Valley Financial Corporation Reports First Quarter 2014 Financial Results

Valley Financial Corporation Reports First Quarter 2014 Financial Results

ROANOKE, Va., April 25, 2014 (GLOBE NEWSWIRE) -- Valley Financial Corporation
(Nasdaq:VYFC) announced today its consolidated financial results for the first
quarter of 2014 and reported net income available to common shareholders for
the three months ended March 31, 2014 of $1,516,000, a 3% increase as compared
to $1,466,000 for the prior year's first quarter. Diluted earnings per share
also increased 3% to $0.31 as compared to $0.30 for the first quarter of 2013.
The Company's earnings for the three months ended March 31, 2014 produced an
annualized return on average total assets of 0.73% and an annualized return on
average shareholder's equity of 11.24% as compared to 0.89% and 10.74% for the
prior year's quarter. In comparison to the linked quarter, net income
available to common shareholders increased $273,000 or 22.0% while diluted
earnings per share increased $0.06 or 24.0%.

Select highlights:

  *Net income to common shareholders of $1,516,000 and $0.31 per diluted
    share, producing a return on average total assets of 0.73% and annualized
    return on average shareholder's equity of 11.24%.
  *Tax-equivalent net interest income of $7,007,000, a $349,000 or 5%
    increase over the prior year's quarter.
  *Due to the Company's full redemption of TARP during 2013, preferred
    dividends paid were $0 for the first quarter of 2014 as compared to
    $227,000 during the same period last year.
  *Nonperforming assets ("NPAs") decreased $968,000, from $26,292,000 at
    December 31, 2013 to $25,324,000 at March 31, 2014. This resulted in a 27
    basis point reduction in the Company's NPAs as a percentage of total
    assets, from 3.19% at December 31, 2013 to 2.92% at March 31, 2014.
  *The Company's Allowance for Loan and Lease Losses ("ALLL") to total loans
    decreased from 1.26% at December 31, 2013 to 1.10% at March 31, 2014. The
    reduction in the ALLL is primarily attributable to the charge-off of
    specific reserves that were previously reserved on our impaired loans and
    improving credit quality metrics.
  *Loan demand continued to improve with an increase in average loans
    outstanding of $28,710,000 or 5% from the same period last year and
    $16,139,000 in comparison to the linked quarter, putting us on track for
    an 11% annualized loan growth rate for 2014.

Additionally, the Company announced today that its Board of Directors declared
a quarterly cash dividend of $0.04 per share, payable on June 2, 2014 to its
common shareholders of record on May 15, 2014. The amount and declaration of
future cash dividends are subject to Board of Director's approval.

"Valley Financial Corporation delivered another strong quarter of financial
results for our shareholders driven by strong net interest income growth,
strong loan growth, continued asset quality improvement, and the absence of
preferred dividends due to the Company's full redemption of TARP that occurred
in 2013," said Ellis L. Gutshall, President and Chief Executive Officer.
"While income earned from our mortgage line of business has declined due to
increased mortgage rates, Valley Wealth Management Services, our brokerage
line of business, continues to deliver stellar and consistent performance. We
are also pleased with the 16% decline in noninterest expenses as compared to
the linked quarter and the 4% increase as compared to the prior year. 2014 is
off to a great start and as we look ahead, we are most excited about our
progress in reducing our foreclosed asset portfolio which we expect to be
reflected in our second quarter results."

CAPITAL LEVELS STRONG

Valley Financial Corporation's capital levels remain well above the regulatory
well-capitalized ratios. Tier 1 risk-based and total risk-based capital ratios
were 11.3% and 14.1%, respectively, at March 31, 2014, a decline as compared
to 13.4% and 14.6% reported at March 31, 2013. The Company's tier 1 leverage
ratio was 8.5% at March 31, 2014 in comparison to 10.4% at March 31, 2013.
"The Company's redemption of $12.8 million of preferred stock during the
previous 12-month period contributed to the decline in regulatory capital
ratios at March 31, 2014 as compared to March 31, 2013," Gutshall stated.

