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

FORM 10-Q

|(Mark One)                                           
|-----------------------------------------------------
|                                                     
|x                                                    
|                                                     
|For the quarterly period ended     September 30, 2002
|                                                     
|OR                                                   
|                                                     
|o                                                    
|                                                     
|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                                                          
|                                                                  
|(State or other jurisdiction of Incorporation or organization)    
|                                                                  
|102 South Main Street, Culpeper, Virginia                         
|                                                                  
|(Address of principal executive offices)                          
|                                                                  
|(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.

|Yes | x | No | o.
|--- | - | -- | --

As of November
1, 2002, there were 7,253,588 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 $220,799,219.

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VIRGINIA FINANCIAL GROUP, INC.

INDEX

|       |                                                                                       | Page No.
|------ | ------------------------------------------------------------------------------------- | --------
|       |                                                                                       |         
|       | PART I - FINANCIAL INFORMATION                                                        |         
|       |                                                                                       |         
|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 | 13-19   
|       |                                                                                       |         
|ITEM 3 | Quantitative and Qualitative Disclosures about Market Risk                            | 20      
|       |                                                                                       |         
|ITEM 4 | Controls and Procedures                                                               | 20      
|       |                                                                                       |         
|       | PART II - OTHER INFORMATION                                                           |         
|       |                                                                                       |         
|ITEM 1 | Legal Proceedings                                                                     | 20      
|       |                                                                                       |         
|ITEM 2 | Change in Securities and Use of Proceeds                                              | 20      
|       |                                                                                       |         
|ITEM 3 | Defaults upon Senior Securities                                                       | 20      
|       |                                                                                       |         
|ITEM 4 | Submission of Matters to a Vote of Security Holders                                   | 20      
|       |                                                                                       |         
|ITEM 5 | Other Information                                                                     | 20      
|       |                                                                                       |         
|ITEM 6 | Exhibits and Reports on Form 8-K                                                      | 21      
|       |                                                                                       |         
|       | SIGNATURES                                                                            | 22      

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

|                                                                                                                                                    |                                              | SEPTEMBER 30, 2002 |           | DECEMBER 31, 2001 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------ | --------- | ----------------- | -
|                                                                                                                                                    |                                              |                    |           |                   |  
|                                                                                                                                                    |                                              | (unaudited)        |           |                   |  
|ASSETS                                                                                                                                              |                                              |                    |           |                   |  
|Cash and due from depository institutions                                                                                                           |                                              | $                  | 42,066    |                   | $
|Federal funds sold                                                                                                                                  |                                              |                    | 16,077    |                   |  
|Interest-bearing deposits in banks                                                                                                                  |                                              |                    | 409       |                   |  
|Securities (market value: 2002, $321,049; 2001, $266,082)                                                                                           |                                              |                    | 320,230   |                   |  
|Loans held for sale                                                                                                                                 |                                              |                    | 7,606     |                   |  
|Loans receivable, net                                                                                                                               |                                              |                    | 675,005   |                   |  
|Bank premises and equipment                                                                                                                         |                                              |                    | 21,648    |                   |  
|Interest receivable                                                                                                                                 |                                              |                    | 5,688     |                   |  
|Other real estate owned                                                                                                                             |                                              |                    | 643       |                   |  
|Intangibles                                                                                                                                         |                                              |                    | 1,747     |                   |  
|Other assets                                                                                                                                        |                                              |                    | 6,697     |                   |  
|                                                                                                                                                    |                                              |                    |           |                   |  
|Total Assets                                                                                                                                        |                                              | $                  | 1,097,816 |                   | $
|                                                                                                                                                    |                                              |                    |           |                   |  
|LIABILITIES                                                                                                                                         |                                              |                    |           |                   |  
|Deposits:                                                                                                                                           |                                              |                    |           |                   |  
|                                                                                                                                                    | Noninterest-bearing demand deposits          |                    | $         | 173,503           |  
|                                                                                                                                                    | Savings and interest-bearing demand deposits |                    |           | 369,400           |  
|                                                                                                                                                    | Time deposits                                |                    |           | 403,783           |  
|                                                                                                                                                    |                                              |                    |           |                   |  
|                                                                                                                                                    | Total deposits                               |                    |           | 946,686           |  
|Securities sold under agreements to repurchase                                                                                                      |                                              |                    | 14,105    |                   |  
|Federal funds purchased                                                                                                                             |                                              |                    |          |                   |  
|Federal Home Loan Bank advances                                                                                                                     |                                              |                    | 12,240    |                   |  
|Short-term borrowings                                                                                                                               |                                              |                    | 956       |                   |  
|Interest payable                                                                                                                                    |                                              |                    | 2,019     |                   |  
|Other liabilities                                                                                                                                   |                                              |                    | 5,774     |                   |  
|                                                                                                                                                    |                                              |                    |           |                   |  
|                                                                                                                                                    | Total Liabilities                            |                    |           | 981,780           |  
|                                                                                                                                                    |                                              |                    |           |                   |  
|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 7,256,588 shares in 2002
and 7,304,970 in 2001) |                                              |                    | 36,283    |                   |  
|Capital surplus                                                                                                                                     |                                              |                    | 10,344    |                   |  
|Retained earnings                                                                                                                                   |                                              |                    | 62,342    |                   |  
|Accumulated other comprehensive income                                                                                                              |                                              |                    | 7,067     |                   |  
|                                                                                                                                                    |                                              |                    |           |                   |  
|                                                                                                                                                    | Total Stockholders Equity                   |                    |           | 116,036           |  
|                                                                                                                                                    |                                              |                    |           |                   |  
|Total Liabilities and Stockholders Equity                                                                                                          |                                              | $                  | 1,097,816 |                   | $
|                                                                                                                                                    |                                              |                    |           |                   |  
|                                                                                                                                                    |                                              |                    |           |                   |  

