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`

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒

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

For the quarterly period ended September 30, 2023

OR

 

☐

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

For the transition period from ___________ to ___________

Commission File Number: 001-40305

 

VIRGINIA NATIONAL BANKSHARES CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Virginia

46-2331578

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

404 People Place

 

Charlottesville, Virginia

22911

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (434) 817-8621

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

VABK

 

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

Accelerated filer

☐

 

 

 

 

Non-accelerated filer

☒

Smaller reporting company

☒

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 10, 2023, the registrant had 5,365,982 shares of common stock, $2.50 par value per share, outstanding.

 

 

VIRGINIA NATIONAL BANKSHARES CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

Part I. Financial Information

 

 

Item 1 Financial Statements

 

Page 4

Consolidated Balance Sheets (unaudited)

 

Page 4

Consolidated Statements of Income (unaudited)

 

Page 5

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 

Page 6

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

 

Page 7

Consolidated Statements of Cash Flows (unaudited)

 

Page 8

Notes to Consolidated Financial Statements (unaudited)

 

Page 9

 

 

 

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Page 37

Application of Critical Accounting Policies and Estimates

 

Page 38

Financial Condition

 

Page 39

Results of Operations

 

Page 46

 

 

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk

 

Page 54

 

 

 

Item 4 Controls and Procedures

 

Page 54

 

 

 

Part II. Other Information

 

 

Item 1 Legal Proceedings

 

Page 54

Item 1A Risk Factors

 

Page 54

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

Page 54

Item 3 Defaults Upon Senior Securities

 

Page 54

Item 4 Mine Safety Disclosures

 

Page 54

Item 5 Other Information

 

Page 55

Item 6 Exhibits

 

Page 55

 

 

 

Signatures

 

Page 56

 

 

2

 

 

Glossary of Acronyms and Defined Terms

2005 Plan

-

2005 Stock Incentive Plan

2014 Plan

-

2014 Stock Incentive Plan

2022 Plan

-

2022 Stock Incentive Plan

ACL

-

Allowance for credit losses

Acquired Loans

-

Loans acquired from Fauquier

AFS

-

Available for sale

ALLL

-

Allowance for loan and lease losses

ALM

-

Asset liability management

ASC

-

Accounting Standards Codification

ASC 326

-

ASU 2016-13, Financial Instruments and Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASC 820

-

ASC 820, Fair Value Measurements and Disclosures

ASU

-

Accounting Standards Update

ATM

-

Automated teller machine

the Bank

-

Virginia National Bank

bps

-

Basis points

CD

-

Certificate of deposit

CDARS™

-

Certificates of Deposit Account Registry Service

CECL

-

Current expected credit losses

CME

-

Chicago Mercantile Exchange

CMO

-

Collateralized mortgage obligation

the Company

-

Virginia National Bankshares Corporation and its subsidiaries

CRE

-

Commercial real estate

DCF



Discounted cash flow

EBA

-

Excess Balance Account

Effective Date

-

April 1, 2021

Exchange Act

-

Securities Exchange Act of 1934, as amended

Fauquier

-

Fauquier Bankshares, Inc. and its subsidiaries

FASB

-

Financial Accounting Standards Board

Federal Reserve

-

Board of Governors of the Federal Reserve System

Federal Reserve Bank or FRB

-

Federal Reserve Bank of Richmond

FHLB

-

Federal Home Loan Bank of Atlanta

Form 10-K

-

Annual Report on Form 10-K for the year ended December 31, 2022

FTE

-

Fully taxable equivalent

GAAP or U.S. GAAP

-

Accounting principles generally accepted in the United States

ICS®

-

Insured Cash Sweep®

IRR

-

Interest rate risk

LIBOR

-

London Interbank Offering Rate

Masonry Capital

-

Masonry Capital Management, LLC

Merger

-

Mergers of Fauquier Bankshares, Inc. and The Fauquier Bank with and into the Company and the Bank, respectively

NPA

-

Nonperforming assets

OREO

-

Other real estate owned

OTTI

-

Other than temporary impairment

PCA

-

Prompt Corrective Action

PCD

-

Purchased loan with credit deterioration

PCI

-

Purchased credit impaired

PITI

-

Principal, interest, taxes and insurance

the Plans

-

2005 Stock Incentive Plan, 2014 Stock Incentive Plan and 2022 Stock Incentive Plan

PPP

-

Paycheck Protection Program

Reorganization

-

Reorganization Agreement Plan of Share Exchange dated March 6, 2013 between the Bank and the Company

ROAA

-

Return on Average Assets

ROAE

-

Return on Average Equity

SBA

-

Small Business Administration

SEC

-

U.S. Securities and Exchange Commission

SOFR

-

Secured Overnight Financing Rate

Sturman Wealth

-

Sturman Wealth Advisors

TDR

-

Troubled debt restructuring

TLM

-

Troubled loan modification

 

3

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

 

 

September 30, 2023

 

 

December 31, 2022 *

 

ASSETS

 

Unaudited

 

 

 

 

Cash and due from banks

 

$

7,416

 

 

$

20,993

 

Interest-bearing deposits in other banks

 

 

9,959

 

