ===========                                 ===========
Per Share Data Net Income , basic and diluted*       $         1.19                            $           1.05
Cash Dividends *                                     $         0.45                            $           0.41
</TABLE>
* Adjusted for 100% Stock Dividend,  December 1997 The accompanying notes are an
integral part of these statements

                                                           4
<PAGE>
<TABLE>
                                             VIRGINIA FINANCIAL CORPORATION
                                               CONSOLIDATED BALANCE SHEETS

                                                (IN THOUSANDS OF DOLLARS)
<CAPTION>
                                                         SEPTEMBER 30                                DECEMBER 31
                                                            1998                                        1997
                                                         -----------                                 -----------
<S>                                                  <C>                                       <C>             
ASSETS
Cash & Due from Banks                                $       15,925                            $         14,684
Federal Funds Sold                                            3,200                                           0
Securities -
  U.S. Government                                            11,800                                      13,130
  U.S. Agencies                                              79,124                                      82,689
  Municipal Bonds                                            26,624                                      17,590
  Equity Securities                                           5,028                                           0
                                                         -----------                                 -----------
     Total Securities                                       122,576                                     113,409

Loans
   Secured by Real Estate                                   186,809                                     188,667
   To Finance Agriculture & Farmers                           2,616                                       2,726
   Commercial & Industrial                                   36,895                                      34,434
   Individuals for Household & Personal                      43,155                                      42,955
   Obligations of State & Political
   Tax Exempt                                                   216                                         373
   Other Loans                                                  192                                         426
                                                         -----------                                 -----------
     Total Loans                                            269,883                                     269,581
Less Reserve for
  Loan Losses                                                (3,138)                                     (3,752)
                                                         -----------                                 -----------
     Net Loans                                              266,745                                     265,829

Bank Premises and Equipment                                   5,348                                       4,794
Deposit Intangibles                                             248                                         266
Other Assets                                                  5,199                                       5,017
                                                         -----------                                 -----------
     Total Assets                                    $      419,241                            $        403,999
                                                         ===========                                 ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
  Demand                                             $       56,886                            $         54,457
  NOW Accounts                                               41,627                                      42,897
  Money Market Checking                                      59,365                                      57,950
  Savings                                                    36,058                                      35,472
  Time Deposits                                             168,781                                     161,391
                                                         -----------                                 -----------
     Total Deposits                                         362,717                                     352,167

Securities Sold Under
  Agmt. to Repurchase                                        10,056                                       4,960
Federal Funds Purchased                                           0                                       4,550
Other Liabilities                                             1,567                                         987

Stockholders' Equity
  Capital Stock                                              20,000                                      20,000
  Surplus                                                    13,554                                      13,554
  Accumulated Other Comprehensive Income                        747                                         155
  Undivided Profits                                          10,600                                       7,626
                                                         -----------                                 -----------
     Total Stockholders' Equity                              44,901                                      41,335
                                                         -----------                                 -----------
     Total Liabilities
     and Stockholders' Equity                        $      419,241                            $        403,999
                                                         ===========                                 ===========
</TABLE>
The accompanying notes are an integral part of these statements

                                                           5
<PAGE>
<TABLE>


                                             VIRGINIA FINANCIAL CORPORATION
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (IN THOUSANDS OF DOLLARS)
<CAPTION>
                                                                           Nine Months Ended
                                                         SEPTEMBER 30                               SEPTEMBER 30
                                                            1998                                        1997
                                                         -----------                                 -----------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                  <C>                                       <C>             
Interest received                                    $       22,934                            $         21,267
Fees and other non-interest income                            2,853                                       2,169
Interest paid                                               (10,513)                                     (9,898)
Cash paid to suppliers and employees                         (6,546)                                     (6,072)
Income taxes paid                                            (2,294)                                     (2,123)
                                                         -----------                                 -----------

  Net cash provided by operating activities          $        6,434                            $          5,343
                                                         -----------                                 -----------

Cash flows from investing activities

Maturities of securities                                     42,020                                      18,765
Proceeds from sales of securities                             3,745                                           0
Purchases of securities                                     (53,976)                                    (17,581)
Net increase in loans                                        (1,928)                                    (21,115)
Proceeds from sale of equipment                                   1                                           8
Capital expenditures                                           (967)                                       (584)
Purchase of other assets                                       (164)                                        (70)
Improvements of other real estate                               -21                                           0
                                                         -----------                                 -----------