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 SEPTEMBER 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 |                                                                                        |                                  | 401        
|                                |                                                                                        |                                  |            
|                                | Net Interest Income after Provision for Loan Losses                                    |                                  |            
|Other Income                    |                                                                                        |                                  |            
|                                | Service charges on deposit accounts                                                    |                                  |            
|                                | Commissions and fees from fiduciary activities                                         |                                  |            
|                                | Investment fee income                                                                  |                                  |            
|                                | Gain on sale of mortgage loans                                                         |                                  |            
|                                | (Loss) gain on sale of available for sale securities                                   |                                  |            
|                                | Loss on sale of other real estate owned                                                |                                  |            
|                                | Other operating income                                                                 |                                  |            
|                                |                                                                                        |                                  |            
|                                | 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              |                                                                                        |                                  | 1,133      
|                                |                                                                                        |                                  |            
|                                | Net Income                                                                             |                                  | $          
|                                |                                                                                        |                                  |            
|Earnings per Share, basic       |                                                                                        | $                                | .43        
|                                |                                                                                        |                                  |            
|Earnings per Share, diluted     |                                                                                        | $                                | .43        
|                                |                                                                                        |                                  |            
|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)

|                                |                                                                                        | NINE MONTHS ENDED SEPTEMBER 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 |                                                                                        |                                 | 1,202
|                                |                                                                                        |                                 |      
|                                | Net Interest Income after Provision for Loan Losses                                    |                                 |      
|Other Income                    |                                                                                        |                                 |      
|                                | Service charges on deposit accounts                                                    |                                 |      
|                                | Commissions and fees from fiduciary activities                                         |                                 |      
|                                | Investment fee income                                                                  |                                 |      
|                                | Gain on sale of mortgage loans                                                         |                                 |      
|                                | Gain on sale of available for sale securities                                          |                                 |      
|                                | Gain on sale of other real estate owned                                                |                                 |      
|                                | Other operating income                                                                 |                                 |      
|                                |                                                                                        |                                 |      
|                                | 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              |                                                                                        |                                 | 3,237
|                                |                                                                                        |                                 |      
|                                | Net Income                                                                             |                                 | $    
|                                |                                                                                        |                                 |      
|Earnings per Share, basic       |                                                                                        | $                               | 1.27 
|                                |                                                                                        |                                 |      
|Earnings per Share, diluted     |                                                                                        | $                               | 1.26 
|                                |                                                                                        |                                 |      
|Dividends per Share             |                                                                                        | $                               | .54  
|                                |                                                                                        |                                 |      
|                                |                                                                                        |                                 |      