ASSET QUALITY/LOAN LOSS PROVISION

During the first quarter, the Company continued to reduce the levels of
impaired loans, past due loans and nonperforming assets. Net charge-offs
increased from the same quarter last year due to the charge-off of loans
specifically reserved for in prior periods. These charge-offs impacted our
historical loss analysis resulting in an increased provision expense for the
period.

Nonperforming Assets

The Company's nonperforming assets decreased 4% or $968,000, from $26,292,000
at December 31, 2013 to $25,324,000 at March 31, 2014 resulting in a reduction
in the nonperforming assets to total assets ratio of 27 basis points to 2.92%
as compared to 3.19% at December 31, 2013. The following table shows a summary
of asset quality balances and related ratios for the three-month periods
presented (dollars in thousands):

In thousands                3/31/2014 12/31/2013 9/30/2013 6/30/2013 3/31/2013
Nonaccrual loans            $2,324   $3,665   $4,171  $5,414  $8,582
Loans past due 90 days or   349       0          0         0         0
more and still accruing
Performing restructured     2,885     2,922      2,923     2,923     2,924
loans
Foreclosed assets           19,766    19,705     21,115    22,264    22,376
Total nonperforming assets  $25,324 $26,292  $28,209 $30,601 $33,882
                                                                
Balances                                                         
Allowance for loan losses   6,425     7,200      7,430     8,030     8,270
Loans, net of unearned      584,757   570,360    557,790   552,924   545,876
income
Total assets                868,724   825,346    795,849   806,339   793,548
                                                                
Ratios                                                           
NPAs to total loans         4.33%     4.61%      5.06%     5.53%     6.21%
NPAs to total assets        2.92%     3.19%      3.54%     3.80%     4.27%
NPAs to total loans &       4.19%     4.46%      4.87%     5.32%     5.96%
foreclosed assets
ALL to nonaccrual loans     276.46%   196.45%    178.13%   148.32%   96.36%

Nonaccruals

During the first quarter, the Company continued to reduce the levels of
impaired loans, past due loans and nonperforming assets.Net charge-offs
increased from the same quarter last year due to the charge-off of loans
specifically reserved for in prior periods.These charge-offs impacted our
historical loss analysis resulting in an increased provision expense for the
period.

Nonperforming assets at March 31, 2014 included $2,324,000 in nonaccrual
loans, a net decrease of $1,341,000 or 37% from the prior quarter and a net
decrease of $6,258,000 or 73% from the prior year.The following table shows
the activity in nonaccrual loans for the quarter ended (dollars in thousands):

                           
                           3/31/2014 12/31/2013 9/30/2013 6/30/2013 3/31/2013
Beginning Balance           $3,665  $4,171   $5,414  $8,582  $7,185
Net customer payments       (28)      (528)      (226)     (324)     (797)
Additions                   0         64         397       491       3,904
Charge-offs                 (1,313)   (42)       (173)     (3)       (7)
Loans returning to accruing 0         0          0         (3,250)   (94)
status
Transfers to OREO           0         0          (1,241)   (82)      (1,609)
Ending Balance              $2,324  $3,665   $4,171  $5,414  $8,582

Foreclosed Assets

Nonperforming assets at March 31, 2014 also included $19,766,000 in foreclosed
assets, a net increase of $61,000 or 0% from the prior quarter and a net
decrease of $2,610,000 or 12% from the prior year.The following table shows
the activity in foreclosed assets for the quarter ended (dollars in
thousands):

                         
                         3/31/2014 12/31/2013 9/30/2013 6/30/2013 3/31/2013
Beginning Balance         $19,705 $21,115  $22,264 $22,376 $21,364
Additions                 0         1          1,162     124       1,609
Capitalized improvements  101       104        426       248       15
Proceeds from sales       (40)      (1,045)    (2,345)   (261)     (633)
Valuation adjustments     0         (505)      (413)     (206)     0
Gains (losses) from sales 0         35         21        (17)      21
Ending Balance            $19,766 $19,705  $21,115 $22,264 $22,376