Net cash used in investing activities                $      (11,290)                           $        (20,577)
                                                         -----------                                 -----------

Cash flows from financing activities

Net increase in certificates of deposit                       7,390                                      18,314
Net increase in demand deposits                               3,160                                       4,543
Net (decrease) in federal funds purchased                    (4,550)                                     (5,000)
Net increase in repurchase agreements                         5,096                                       1,350
Dividends paid                                               (1,800)                                     (1,620)
                                                         -----------                                 -----------

Net cash provided by  financing activities           $        9,296                            $         17,587
                                                         -----------                                 -----------

Net increase in cash and cash equivalents                     4,440                                       2,353

Cash and cash equivalents at beginning of year               14,685                                      16,287
                                                         -----------                                 -----------

Cash and cash equivalents at end of year             $       19,125                            $         18,640
                                                         ===========                                 ===========
</TABLE>

                                                           6
<PAGE>
<TABLE>

                                             VIRGINIA FINANCIAL CORPORATION
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                                (IN THOUSANDS OF DOLLARS)
<CAPTION>
                                                                            Nine Months Ended
                                                         SEPTEMBER 30                             SEPTEMBER 30
                                                            1998                                      1997
                                                         -----------                               ----------

Reconciliation of net income to net cash provided by
  operating activities

<S>                                                  <C>                                     <C>            
Net income                                           $        4,774                          $         4,213
                                                         -----------                               ----------

Adjustments to reconcile net income to net cash provided
  by operating activities
    Depreciation                                                412                                      382
    Provision for loan losses                                 1,012                                      560
   (Gain) Loss on sale of equipment                               0                                       (4)
   Realized Gains on available for sale securities                0                                        0
    Decrease in taxes payable                                   (61)                                      (9)
    Increase in interest receivable                            (243)                                    (188)
    Increase (Decrease) in interest payable                     113                                      (97)
    Increase in prepaid expenses                               (117)                                    (262)
    Increase in accrued expenses                                536                                      664
    Amortization and accretion                                   30                                       92
    Increase (Decrease) in deferred interest                     (8)                                       4
    Increase in fees receivable                                 (14)                                     (12)
                                                         -----------                               ----------

Total Adjustments                                    $        1,660                          $         1,130
                                                         -----------                               ----------

Net cash provided by operating activities            $        6,434                          $         5,343
                                                         ===========                               ==========


Supplemental schedule of non-cash investing activities:
   Other real estate acquired in settlement of loans              0                                      258

</TABLE>

The accompanying notes are an integral part of these statements

 
                                                           7
<PAGE>
<TABLE>

                                             VIRGINIA FINANCIAL CORPORATION
                               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                      NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
                                                (IN THOUSANDS OF DOLLARS)

<CAPTION>
                                                                            Accumulated
                                                                              other
                                                           Comprehensive   Comprehensive   Retained
                              Common Stock   Surplus          Income          Income       Earnings
                              ------------   -------          ------          ------       --------


<S>                             <C>            <C>            <C>               <C>           <C>   
Balances, December 31, 1996     10,000         13,554                           (91)          14,111

Comprehensive Income:
     Net Income                                                4,213                           4,213
Other Comprehensive Income:
       Net of Tax
              Unrealized loss on
                available for sale
                 securities                                      159            159
                                                           ----------


                  Total comprehensive
                      income                                   4,372
                                                           ==========

Cash Dividends                                                                                (1,620)
                             ----------     ----------                    ----------       ----------

Balances, September 30, 1997    10,000         13,554                            68           16,704
                             ==========     ==========                    ==========       ==========


<CAPTION>

                                                                            Accumulated
                                                                              other
                                                           Comprehensive   Comprehensive   Retained
                              Common Stock   Surplus          Income          Income       Earnings
                              ------------   -------          ------          ------       --------


Balances, December 31, 1997     20,000         13,554                           155            7,626

Comprehensive Income:
     Net Income                                                4,774                           4,774
Other Comprehensive Income:
       Net of Tax
              Unrealized loss on
                available for sale
                 securities                                      592            592
                                                           ----------


                  Total comprehensive
                      income                                   5,366
                                                           ==========