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 NINE MONTHS ENDED SEPTEMBER 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                                    |                                                                                                       |              |       |                 |   |                                       |   |                   |      |                      |   | 8,010  |  
|Other Comprehensive Income, net of       tax: |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                              | Unrealized gains on securities       available for sale during the       period, net of tax of $1,675 |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                              | Less: reclassification adjustment,       net of tax of $75                                            |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                              | Other comprehensive income                                                                            |              |        |                |   |                                        |  |                   |       | 3,473                |   |        | 
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                              | Comprehensive income                                                                                  |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Cash dividends                                |                                                                                                       |              |       |                 |   |                                       |   |                   |      |                      |   | (3,834 | )
|Stock options exercised                       |                                                                                                       |              | 69     |                 |   | 91                                     |   |                   |      |                      |   |       |  
|Repurchase of common stock                    |                                                                                                       |              | (105   | )               |   | (289                                   | ) |                   |      |                      |   |       |  
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, September 30, 2001                   |                                                                                                       | $            | 36,525 |                 | $ | 11,640                                 |   | $                 | 3,674 |                      | $ | 56,462 |  
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, January 1, 2002                      |                                                                                                       | $            | 36,432 |                 | $ | 11,332                                 |   | $                 | 1,882 |                      | $ | 57,060 |  
|Net income                                    |                                                                                                       |              |       |                 |   |                                       |   |                   |      |                      |   | 9,235  |  
|Other Comprehensive Income, net of       tax: |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                              | Unrealized gains on securities       available for sale during the      period, net of tax of $2,660  |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                              | Less: reclassification adjustment,       net of tax of $66                                            |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                              | Other comprehensive income                                                                            |              |        |                |   |                                        |  |                   |       | 5,185                |   |        | 
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|                                              | Comprehensive income                                                                                  |              |        |                |   |                                        |  |                   |       |                     |   |        | 
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Cash dividends                                |                                                                                                       |              |       |                 |   |                                       |   |                   |      |                      |   | (3,953 | )
|Stock options exercised                       |                                                                                                       |              | 91     |                 |   | 226                                    |   |                   |      |                      |   |       |  
|Repurchase of common stock                    |                                                                                                       |              | (240   | )               |   | (1,192                                 | ) |                   |      |                      |   |       |  
|Fractional shares paid in cash                |                                                                                                       |              |       |                 |   | (22                                    | ) |                   |      |                      |   |       |  
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  
|Balance, September 30, 2002                   |                                                                                                       | $            | 36,283 |                 | $ | 10,344                                 |   | $                 | 7,067 |                      | $ | 62,342 |  
|                                              |                                                                                                       |              |        |                 |   |                                        |   |                   |       |                      |   |        |  

See accompanying notes to consolidated financial statements.

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

|                     |                                                                                   | NINE MONTHS ENDED SEPTEMBER 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) decrease in other assets                                               |                                 |  
|                     | Decrease in interest payable                                                      |                                 |  
|                     | Increase (decrease) 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 securities held to maturity                                           |                                 |  
|                     | 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 by investing activities                                             |                                 |  
|                     |                                                                                   |                                 |  
|                     |                                                                                   |                                 |  

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

|                                                      |                                                                    | NINE MONTHS ENDED SEPTEMBER 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                          |                                 |  
|                                                      |                                                                    |                                 |  
|                                                      | (Decrease) 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 SEPTEMBER 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 September 30, 2002 and December 31, 2001, and the results of operations and cash flows for the nine months ended September 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 nine month period ended September 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 |  
|------------------------------ | ------------------------------------------------ | ------------------ | ------- | ---------- | -
|                               |                                                  |                    |         |            |  
|                               |                                                  | September 30, 2002 |        
|                               |                                                  |                    |        
|                               |                                                  | (unaudited)        |        
|Securities Held to Maturity:   |                                                  |                    |        
|                               |                                                  |                    |        
|                               | U.S. Treasury Securities                         |                    | $       | 2,499      |  
|                               | Obligations of States and Political Subdivisions |                    |         | 7,047      |  
|                               |                                                  |                    |         |            |  
|                               |                                                  | $                  | 9,546   |            | $
|                               |                                                  |                    |         |            |  
|                               |                                                  |                    |         |            |  
|                               |                                                  | December 31, 2001  |        
|                               |                                                  |                    |        
|                               | U.S. Treasury Securities                         |                    | $       | 2,497      |  
|                               | Obligations of States and Political Subdivisions |                    |         | 7,789      |  
|                               |                                                  |                    |         |            |  
|                               |                                                  | $                  | 10,286  |            | $
|                               |                                                  |                    |         |            |  
|                               |                                                  |                    |         |            |  
|                               |                                                  | September 30, 2002 |        
|                               |                                                  |                    |        
|                               |                                                  | (unaudited)        |        
|Securities Available for Sale: |                                                  |                    |        
|                               |                                                  |                    |        
|                               | U.S. Treasury Securities                         |                    | $       | 10,104     |  
|                               | U.S. Government Securities                       |                    |         | 118,024    |  
|                               | Obligations of States and Political Subdivisions |                    |         | 88,146     |  
|                               | Corporate Bonds                                  |                    |         | 15,547     |  
|                               | Mortgage-backed Securities                       |                    |         | 53,868     |  
|                               | Other Securities                                 |                    |         | 14,155     |  
|                               |                                                  |                    |         |            |  
|                               |                                                  | $                  | 299,844 |            | $
|                               |                                                  |                    |         |            |  