We anticipate a significant reduction in our foreclosed asset portfolio during
the second quarter of 2014 based upon the pending sale of the Ivy Market
building to Carilion Clinic for a purchase price of $7.05 million which is
equal to our carrying value as of March 31, 2014.Also in conjunction with
this closing, we expect to move approximately $1.5 million in foreclosed asset
balances to other assets based upon the present value of the tax incentive
agreement associated with this property.Additionally, subsequent to
quarter-end we sold a residential property held in foreclosed assets with a
carrying value of $573,750 at a gain of approximately $23,000.On a proforma
basis, these transactions, if they had been completed prior to March 31, 2014,
would have brought our total foreclosed asset balance to $10.6 million, a
reduction of $9.2 million or 46% from the actual March 31, 2014 ending
balance.

Past Due Loans

At March 31, 2014, total accruing loans past due 30 - 89 days were $763,000 or
0.1% of total loans, a decrease from $3,612,000, or 0.7%, one year ago.In
comparison to December31, 2013, total accruing loans past due 30 - 89 days
decreased $232,000.There was one loan past due greater than 90 days and
accruing interest at March 31, 2014 totaling $349,000.The borrower has
accepted a sales contract on the property securing this loan and we expect to
receive payment of all principal and interest balances due upon the sale of
the property which is currently scheduled for May 1, 2014.

On a proforma basis combining nonaccruals, accruing loans past due greater
than 90 days, foreclosed assets and TDRs, these transactions, if they had been
completed prior to March 31, 2014, would have reduced our total nonperforming
assets to $15.9 million and our nonperforming assets to total assets ratio to
approximately 1.83%.

Provision/Charge-offs

The Company recorded a $518,000 provision for loan losses during the first
quarter of 2014, as compared to a provision of $195,000 for the same period
last year.The Company recorded net charge-offs of $1,293,000 during the first
quarter of 2014 as compared to net recoveries of $15,000 for the first quarter
of 2013. The increase in charge-offs from the prior year related to loans
that were previously considered impaired and specifically reserved for in
prior periods.

Allowance for Loan Losses

The ratio of allowance for loan and lease losses as a percentage of total
loans decreased from 1.51% at March 31, 2013 and 1.26% at December 31, 2013 to
1.10% at March 31, 2014.The decrease in the allowance and related ratios was
primarily attributable to the charge-off of impaired loans specifically
reserved for in prior periods and improving credit quality metrics.

Impaired loans have declined from $26,823,000 at March 31, 2013 and
$19,906,000 at December 31, 2013 to $18,608,000 at March 31, 2014.The
nonaccrual loan coverage ratio is at its highest level since 2006 at 276% at
March 31, 2014, an increase from 96% from the same quarter last year and 196%
at December 31, 2013.The current level of the allowance for loan losses
reflects specific reserves related to impaired loans, current risk ratings on
loans, net charge-off activity, loan growth, delinquency trends, and other
credit risk factors that the Company considers in assessing the adequacy of
the allowance for loan losses.

Troubled Debt Restructurings ("TDRs")

The total recorded investment in TDRs as of March 31, 2014 was $2,885,000, a
decline of $37,000 from the $2,922,000 at December31, 2013 and a $39,000
decline from the $2,924,000 at March31, 2013.All TDRs were performing at
March 31, 2014, December31, 2013 and March 31, 2013.

BALANCE SHEET

At March 31, 2014, the Company's total assets were $868,724,000, total loans
stood at $584,757,000, total deposits were $697,731,000 and total
shareholders' equity was $52,329,000. Average loans for the first quarter of
2014 were $578,589,000, up $16,139,000 as compared to the fourth quarter of
2013, while average securities were $190,577,000, up $24,427,000 and average
deposits were $674,958,000, down $15,120,000 as compared to the fourth quarter
of 2013.Gutshall commented, "We are encouraged by the high quality loan
growth experienced during the first quarter and are optimistic about the
strength of our loan pipeline moving into the second quarter.Our growth
strategy is centered around attracting new commercial customers away from the
large regional and "mega" banks in our market by showcasing our
differentiating factors such as local decision making resulting in quick
turnaround time combined with the 'unique customer experience' offered by
Valley Bank."