Cash Dividends                                                                                (1,800)
                             ----------     ----------                    ----------       ----------

Balances, September 30, 1998    20,000         13,554                           747           10,600
                             ==========     ==========                    ==========       ==========
</TABLE>

The accompanying notes are an integral part of these statements


                                                           8
<PAGE>


                         VIRGINIA FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.    Basis of Presentation


           The accompanying  unaudited  consolidated  financial  statements have
been prepared in accordance with the  instructions to Form 10-Q and,  therefore,
do not include all of the disclosures  and notes required by generally  accepted
accounting  principles.  In the  opinion  of  Virginia  Financial  Corporation's
management, all adjustments,  consisting of normal recurring accruals, necessary
to present  fairly the financial  position as of September 30, 1998, the results
of operations  for the three and nine months ended  September 30, 1998 and 1997,
and cash flows for the nine months ended  September  30, 1998 and 1997 have been
made.  The results of  operations  for the interim  periods are not  necessarily
indicative of the results to be expected for the full year.

           These  financial  statements  should be read in conjunction  with the
consolidated  financial  statements  and notes thereto  included in the Virginia
Financial  Corporation  Annual Report and Form 10-K for the year ended  December
31, 1997.

           The  consolidated  financial  statements  include the accounts of the
Company and its subsidiary, with all significant intercompany transactions being
eliminated in consolidation.



Note 2.    Securities as of September 30, 1998 and December 31, 1997 are 
summarized below.
<TABLE>
<CAPTION>

                                                                            (000 Omitted)
                                               September 30, 1998                  December 31, 1997
                                                               Unrealized                           Unrealized
                                         Book       Market     Gain (Loss)      Book      Market    Gain (Loss)
                                         ----       ------     -----------      ----      ------    -----------
Securities Available for Sale
<S>                                      <C>         <C>            <C>        <C>        <C>            <C> 
        U.S. Treasury Securities         $11,630     $11,800        $170       $13,025    $13,130        $105
        U.S. Agency Securities            53,663      54,444         781        42,899     43,029         130
        Obligations of State and
           Political Subdivisions          6,949       7,130         181             0          0           0
        Other Securities                   5,028       5,028           0             0          0           0
                                      -----------  ----------  ----------     ---------  ---------  ----------
Total Securities Available for Sale     $ 77,270    $ 78,402     $ 1,132       $55,924    $56,159        $235



Securities Held to Maturity

        U.S. Agency Securities           $24,680     $24,824        $144       $39,660    $39,604        ($56)
        Obligations of State and
           Political Subdivisions         19,494      19,927         433        17,590     17,762         172
                                      -----------  ----------  ----------     ---------  ---------  ----------
Total Securities Held to Maturity        $44,174     $44,751        $577       $57,250    $57,366        $116
</TABLE>


                                       9
<PAGE>
<TABLE>
                         VIRGINIA FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3. The consolidated  loan portfolio,  stated at face amount, is composed of
the following:
<CAPTION>
                                                                            (000 Omitted)
                                                                 September 30, 1998   December 31, 1997
                                                                 ------------------   -----------------
             <S>                                                        <C>                 <C>    
             Real Estate Loans:
               Construction and Land Development                        $18,238             $20,183
               Secured by Farm Land                                       1,204               1,316
               Secured by 1-4 Family residential                        113,987             128,130
               Other Real Estate Loans                                   53,593              39,037
             Loans to Farmers (Except Those Secured by Real Estate)       2,616               2,725
             Commercial and Industrial Loans
                   (Except Those Secured by Real Estate)                 36,895              34,434
             Loans to Individuals for Personal Expenditures              43,315              43,364
             All Other Loans                                                408                 799
                                                                    ------------        ------------
                   Total Loans                                         $270,256            $269,988
             Less Unearned Income Reflected in Loans                        373                 406
                                                                    ------------        ------------
                   Loans, Net of Unearned Income                       $269,883            $269,582
                                                                    ============        ============

The Bank had loans in a  Nonaccrual  category of $813 on  December  31, 1997 and
$1,480 on September 30, 1998.