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

|                                                 |  | December 31, 2001 |        
|------------------------------------------------ |  | ----------------- | -------
|                                                 |  |                   |        
|U.S. Treasury Securities                         |  | $                 | 8,459  
|U.S. Government Securities                       |  |                   | 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):

|                                                                      |                                     | September 30, 2002 |         | December 31, 2001 |  
|--------------------------------------------------------------------- | ----------------------------------- | ------------------ | ------- | ----------------- | -
|                                                                      |                                     |                    |         |                   |  
|                                                                      |                                     | (unaudited)        |         |                   |  
|Real estate loans:                                                    |                                     |                    |         |                   |  
|                                                                      | Construction                        |                    | $       | 60,331            |  
|                                                                      | Secured by farmland                 |                    |         | 2,883             |  
|                                                                      | Secured by 1  4 family residential |                    |         | 241,093           |  
|                                                                      | Other real estate loans             |                    |         | 254,795           |  
|Loans to farmers (except secured by real estate)                      |                                     |                    | 1,621   |                   |  
|Commercial and industrial loans (except those secured by real estate) |                                     |                    | 61,123  |                   |  
|Loans to individuals for personal expenditures                        |                                     |                    | 55,239  |                   |  
|All other loans                                                       |                                     |                    | 7,887   |                   |  
|                                                                      |                                     |                    |         |                   |  
|                                                                      |                                     |                    | 684,972 |                   |  
|Less:                                                                 |                                     |                    |         |                   |  
|                                                                      | Deferred loan fees                  |                    |         | (734              | )
|                                                                      | Allowance for loan losses           |                    |         | (9,233            | )
|                                                                      |                                     |                    |         |                   |  
|                                                                      |                                     | $                  | 675,005 |                   | $
|                                                                      |                                     |                    |         |                   |  

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

|                                     |  | September 30, 2002 |       | December 31, 2001 |   | September 30, 2001 |  
|------------------------------------ |  | ------------------ | ----- | ----------------- | - | ------------------ | -
|                                     |  |                    |       |                   |   |                    |  
|                                     |  | (unaudited)        |       |                   |   | (unaudited)        |  
|Balance at January 1                 |  | $                  | 8,266 |                   | $ | 7,383              |  
|                                     |  |                    |       |                   |   |                    |  
|Recoveries added to the allowance    |  |                    | 239   |                   |   | 608                |  
|Loan losses charged to the allowance |  |                    | (474  | )                 |   | (1,103             | )
|Provision recorded to expense        |  |                    | 1,202 |                   |   | 1,378              |  
|                                     |  |                    |       |                   |   |                    |  
|Balance at end of period             |  | $                  | 9,233 |                   | $ | 8,266              |  
|                                     |  |                    |       |                   |   |                    |  