 

 

19,098

 

Federal funds sold

 

 

1,015

 

 

 

45

 

Securities:

 

 

 

 

 

 

Available for sale, at fair value

 

 

390,816

 

 

 

538,186

 

Restricted securities, at cost

 

 

7,269

 

 

 

5,137

 

Total securities

 

 

398,085

 

 

 

543,323

 

Loans, net of deferred fees and costs

 

 

1,020,518

 

 

 

936,415

 

Allowance for credit losses

 

 

(7,799

)

 

 

(5,552

)

Loans, net

 

 

1,012,719

 

 

 

930,863

 

Premises and equipment, net

 

 

16,298

 

 

 

17,808

 

Assets held for sale

 

 

-

 

 

 

965

 

Bank owned life insurance

 

 

38,635

 

 

 

38,552

 

Goodwill

 

 

7,768

 

 

 

7,768

 

Core deposit intangible, net

 

 

5,448

 

 

 

6,586

 

Right of use asset, net

 

 

7,110

 

 

 

6,536

 

Deferred tax asset, net

 

 

19,567

 

 

 

17,315

 

Accrued interest receivable and other assets

 

 

38,559

 

 

 

13,507

 

Total assets

 

$

1,562,579

 

 

$

1,623,359

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Demand deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

399,158

 

 

$

495,649

 

Interest-bearing

 

 

287,480

 

 

 

399,983

 

Money market and savings deposit accounts

 

 

406,189

 

 

 

467,600

 

Certificates of deposit and other time deposits

 

 

277,471

 

 

 

115,106

 

Total deposits

 

 

1,370,298

 

 

 

1,478,338

 

Short-term borrowings

 

 

43,000

 

 

 

-

 

Junior subordinated debt, net

 

 

3,448

 

 

 

3,413

 

Lease liability

 

 

6,824

 

 

 

6,173

 

Accrued interest payable and other liabilities

 

 

3,282

 

 

 

2,019

 

Total liabilities

 

 

1,426,852

 

 

 

1,489,943

 

Commitments and contingent liabilities

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Preferred stock, $2.50 par value

 

 

-

 

 

 

-

 

Common stock, $2.50 par value

 

 

13,253

 

 

 

13,214

 

Capital surplus

 

 

105,862

 

 

 

105,344

 

Retained earnings

 

 

72,384

 

 

 

63,482

 

Accumulated other comprehensive loss

 

 

(55,772

)

 

 

(48,624

)

Total shareholders' equity

 

 

135,727

 

 

 

133,416

 

Total liabilities and shareholders' equity

 

$

1,562,579

 

 

$

1,623,359

 

Common shares outstanding

 

 

5,365,982

 

 

 

5,337,271

 

Common shares authorized

 

 

10,000,000

 

 

 

10,000,000

 

Preferred shares outstanding

 

 

-

 

 

 

-

 

Preferred shares authorized

 

 

2,000,000

 

 

 

2,000,000

 

 

* Derived from audited Consolidated Financial Statements

See Notes to Consolidated Financial Statements

4

 

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

13,748

 

 

$

11,024

 

 

$

41,409

 

 

$

32,403

 

Federal funds sold

 

 

133

 

 

 

299

 

 

 

143

 

 

 

662

 

Other interest-bearing deposits

 

 

64

 

 

 

618

 

 

 

442

 

 

 

973

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,848

 

 

 

2,626

 

 

 

8,674

 

 

 

5,300

 

Tax exempt

 

 

327

 

 

 

313

 

 

 

983

 

 

 

925

 

Dividends

 

 

94

 

 

 

66

 

 

 

265

 

 

 

192

 

Total interest and dividend income

 

 

17,214

 

 

 

14,946

 

 

 

51,916

 

 

 

40,455

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

78

 

 

 

56

 

 

 

273

 

 

 

175

 

Money market and savings deposits

 

 

2,739

 

 

 

415

 

 

 

6,709

 

 

 

1,470

 

Certificates and other time deposits

 

 

2,685

 

 

 

147

 

 

 

5,109

 

 

 

499

 

Federal funds purchased

 

 

505

 

 

 

-

 

 

 

1,271

 

 

 

-

 

Short-term borrowings

 

 

21

 

 

 

-

 

 

 

112

 

 

 

-

 

Junior subordinated debt

 

 

86

 

 

 

51

 

 

 

226

 

 

 

148

 

Total interest expense

 

 

6,114

 

 

 

669

 

 

 

13,700

 

 

 

2,292

 

Net interest income

 

 

11,100

 

 

 

14,277

 

 

 

38,216

 

 

 

38,163

 

Provision for (recovery of) credit losses

 

 

(73

)

 

 

39

 

 

 

(60

)

 

 

(30

)

Net interest income after provision for (recovery of) credit losses

 

 

11,173

 

 

 

14,238

 

 

 

38,276

 

 

 

38,193

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Wealth management fees

 

 

419

 

 

 

590

 

 

 

1,220

 

 

 

1,719

 

Advisory and brokerage income

 

 

-

 

 

 

213

 

 

 

-

 

 

 

639

 

Deposit account fees

 

 

404

 

 

 

443

 