Note 4.      Allowance for Loan Losses

             Analysis of the Allowance for Loan Losses
<CAPTION>
                                                                              (000 Omitted)
                                                                        For the Nine Months Ended

                                                                  September 30, 1998  September 30, 1997
                                                                  ------------------  ------------------
             Balance at Beginning of Period                               3,753               3,039

             Charge-Offs                                                 (1,670)               (122)

             Recoveries                                                      43                  28
                                                                    ------------        ------------

             Net Charge-Offs                                             (1,627)                (94)

             Provision for Loan Losses                                    1,012                 560
                                                                    ------------        ------------

             Balance at End of Period                                     3,138               3,505
                                                                    ============        ============

</TABLE>


                                       10
<PAGE>

                         VIRGINIA FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 5.  New Accounting Pronouncements

         Effective  January 1, 1998, the company adopted  Statement of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income." This statement
establishes  standards for reporting and display of comprehensive income and its
components (revenues,  expenses,  gains and losses) in a full of general purpose
financial statements.  Financial statements for prior periods have been restated
as required.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations

         Net  income  the  third  quarter  of 1998 was  $1,466,000  compared  to
$1,303,000 the third quarter of 1997. This represents an increase of $163,000 or
12.51%. Net income for the first nine months of 1998 was $4,774,000  compared to
$4,213,000  the first  nine  months of 1997.  This  represents  an  increase  of
$561,000 or 13.32%.  Net interest income  increased by $368,000 or 9.45% for the
third  quarter of 1998  compared  to the third  quarter of 1997.  The first nine
months of 1998 net interest  income  increased by $975,000 or 8.37%  compared to
1997.  The net  interest  spread  was 3.53% for the  first  nine  months of 1998
compared  to 3.52%  for the  first  nine  months  of 1997.  Non-interest  income
increased  $656,000  or  29.66%  in  1998  compared  to  1997.   Increases  were
experienced  in fiduciary  income,  service  charges on deposit  accounts and in
other fees and non-interest income.  Comparing the third quarter of 1998 to 1997
increases  were  experienced  in  these  same  accounts.  These  increases  were
primarily  from  secondary  mortgage  activity  and  service  charges on deposit
accounts.  Non-interest  expenses  increased  the first  nine  months of 1998 by
$352,000  or 4.92%  compared to 1997.  The third  quarter  non-interest  expense
increased  by  $63,000  or 2.55%  compared  to the third  quarter  of 1997.  The
provision  for loan  losses for the first nine  months of 1998  compared to 1997
increased by $452,000 or 80.71%.  The  provision  for loan losses  increased the
third quarter of 1998 compared to 1997 by $357,000 or 144.53%.  This increase in
the  provision  for loan losses was  necessary  due to problems  identified in a
group of interrelated credits in one loan officers loan portfolio.

Financial Condition

         Total assets  increased the first nine months of 1998 by $15,242,000 or
3.77%  compared to an increase of $26,886,000 or 7.13% for the first nine months
of 1997.  Total assets  increased  the third  quarter of 1998 by  $6,652,000  or
1.61%.  Deposit  growth the first nine months of 1998 was  $10,550,000 or 3.00%.
Repurchase agreements increased by $5,096,000. This growth funded an increase in
the investment portfolio of $9,167,000 and $916,000 in the loan portfolio.  Also
at quarter end, Federal Funds sold were $3,200,000.  Loan growth during 1998 has
been modest due to the lower  interest  rates being offered in the market place,
and most  noticeably,  lower  rates  being  offered by the fixed rate  secondary
mortgage  market.  Deposit growth  continues to be primarily in the area of time
deposits.

Future Operations

         Effective October 1, 1998, the Bank opened an office at 375 North Mason
Street in Harrisonburg,  Virginia.  This office provides a full range of banking
services to the Harrisonburg  area. Also, the Bank began construction of a 3,600
square  foot  office at 100 Lucy  Lane in  Waynesboro,  Virginia.  The Lucy Lane
office is expected to be open for  business  in March,  1999.  During the fourth
quarter of 1998, the Bank will begin  construction of a 3,600 square foot office
to be located at 1197 North Lee Highway in Lexington,  Virginia.  The completion
date for the Lexington office is expected to be May, 1999. These expansions will
give  Planters  Bank a presence  in the  Harrisonburg  and  Lexington,  Virginia
markets.  The  Waynesboro  office  will  relieve  the over  flow at the  present
Waynesboro locations, in addition to serving the Southern portion of Waynesboro.