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

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



|                           |  | September 30, 2002 |     | December 31, 2001 |  
|-------------------------- |  | ------------------ | --- | ----------------- | -
|                           |  |                    |     |                   |  
|                           |  | (unaudited)        |     |                   |  
|Federal Reserve borrowings |  | $                  | 956 |                   | $
|                           |  |                    |     |                   |  
|                           |  |                    |     |                   |  

|   | 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 nine months ended September 30, 2002 or the year ended
December 31, 2001.                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|7. | Federal Home Loan Bank Advances:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Corporations fixed-rate, long-term debt of $12,240,000 at September 30, 2002 matures through 2010.  At September 30, 2002, the interest rates on fixed-rate, long-term
debt ranged from 5.13% to 7.07%.  One advance totaling $240 thousand at September 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 6.43% at September 30, 2002.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The contractual maturities of long-term debt are as follows (000s omitted):                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|2002 |  | $ | 20     | 
|---- |  | - | ------ | 
|2003 |  |   | 3,080  | 
|2004 |  |   | 80     | 
|2005 |  |   | 4,060  | 
|2010 |  |   | 5,000  | 
|     |  |   |        | 
|     |  | $ | 12,240 | 
|     |  |   |        | 



| | 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 SEPTEMBER 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 September 30, 2002 and 2001.
|   |                                                                                                                                                                                                                                                    

|                               |               | 2002   |           | 2001             |  
|------------------------------ | ------------- | ------ | --------- | ---------------- | -
|                               |               |        |           |                  |  
|                               |               | Shares |           | Per Share Amount |  
|                               |               |        |           |                  |  
|Basic earnings per share       |               |        | 7,275,958 |                  | $
|                               |               |        |           |                  |  
|Effect of dilutive securities: |               |        |           |                  |  
|                               | Stock options |        |           | 28,187           |  
|                               |               |        |           |                  |  
|Diluted earnings per share     |               |        | 7,304,145 |                  | $
|                               |               |        |           |                  |  
|                               |               |        |           |                  |  

| | 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 nine month periods ended September 30, 2002 and 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                   

|                               |               | 2002   |           | 2001             |  
|------------------------------ | ------------- | ------ | --------- | ---------------- | -
|                               |               |        |           |                  |  
|                               |               | Shares |           | Per Share Amount |  
|                               |               |        |           |                  |  
|Basic earnings per share       |               |        | 7,284,835 |                  | $
|                               |               |        |           |                  |  
|Effect of dilutive securities: |               |        |           |                  |  
|                               | Stock options |        |           | 25,213           |  
|                               |               |        |           |                  |  
|Diluted earnings per share     |               |        | 7,310,148 |                  | $
|                               |               |        |           |                  |  

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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 Banks 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 Banks 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 Banks calculation of the loss embedded in the individual loan.  In addition to impairment
testing, the Banks 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 September 30, 2002 amounted to $3.15 million or $.43 per diluted share, compared to earnings of $2.59 million or $.35 per diluted share for
the quarter ended September 30, 2001.  Net income increased 21.4% and diluted earnings per share increased 22.9% compared to third 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 third quarter produced an annualized return on average assets of 1.12% and an annualized return on average equity of 11.61%, compared to prior year ratios of 1.08% and
10.01%, respectively.

Excluding non-recurring net-of-tax charges consisting of integration costs associated with charter and system conversions of $197 thousand for 2002 and merger related expenses
of $567 thousand in 2001, third quarter earnings amounted to $3.35 million or $.46 per diluted share, an increase of 6% compared to earnings of $3.16 million or $.43 per diluted share in 2001.  Excluding the nonrecurring expenses, VFGI earned
an annualized return on average assets of 1.23% and an annualized return on average equity of 11.79% for the quarter in 2002 compared to 2001 third quarter ratios of 1.27% and 11.96%, respectively.

For the nine months ended September 30, 2002, VFGIs earnings were $9.24 million or $1.26 per diluted share, compared to $8.01 million or $1.09 per diluted share in 2001.  This earnings growth represents an increase
of 15.29% in net income and a 15.60% increase in diluted earnings per share.  VFGIs net income results yielded an annualized return on average assets of 1.17% and an annualized return on average shareholders equity of 11.20%,
compared with prior year ratios of 1.10% and 10.28%, respectively.  Earnings for the nine months ended September 30, excluding net-of-tax nonrecurring expenses noted above amounting to $275 thousand and $593 thousand, were $9.51 million, or
$1.30 per diluted share, an increase of 10.5% compared to earnings of $8.60 million or $1.18 million per share in 2001.  Utilizing recurring earnings, VFGI earned an annualized return on average assets of 1.20% and annualized return on average
equity of 11.54% for the nine month period in 2002 and average assets of 1.18% and return on average equity of 11.04% for 2001.