 

 

1,204

 

 

 

1,366

 

Debit/credit card and ATM fees

 

 

535

 

 

 

660

 

 

 

1,742

 

 

 

2,146

 

Bank owned life insurance income

 

 

981

 

 

 

252

 

 

 

1,494

 

 

 

709

 

Resolution of commercial dispute

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,400

 

Gains on sale of assets

 

 

132

 

 

 

4

 

 

 

132

 

 

 

1,117

 

Gain on termination of interest swap

 

 

-

 

 

 

-

 

 

 

460

 

 

 

-

 

Loss on sales of AFS, net

 

 

-

 

 

 

-

 

 

 

(206

)

 

 

-

 

Other

 

 

173

 

 

 

138

 

 

 

919

 

 

 

637

 

Total noninterest income

 

 

2,644

 

 

 

2,300

 

 

 

6,965

 

 

 

10,733

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,936

 

 

 

4,252

 

 

 

12,049

 

 

 

13,069

 

Net occupancy

 

 

991

 

 

 

1,318

 

 

 

3,099

 

 

 

3,797

 

Equipment

 

 

195

 

 

 

249

 

 

 

589

 

 

 

786

 

Bank franchise tax

 

 

292

 

 

 

304

 

 

 

929

 

 

 

912

 

Computer software

 

 

185

 

 

 

287

 

 

 

590

 

 

 

907

 

Data processing

 

 

623

 

 

 

712

 

 

 

2,171

 

 

 

2,149

 

FDIC deposit insurance assessment

 

 

220

 

 

 

70

 

 

 

540

 

 

 

421

 

Marketing, advertising and promotion

 

 

262

 

 

 

347

 

 

 

912

 

 

 

873

 

Plastics expense

 

 

51

 

 

 

91

 

 

 

129

 

 

 

322

 

Professional fees

 

 

202

 

 

 

310

 

 

 

592

 

 

 

1,051

 

Core deposit intangible amortization

 

 

368

 

 

 

415

 

 

 

1,138

 

 

 

1,281

 

Other

 

 

1,015

 

 

 

1,148

 

 

 

3,027

 

 

 

3,472

 

Total noninterest expense

 

 

8,340

 

 

 

9,503

 

 

 

25,765

 

 

 

29,040

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

5,477

 

 

 

7,035

 

 

 

19,476

 

 

 

19,886

 

Provision for income taxes

 

 

824

 

 

 

1,263

 

 

 

3,381

 

 

 

3,505

 

Net income

 

$

4,653

 

 

$

5,772

 

 

$

16,095

 

 

$

16,381

 

Net income per common share, basic

 

$

0.87

 

 

$

1.08

 

 

$

3.00

 

 

$

3.08

 

Net income per common share, diluted

 

$

0.86

 

 

$

1.08

 

 

$

2.99

 

 

$

3.06

 

Weighted average common shares outstanding, basic

 

 

5,365,982

 

 

 

5,326,543

 

 

 

5,354,086

 

 

 

5,321,652

 

Weighted average common shares outstanding, diluted

 

 

5,395,483

 

 

 

5,348,900

 

 

 

5,382,145

 

 

 

5,347,878

 

 

See Notes to Consolidated Financial Statements

5

 

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Net income

 

$

4,653

 

 

$

5,772

 

 

$

16,095

 

 

$

16,381

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on securities, net of tax benefit of ($2,603) and ($1,837) for the three and nine months ended September 30, 2023; and net of tax benefit of ($3,416) and ($12,952) for the three and nine months ended September 30, 2022; respectively

 

 

(9,792

)

 

 

(12,845

)

 

 

(6,911

)

 

 

(48,724

)

Reclassification adjustment for realized gain on termination of interest rate swap, net of tax benefit of $0 and ($97) for the three and nine months ended September 30, 2023, respectively

 

 

—

 

 

 

—

 

 

 

(363

)

 

 

—

 

Reclassification adjustment for realized losses on securities, net of tax of $0 and $43 for the three and nine months ended September 30, 2023, respectively

 

 

—

 

 

 

—

 

 

 

163

 

 

 

—

 

Unrealized gains (losses) on interest rate swaps, net of tax benefit of $0 and ($9) for the three and nine months ended September 30, 2023; and net of tax of $49 and $153 for the three and nine months ended September 30, 2022; respectively

 

 

—

 

 

 

179

 

 

 

(37

)

 

 

574

 

Total other comprehensive loss

 

 

(9,792

)

 

 

(12,666

)

 

 

(7,148

)

 

 

(48,150

)

Total comprehensive income (loss)

 

$

(5,139

)

 

$

(6,894

)

 

$

8,947

 

 

$

(31,769

)

 

See Notes to Consolidated Financial Statements

6

 

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

Common Stock

 

 

Capital Surplus

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total

 

Balance, December 31, 2021

 

$

13,178

 

 

$

104,584

 

 

$

46,436

 

 

$

(2,211

)

 

$

161,987

 

Stock option expense

 

 

-

 

 

 

41

 

 

 

-

 

 

 

-

 

 

 

41

 

Restricted stock grant expense

 

 

-

 

 

 

93

 

 

 

-