                                       11
<PAGE>

New Accounting Pronouncements

         In February  1998,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  No. 132,  "Employers  Disclosures
about  Pensions and Other Post  Retirement  Benefits."  This  statement  revises
employers' disclosures about pension and other post retirement benefit plans. It
does not change the  measurement or  recognition of those plans.  This statement
standardizes the disclosure  requirements for pensions and other post retirement
benefits to the extent practicable,  requires additional  information on changes
in the benefit  obligations  and fair values of plan assets that will facilitate
financial  analysis,   and  eliminates  certain   disclosures.   Restatement  of
disclosures for earlier periods is required. This Statement is effective for the
Company's financial statements for the year ended December 31, 1998.

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives  on the balance  sheet as assets and  liabilities,  measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies  for  hedge  accounting.  This  statement  is not  expected  to have a
material  impact  on the  Company's  financial  statements.  This  statement  is
effective for fiscal years beginning after June 15, 1999, with earlier  adoption
encouraged.  The  Company  will adopt this  accounting  standard  as required by
January 1, 2000.

         In March 1998, the American  Institute of Certified Public  Accountants
(AICPA) issued Statement of Position ("SOP") 98-1,  "Accounting for the Costs of
Computer  Software  Developed or Obtained  for Internal  Use." This SOP provides
guidance on accounting for the costs of computer software  developed or obtained
for internal use. This SOP requires that entities  capitalize  certain  internal
use software costs once certain criteria are met. This statement is not expected
to have a material impact on the Company's financial statements.

         In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of
Start-Up  Activities,"  which  requires  the costs of  start-up  activities  and
organization  costs to be expensed as incurred.  This statement is effective for
the fiscal year 1999  financial  statements.  This  statement is not expected to
have a material impact on the Company's financial statements.

Year 2000 Matters

         The Bank  utilizes and is dependent  upon data  processing  systems and
software to conduct its business.  The data processing  systems and software are
provided  by a  service  bureau.  In 1997,  the  Bank  initiated  a  review  and
assessment of all of its computer  hardware and software to confirm that it will
function properly in the year 2000.

         The service  bureau has  indicated the  processing  system is year 2000
compliant.  The  majority of the Bank's  vendors  have been  contacted  and have
indicated that their hardware/software will be year 2000 compliant. Testing will
continue to be performed on all systems and hardware for compliance. While there
may be additional  compliance  expenses incurred during the next two years, Year
2000  compliance  is not  expected  to  have a  material  effect  on the  Bank's
consolidated financial statements.

         Bank  management  recognizes  the  potential  credit  risk  within  its
commercial portfolio for Year 2000 noncompliance. Accordingly, Bank officers are
contacting  all commercial  credit  customers  with  relationships  greater than
$100,000 to verify that they are currently Year 2000 compliant or that they have
a plan to become compliant.

         Additionally,  many of the  Bank's  security  systems,  such as vaults,
alarms and other functional equipment, have been identified as potential sources
of Year 2000  problems  and are in the process of being  tested with the help of
the manufacturers to confirm Year 2000 compliance.

         The  Company's  total cost of  achieving  Year 2000  compliance  is not
expected to exceed $50,000,  excluding normal hardware and software upgrades and
replacements.  The costs of the project and the date on which the Company  plans
to  complete  the  Year  2000  modifications  are  based  on  management's  best
estimates,  which were derived utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those  plans.  Specific  factors  that  might  cause such  material  differences
include,  but are not limited to, the availability of personnel  trained in this
area,  the  availability  of third party vendors to correct  their  software and
hardware, the ability of significant customers to remedy their Year 2000 issues,
and similar uncertainties.

                                       12
<PAGE>

         While the Company  believes  that it is taking the  necessary  steps to
resolve its Year 2000 issues in a timely manner,  there can be no assurance that
there will be no Year 2000  problems.  If any such problems  occur,  the Company
will work to solve them as quickly as possible. At present, the Company does not
expect  that any such  problems  will  have a  material  adverse  effect  on its
business.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

         There  have  been no  significant  changes  from the  quantitative  and
qualitative  disclosures  about  market risk made in the  December 31, 1997 Form
10-K.