NET INTEREST INCOME

                 For the Three Months Ended                               
                 Dollars in thousands                                     
                 3/31/2014  12/31/2013 Change       3/31/2013  Change    
                                                                    
Average
interest-earning  $780,960 $752,034 $28,926    $707,159 $73,801 
assets
Interest income   $8,105   $8,095   $10        $7,758   $347    
(FTE)
Yield on
interest-earning  4.21%      4.27%      (6)       bps 4.45%      (24)      bps
assets
Average
interest-bearing  $686,921 $654,773 $32,148    $613,348 $73,573 
liabilities
Interest expense  $1,098   $1,134   $ (36)     $1,100   $(2)    
Cost of funds     0.57%      0.60%      (3)       bps 0.64%      (7)       bps
Net Interest      $7,007   $6,961   $46        $6,658   $349    
Income (FTE)
Net Interest      3.64%      3.67%      (3)       bps 3.82%      (18)      bps
Margin (FTE)

On a linked quarter basis, tax-equivalent net interest income was $7,007,000,
an increase of $46,000 or 0.7% when compared to fourth quarter of 2013.The
tax-equivalent net interest margin, at 3.64% decreased 3 basis points from the
3.67% in the prior quarter due to a steeper decline in our earning asset
yields (6 basis points) as compared to the decline in our cost of funds (3
basis points).Gutshall commented, "We have methodically and aggressively
reduced the interest rates on our interest-bearing liabilities during the past
three years while successfully holding the decline in yield on earning assets
to marginal reductions, resulting in increased net interest income and an
expanding margin during this time period. We believe we have limited ability
to reduce our cost of funds significantly beyond current levels and as such
anticipate some additional net interest margin compression as we execute our
growth strategy in this current interest rate environment."

For the three months ended March 31, 2014, tax-equivalent net interest income
increased $349,000, or 5%, when compared to the same period last year.The
tax-equivalent net interest margin, at 3.64%, decreased 18 basis points from
the 3.82% in the prior year.As anticipated, the decline in net interest
margin was primarily due to asset yield compression (24 basis point reduction)
which outpaced our cost of funds reduction (7 basis point reduction) for the
first quarter 2014 as compared to the prior year.The subordinated note issued
on October 15, 2013 increased our cost of funds by 7 basis points for the
first quarter of 2014 as compared to the same period last year.Lower earning
asset interest income was principally due to lower yields on loans as new and
renewed loans were originated and repriced at lower rates and cash flows from
securities investments reinvested at lower yields.

NONINTEREST INCOME

                    For the Three Months Ended
                    Dollars in thousands
                    3/31/2014 12/31/2013 $    %        3/31/2013 $    %
Noninterest income:                                              
Service charges on   452       475        (23) (4.8)%   415       37   8.9%
deposit accounts
Mortgage fee income  92        100        (8)  (8.0)%   183       (91) (49.7)%
Brokerage fee        247       282        (35) (12.4)%  240       7    2.9%
income, net
Bank owned life      165       167        (2)  (1.2)%   165       0    —%
insurance income
Realized gain on     7         (38)       45   (118.4)% 68        (61) (89.7)%
sale of securities
Otherincome         112       160        (48) (30.0)%  79        33   41.8%
Total noninterest    1,075     1,146      (71) (6.2)%   1,150     (75) (6.5)%
income

On a linked quarter basis, noninterest income decreased $71,000 or
6%.Excluding gains (losses) on the sale of securities, noninterest income
decreased $116,000 or 10%.Decreases in service charges were driven by lower
overdraft fee income while the decrease in other income is due to income
earned on individual loan swap transactions during the fourth quarter of
2013.Brokerage fee income was down 12% from the record fourth quarter 2013
results.