The following table provides a reconciliation of GAAP earnings to
recurring earnings for the periods presented (000 omitted):

|                       |                                | Quarter Ending September 30, |       | Nine Months Ending September 30, |  
|---------------------- | ------------------------------ | ---------------------------- | ----- | -------------------------------- | -
|                       |                                |                              |       |                                  |  
|                       |                                | 2002                         |       | 2001                             |  
|                       |                                |                              |       |                                  |  
|GAAP earnings          |                                | $                            | 3,148 |                                  | $
|Nonrecurring expenses: |                                |                              |       |                                  |  
|                       | Charter and system conversions |                              |       | 197                              |  
|                       | Merger expenses                |                              |       |                                 |  
|                       |                                |                              |       |                                  |  
|Recurring earnings     |                                | $                            | 3,345 |                                  | $
|                       |                                |                              |       |                                  |  

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

Net Interest Income

Net interest income increased $1.1 million or 11.8% to $10.39 million for the three months ended September 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 September 30, 2002 was 4.33%, compared to 4.23% for
the third quarter 2001. Average earning assets for the quarter ended September 30, 2002 increased $81.8 million to $1.01 billion, an increase of 8.8% over $925.64 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 three months
ended September 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 $510 and $483 thousand in 2002 and 2001,
respectively.

|                                                                 |                                          | Quarter ended September 30, |        
|---------------------------------------------------------------- | ---------------------------------------- | --------------------------- | -------
|                                                                 |                                          |                             |        
|                                                                 |                                          | 2002                        |        
|                                                                 |                                          |                             |        
|                                                                 |                                          | Average Balance             |        
|                                                                 |                                          |                             |        
|                                                                 |                                          | (in thousands)              |        
|Securities                                                       |                                          |                             |        
|                                                                 | Taxable                                  |                             | $      
|                                                                 | Tax-exempt (1)                           |                             |        
|                                                                 |                                          |                             |        
|                                                                 | Total securities                         |                             |        
|Loans, net                                                       |                                          |                             | 673,149
|Interest earning bank       deposits                             |                                          |                             | 505    
|Federal funds sold                                               |                                          |                             | 27,762 
|                                                                 |                                          |                             |        
|                                                                 | Total earning assets                     |                             | $      
|                                                                 |                                          |                             |        
|Interest-bearing deposits:                                       |                                          |                             |        
|                                                                 | Checking                                 |                             | $      
|                                                                 | Money market                             |                             |        
|                                                                 | Savings                                  |                             |        
|                                                                 | Certificates of deposit:                 |                             |        
|                                                                 | Less than $100,000                       |                             |        
|                                                                 | $100,000 and more                        |                             |        
|                                                                 |                                          |                             |        
|                                                                 | Total interest-bearing       deposits    |                             |        
|                                                                 |                                          |                             |        
|Federal funds and       repurchase agreements                    |                                          |                             | 16,481 
|Other short term borrowings                                      |                                          |                             | 818    
|FHLB of Atlanta borrowings                                       |                                          |                             | 12,260 
|                                                                 |                                          |                             |        
|                                                                 | Total interest-bearing       liabilities |                             | $      
|                                                                 |                                          |                             |        
|Net interest income                                              |                                          |                             |        
|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
|                                                                 |                                          |                             |        

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

Noninterest Income

Noninterest income increased $318 thousand to $3.15 million for the three months ended September 30, 2002, an increase of 11.2% over the comparative
period in 2001.  Income from service charges on deposit accounts totaled $1.21 million for the third quarter, an increase of 35.9% 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 12.3% decrease in fee income for the quarter, withgross fees of $802 thousand
compared to $913 thousand in 2001.  This decrease was a result of lower fee based assets primarily due to declining market valuations, as well as a decrease in income from retail brokerage fees.  Mortgage operations continued to show
growth in fee income and profitability.  Fee income from gains on sale of secondary market mortgages amounted to $801 thousand for the third quarter, an increase of $113 thousand or 16.3% compared to $689 thousand in 2001.