                                       13
<PAGE>
<TABLE>
                                              VIRGINIA FINANCIAL CORPORATION
                                  AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<CAPTION>
                                                                           (000 Omitted)
                                                                    Nine Months Ended September 30
                                                                1998                                   1997
                                                  Average     Income/     Yield/         Average     Income/    Yield/
ASSETS                                            Balance     Expense      Rate          Balance     Expense     Rate
                                                 -----------  ---------  ----------     -----------  ---------  --------
<S>                                                <C>         <C>           <C>         <C>          <C>         <C>  
Securities:
   Taxable                                         $ 96,348    $ 4,330       5.99%       $ 100,501    $ 4,484     5.95%
   Tax-exempt (1)                                    18,172        929       6.82%          15,808        798     6.73%
                                                 -----------  ---------  ----------     -----------  ---------  --------
         Total Securities                           114,520      5,259       6.12%         116,309      5,282     6.06%

Loans (net of earned income):
   Taxable                                          268,304     18,029       8.96%         243,689     16,313     8.93%
   Tax-Exempt (1)                                       287         13       6.04%             497         23     6.17%
                                                 -----------  ---------  ----------     -----------  ---------  --------
         Total Loans                                268,591     18,042       8.96%         244,186     16,336     8.92%
Fed Funds Sold and Repurchase Agreements              6,386        263       5.49%           2,530        105     5.53%
                                                 -----------  ---------  ----------     -----------  ---------  --------
         Total Earning Assets                       389,497     23,564       8.07%         363,025     21,723     7.98%
Less Allowance for Loan Losses                       (3,138)                                (3,217)
Total Nonearning Assets                              26,201                                 23,645
                                                 -----------                            -----------
         Total Assets                              $412,560                               $383,453
                                                 ===========                            ===========

LIABILITIES AND SHAREHOLDER EQUITY

Interest bearing deposits:
         NOW Accounts                               $42,286       $879       2.77%         $39,677       $828     2.78%
         Money Market Savings                        58,856      1,708       3.87%          56,957      1,628     3.81%
         Regular Savings                             34,995        778       2.96%          35,891        798     2.96%
         Certificates of Deposit:
            Less than $100,000                      146,759      6,015       5.46%         132,980      5,393     5.41%
            $100,000 and More                        22,228        960       5.76%          21,413        907     5.65%
                                                 -----------  ---------  ----------     -----------  ---------  --------
Total Interest Bearing Deposits                     305,124     10,340       4.52%         286,918      9,554     4.44%

Fed Funds Purchased                                     213          9       5.63%           1,115         47     5.62%
Short Term Borrowings                                 6,913        277       5.34%           5,130        201     5.22%
                                                 -----------  ---------  ----------     -----------  ---------  --------
Total Interest Bearing Liabilities                  312,250     10,626       4.54%         293,163      9,802     4.46%

Noninterest Bearing Liabilities
         Demand Deposits                             54,971                                 49,052
         Other Liabilities                            2,297                                  2,010
                                                 -----------                            -----------
Total Liabilities                                   369,518                                344,225
Stockholders' Equity                                 43,042                                 39,228
                                                 -----------                            -----------
Total Liabilities and Stockholders' Equity          412,560                                383,453

Net Interest Income                                             12,618                                 11,643
Interest Rate Spread                                                         3.53%                                3.52%
Interest Expense as a Percent of Average
   Earning Assets                                                            3.64%                                3.60%
Net Interest Margin                                                          4.43%                                4.38%

</TABLE>

(1)Income and yields  are  reported  on a  taxable-equivalent  basis  assuming a
   federal tax rate of 34% in 1997 and 1998

                                                           14
<PAGE>

                         VIRGINIA FINANCIAL CORPORATION

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

         As of  September  30, 1998 neither the  corporation  nor the bank was a
party to any legal proceedings.

Item 2. Not Applicable

Item 3. Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

         Not Applicable

Item 5. Not Applicable

Item 6. Exhibits and Reports on Form 8-K

         NONE

                                   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 Corporation
                                                   (Registrant)


Date  November 12, 1998                         /s/ Fred D.Bowers
      -----------------               ---------------------------------------
                                        Fred D. Bowers, Secretary/Treasurer
                                      (Principal Accounting Officer and Duly
                                                Authorized Officer)






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