For the three months ended March 31, 2014, noninterest income decreased
$75,000, or 7%, compared to the same period last year.Excluding gains on the
sale of securities, noninterest income decreased $14,000 or 1% compared to the
same period last year.The decline in mortgage fee income drove the overall
reduction in total noninterest income, however, the decline was partially
offset by increases in service charges and other income.Increased overdraft
fees contributed to the improvement in service charge income while the
increase in other income was driven by increased letter of credit fee
income.Annualized total noninterest income, exclusive of gains realized on
the sale of securities, was 0.55% of average earning assets for the period
compared to 0.61% in the prior year.

NONINTEREST EXPENSE

                  For the Three Months Ended
                  Dollars in thousands
                  3/31/2014 12/31/2013 $       %       3/31/2013 $    %
Noninterest                                                      
expense:
Compensation       $ 3,086   $ 3,180    (94)    (3.0)%  $ 2,960   126  4.3%
expense
Occupancy and      490       499        (9)     (1.8)%  463       27   5.8%
equipment expense
Data processing    403       397        6       1.5%    366       37   10.1%
expense
Insurance expense  221       227        (6)     (2.6)%  192       29   15.1%
Professional fees  138       318        (180)   (56.6)% 163       (25) (15.3)%
Foreclosed asset   158       852        (694)   (81.5)% 172       (14) (8.1)%
expense, net
Other operating    837       909        (72)    (7.9)%  800       37   4.6%
expense
Total noninterest  $ 5,333   $ 6,382    (1,049) (16.4)% $ 5,116   217  4.2%
expense

On a linked quarter basis, noninterest expense declined by $1,049,000 or 16%,
driven by an 82% reduction in foreclosed asset expense and a 57% reduction in
professional fees.The reduction in foreclosed asset expense is driven by
lower general and maintenance expenses as well as $0 in valuation adjustments
for the first quarter of 2014 as compared to a $505,000 valuation adjustment
in the fourth quarter of 2013.The reduction in professional fees is due to
decreased litigation costs.Gutshall commented, "Senior management remains
keenly focused on noninterest expense management.We anticipate further
reductions in our noninterest expenses in the coming quarters primarily in the
foreclosed asset expense line item as we complete the pending foreclosed asset
sales described earlier."

For the three months ended March 31, 2014, noninterest expense increased
$217,000 or 4% as compared to the $5,116,000 recorded for the quarter ended
March 31, 2013. The Company's efficiency ratio for the first quarter of 2014
was 65.36% as compared to 65.38% for the same quarter last year.(The
efficiency ratio is computed by dividing noninterest expenses by the sum of
fully taxable equivalent net interest income and fully taxable equivalent
noninterest income, less gains (losses) on the sale of securities).The
increase in compensation expense is primarily the result of equity and merit
increases for all employees which went into effect January 1, 2014 as well as
increased expense associated with the Company's supplemental retirement
plan.Occupancy and equipment expense increased as anticipated due to the new
Bonsack branch which opened during the fourth quarter of 2013.Increased
customer transactions across all business lines drove the increase in data
processing expense while increased premiums on our bonds and property
insurance as well as new blanket policies for our commercial and residential
real estate portfolios contributed to the increase in insurance expense for
the quarter.

About Valley Financial Corporation

Valley Financial Corporation is the holding company for Valley Bank, which
opened in 1995 and engages in a general commercial and retail banking business
in the Roanoke Valley, emphasizing the needs of small businesses, professional
concerns and individuals.Valley Bank currently operates from nine
full-service offices at 36 Church Avenue, 110 McClanahan Street, 1518
Hershberger Road, 3850 Keagy Road (near Lewis-Gale Hospital), 1327 Grandin
Road in Roanoke City, 4467 Starkey Road and 4003 Challenger Avenue in Roanoke
County, 8 East Main Street in the City of Salem and 1003 Hardy Road in the
Town of Vinton. Additionally, the Bank operates its wealth management
subsidiary, Valley Wealth Management Services, Inc. at 36 Church Avenue in
Roanoke City and its Mortgage Office at 3565 Electric Road, SW, Suite J in
Roanoke County.