Noninterest Expense

Operating expenses increased $894 thousand, or 11.2% to $8.9 million for the three months ended September 30, 2002, compared to $8.0
million for the same period in 2001.  Of this increase, approximately $596 thousand represents increases in compensation and benefits associated with increased incentive plan expense, pension costs, higher health insurance costs and a larger
compensation base.  Included in other expense are nonrecurring expenses amounted to $267 thousand for the quarter, consisting of computer system conversion costs 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
$1.2 million or .17% of loans and other property owned at September 30, 2002, compared to $3.8 million or .56% of loans and other property owned at September 30, 2001. The Company had a $1.4 million commercial loan that was brought current during
the quarter and accounts for the decrease in nonperforming assets.  This loan continues to be monitored and is a watch list credit.  The Company recorded a provision for loan losses of $401 thousand for the three month period ended
September 30, 2002, compared to a provision of $322 thousand for the three month period ended September 30, 2001.

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

The following table provides information on asset quality statistics for the periods presented:

|                                                                  |                                                                                       | September 30, 2002 |       | December 31, 2001 |   | September 30, 2001 |      
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------ | ----- | ----------------- | - | ------------------ | -----
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|Non accrual loans                                                 |                                                                                       | $                  | 527   |                   | $ | 2,751              |      
|Other real estate owned                                           |                                                                                       |                    | 643   |                   |   | 547                |      
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|                                                                  | Total nonperforming assets                                                            |                    | $     | 1,170             |   | $                  | 3,298
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|                                                                  | Loans past due as to principal or interest for 90 days or more      accruing interest |                    | $     | 2                 |   | $                  | 213  
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|Nonperforming assets to total assets                              |                                                                                       |                    | .11   | %                 |   | .34                | %    
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|Nonperforming assets to loans and other property                  |                                                                                       |                    | .17   | %                 |   | .53                | %    
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|Allowance for loan losses as a percentage of loans receivable     |                                                                                       |                    | 1.35  | %                 |   | 1.24               | %    
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|Allowance for loan losses as a percentage of nonperforming assets |                                                                                       |                    | 787.8 | %                 |   | 235.43             | %    
|                                                                  |                                                                                       |                    |       |                   |   |                    |      
|Net charge-offs as a percentage of average loans receivable       |                                                                                       |                    | .04   | %                 |   | .08                | %    
|                                                                  |                                                                                       |                    |       |                   |   |                    |      

The allowance for loan losses was $9.2 million or 1.35% of loans at September 30, 2002, compared to
$8.3 million or 1.24% of loans at December 31, 2001.  The increase in the allowance as a percentage of loans reflects higher provisions for loan losses in view of the economic slowdown and a change in the risk profile of the loan
portfolio.  Non-residential real estate loans increased $47.6 million or 23.0% from December 31, 2001, and now represent 37.2% of the loan portfolio compared to 31.0% at the end of 2001.  In addition, VFGI has provided additional allowance
for acquired entities to align their collection, credit evaluation and charge-off policies and procedures with those of the Company.

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 September 30, 2002 of $116.0 million
increased $9.3 million or approximately 8.74% from $106.7 million at December 31, 2001.  This increase is primarily attributable to net income earned for the nine months ended September 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 14.02% at September 30, 2002, compared to
13.98% at December 31, 2001, placing the Company in a well-capitalized position as defined by regulators.

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

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

|Tier 1 capital                |                                                                  | $ | 107,222   |      
|----------------------------- | ---------------------------------------------------------------- | - | --------- | -----
|Tier 2 capital                |                                                                  |   | 9,233     |      
|Total risk-based capital      |                                                                  |   | 116,455   |      
|Total risk-weighted assets    |                                                                  |   | 764,873   |      
|Average adjusted total assets |                                                                  |   | 1,075,804 |      
|                              |                                                                  |   |           |      
|Capital ratios:               |                                                                  |   |           |      
|                              | Tier 1 risk-based capital ratio                                  |   |           | 14.02
|                              | Total risk-based capital ratio                                   |   |           | 15.23
|                              | Leverage ratio (Tier 1 capital to average adjusted total assets) |   |           | 9.97 
|                              | Equity to assets ratio                                           |   |           | 10.57

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

Recent Accounting Pronoucements

The Financial Accounting Standards Board issued Statement No. 147, Acquisitions of Certain Financial Institutions, an Amendment of
FASB Statements No. 72 and 144 and FASB Interpretation No. 9in October 2002.  FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions,and FASB Interpretation No. 9, Applying APB Opinions No.
16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method,provided interpretive guidance on the application of the purchase method to acquisitions of
financial institutions.  Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions
be accounted for in accordance with FASB Statements No. 141, Business Combinations,and No. 142, Goodwill and Other Intangible Assets.Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize)
any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions with the scope of this Statement.  In
addition, this Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and
borrower-relationship assets and credit cardholder intangible assets.  Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that
Statement 144 requires for other long-lived assets that are held and used.