The Bank's Internet site at www.myvalleybank.com is available for online
banking and extensive investor information.

The Common Stock of Valley Financial Corporation is traded on the NASDAQ
Capital Market under the symbol VYFC.

Non-GAAP Financial Measures

This report refers to the overhead efficiency ratio, which is computed by
dividing non-interest expense by the sum of net interest income on a tax
equivalent basis and non-interest income excluding gains or losses on
securities, fixed assets and foreclosed assets. This is a non-GAAP financial
measure that we believe provides investors with important information
regarding our operational efficiency. Comparison of our efficiency ratio with
those of other companies may not be possible, because other companies may
calculate the efficiency ratio differently. Such information is not in
accordance with generally accepted accounting principles in the United States
(GAAP) and should not be construed as such. Management believes such financial
information is meaningful to the reader in understanding operating
performance, but cautions that such information not be viewed as a substitute
for GAAP. Valley Financial Corporation, in referring to its net income, is
referring to income under GAAP.

The reconciliation of tax-equivalent net interest income, which is not a
measurement under GAAP, to net interest income, is reflected in the table
below.

                                                
                                                Three months ended
In Thousands                                     March 31, 2014 March 31, 2013
Net interest income, non tax-equivalent          $ 6,910        $ 6,586
Less: tax-exempt interest income                 (189)          (140)
Add: tax-equivalent of tax-exempt interest       286            212
income
Net interest income, tax-equivalent              $ 7,007        $ 6,658

Forward Looking Statements

Information in this press release contains "forward-looking statements."These
statements involve risks and uncertainties that could cause actual results to
differ materially, including without limitation, the effects of future
economic conditions, governmental fiscal and monetary policies, legislative
and regulatory changes, the risks of changes in interest rates and the effects
of competition.Additional factors that could cause actual results to differ
materially are discussed in Valley Financial Corporation's recent filings with
the Securities and Exchange Commission, included but not limited to its Annual
Report on Form 10-K and its other periodic reports.


VALLEY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
                                                           
                                             (Unaudited)    (Audited)
Assets                                        March 31, 2014 December 31, 2013
Cash and due from banks                       $9,272       $11,404
Interest bearing deposits                     15,290         4,958
Total cash and cash equivalents               24,562         16,362
Securities available for sale                 180,654        159,861
Securities held to maturity (fair value       21,507         21,992
3/31/14: $22,193; 12/31/13: $22,471)
Loans, net of allowance for loan losses,      578,332        563,160
3/31/14: $6,425; 12/31/13: $7,200
Foreclosed assets                             19,766         19,705
Premises and equipment, net                   9,569          9,722
Bank owned life insurance                     19,037         18,872
Accrued interest receivable                   2,585          2,576
Other assets                                  12,712         13,096
Total assets                                  $868,724     $825,346
Liabilities and Shareholders' Equity                        
Liabilities:                                                
Non-interest bearing deposits                 $23,279      $21,237
Interest bearing deposits                     674,452        655,798
Total deposits                                697,731        677,035
Securities sold under agreements to           22,178         22,397
repurchase
FHLB borrowings                               63,000         43,000
Junior subordinated debentures                27,446         27,476
Accrued interest payable                      400            424
Other liabilities                             5,640          6,094
Total liabilities                             816,395        776,426
                                                           
Shareholders' equity:                                       
Preferred stock, no par value; 10,000,000
shares authorized; no shares issued and       —              —
outstanding at March 31, 2014 and December
31, 2013
Common stock, no par value; 10,000,000 shares
authorized; 4,817,585 shares issued and
outstanding at March 31, 2014 and 4,787,605   22,963         22,626
shares issued and outstanding at December 31,
2013
Retained earnings                             32,220         30,897
Accumulated other comprehensive income        (2,854)        (4,603)
Total shareholders' equity                    52,329         48,920
Total liabilities and shareholders' equity    $868,724     $825,346



VALLEY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
                                                              
                                               Three Months Ended (Unaudited)
                                               3/31/2014       3/31/2013
Interest income                                                
Interest and fees on loans                      $6,778        $6,840
Interest on securities - taxable                1,038           700
Interest on securities - nontaxable             189             140
Interest on deposits in banks                   3               6
Total interest income                           8,008           7,686
Interest expense                                               
Interest on deposits                            564             682
Interest on borrowings                          534             418
Total interest expense                          1,098           1,100
Net interest income                             6,910           6,586
Provision for loan losses                       518             195
Net interest income after provision for loan    6,392           6,391
losses
Noninterest income                                             
Service charges on deposit accounts             452             415
Mortgage fee income                             92              183
Brokerage fee income, net                       247             240
Bank owned life insurance income                165             165
Realized gain on sale of securities             7               68
Otherincome                                    112             79
Total noninterest income                        1,075           1,150
Noninterest expense                                            
Compensation expense                            3,086           2,960
Occupancy and equipment expense                 490             463
Data processing expense                         403             366
Insurance expense                               221             192
Professional fees                               138             163
Foreclosed asset expense, net                   158             172
Other operating expense                         837             800
Total noninterest expense                       5,333           5,116
Income before income taxes                      2,134           2,425
Income tax expense                              618             732
Net income                                      $1,516        $1,693
Preferred dividends and accretion of discounts  —               227
on warrants
Net income available to common shareholders     $1,516        $1,466



VALLEY FINANCIAL CORPORATION
FINANCIAL HIGHLIGHTS
(Unaudited)
                                                           
                                         Three Months Ended
                                         3/31/2014          3/31/2013
PER COMMON SHARE                                            
Earnings per share - basic                $ 0.32             $ 0.31
Earnings per share - diluted              $ 0.31             $ 0.30
Tangible book value per share             $ 10.86            $ 10.68
                                                           
FINANCIAL RATIOS                                            
Return on average assets                  0.73%              0.89%
Return on average shareholders' equity    11.24%             10.74%
Net interest margin (FTE)^1               3.64%              3.82%
Efficiency - Consolidated                 65.36%             65.38%
Net charge-off to average loans           0.22%              0.00%
Total risk based capital - Consolidated   14.05%             14.60%
Total risk based capital - Bank only      13.94%             14.34%
                                                           
ALLOWANCE FOR LOAN LOSSES                                   
(in thousands)                                              
Beginning balance                         $ 7,200            $ 8,060
Provision for loan losses                 518                195
Charge-offs                               (1,316)            (60)
Recoveries                                23                 75
Ending balance                            $ 6,425            $ 8,270
                                                           
ASSET QUALITY RATIOS                                        
Nonperforming assets to total assets      2.92%              4.27%
Allowance for loan losses to total loans  1.10%              1.51%
Allowance for loan losses to nonaccrual   276.5%             96.4%
loans
                                                           
COMPOSITION OF RISK ASSETS                                  
(in thousands)                                              
Nonperforming assets:                                       
Loans 90 days past due and accruing       $ 349              $ —
interest
Nonaccrual loans                          2,324              8,582
Accruing Troubled Debt Restructurings     2,885              2,924
Foreclosed assets                         19,766             22,376
Total nonperforming assets                $ 25,324           $ 33,882
                                                           
^1 The net interest margin is calculated by dividing the tax equivalent net
interest income by total average earning assets.The reconciliation of
tax-equivalent net interest income, which is not a measurement under GAAP, to
net interest income, is reflected in the table in "Non-GAAP Financial
Measures."

CONTACT: Ellis L. Gutshall, President and Chief Executive Officer
         Kimberly B. Snyder, Executive Vice President and
         Chief Financial Officer
         (540) 342-2265

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