Paragraph 5 of this Statement, which relates to the application of the purchase method of accounting, is effective
for acquisitions for which the date of acquisition is on or after October 1, 2002.  The provisions in paragraph 6 related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on
October 1, 2002.  Transition provisions for previously recognized unidentifiable intangible assets in paragraphs 8-14 are effective on October 1, 2002, with earlier application permitted.

This Statement clarifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination, otherwise the transaction should be accounted for as an acquisition of net assets
that does not result in the recognition of goodwill.

The transition provisions state that if the transaction that gave rise to the unidentifiable intangible asset was a business combination, the
carrying amount of that asset shall be reclassified to goodwill as of the later of the date of acquisition or the date Statement 142 was first applied (fiscal years beginning after December 15, 2001).   Any previously issued interim
statements that reflect amortization of the unidentifiable intangible asset subsequent to the Statement 142 application date shall be restated to remove that amortization expense.  The carrying amounts of any recognized intangible assets that
meet the recognition criteria of Statement 141 that have been included in the amount reported as an unidentifiable intangible asset and for which separate accounting records have been maintained shall be reclassified and accounted for as assets
apart from the unidentifiable intangible asset and shall not be reclassified to goodwill.

The Corporation is currently in the process of evaluating the impact, if any, arising from the adoption of
Statement 147.

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PART I  FINANCIAL INFORMATION

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.

ITEM 4 
CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we
have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this quarterly report.  Based on that evaluation, our principal executive officer and principal
financial officer have concluded that these controls and procedures are effective.  There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their
evaluation.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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 AND USE OF PROCEEDS.                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | None.                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | None.                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | None.                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|ITEM 5. | OTHER INFORMATION.                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                 
|        | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                 

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PART II - OTHER INFORMATION

|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K.                                                                            
|------- | -------------------------------------------------------------------------------------------------------------
|        |                                                                                                              
|        | (a.)  The following exhibits either are filed as part of this Report or are incorporated herein by reference:
|        |                                                                                                              
|        | Exhibit No. 2                                                                                                
|        |                                                                                                              
|        | Exhibit No. 3.1                                                                                              
|        |                                                                                                              
|        | Exhibit No. 3.2                                                                                              
|        |                                                                                                              
|        | Exhibit No. 4                                                                                                
|        |                                                                                                              
|        | Exhibit No. 4.1                                                                                              
|        |                                                                                                              
|        | Exhibit No. 10                                                                                               
|        |                                                                                                              
|        | Exhibit No. 99.1                                                                                             
|        |                                                                                                              
|        | (b.)  Reports on Form 8-K.                                                                                   
|        |                                                                                                              
|        | None.                                                                                                        

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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.





/s/    O.R. Barham,
Jr.


O.R. Barham, Jr.


President and Chief Executive Officer


November 12, 2002





/s/    Jeffrey W. Farrar


Jeffrey W. Farrar, CPA


Executive Vice President and Chief Financial Officer


November 12, 2002





CERTIFICATIONS





I, O. R. Barham, Jr., certify that:





1.    I have reviewed this quarterly report on Form 10-Q of Virginia Financial Group, Inc.;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results




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of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;





4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





(a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this quarterly report is being prepared;





(b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





(c)    presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):





(a)    all significant deficiencies in the
design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal
controls; and





(b)    any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and





6.    The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date:    November 12, 2002





/s/ O. R. Barham, Jr.


O. R. Barham, Jr.


President and Chief
Executive Officer




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I, Jeffrey W. Farrar, certify that:





1.    I have reviewed this quarterly report on Form 10-Q of Virginia Financial Group, Inc.;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.    The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





(a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;





(b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





(c)    presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):





(a)    all significant deficiencies in the
design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal
controls; and





(b)    any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and





6.    The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date:    November 12, 2002





/s/    Jeffrey W. Farrar


Jeffrey W. Farrar, CPA


Executive Vice President and Chief Financial Officer




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