VIRGINIA NATIONAL BANKSHARES CORPORATION ANNOUNCES SECOND QUARTER 2023 EARNINGS

CHARLOTTESVILLE, Va., July 17, 2023 /PRNewswire/ -- Virginia National Bankshares Corporation (NASDAQ:VABK) (the "Company") today reported quarterly net income of $5.7 million, or $1.05 per diluted share, for the quarter ended June 30, 2023, evenly balanced with net income of $5.7 million, or $1.06 per diluted share, recognized for the quarter ended June 30, 2022.  For the six months ended June 30, 2023, the Company recognized net income of $11.4 million, or $2.13 per diluted share, compared to $10.6 million, or $1.98 per diluted share, for the six months ended June 30, 2022. 

"Virginia National Bank remains committed to our customers and our community, and continues to proactively lend as indicated by our loan growth in the second quarter," commented President and Chief Executive Officer, Glenn W. Rust. "We have not been forced to tighten our credit quality standards as many banks have, since our standards were established with a high bar from the onset, as evidenced by our solid credit quality metrics.  Our return on average assets set a record for the Company in the first half of 2023, as we achieved 1.47% year-to-date."

Second Quarter 2023 Highlights

• Return on average assets ("ROAA") for the three months ended June 30, 2023 increased to 1.46% compared to 1.27% realized in the same period in the prior year.
• Return on average equity ("ROAE") for the three months ended June 30, 2023 decreased to 15.98% compared to 16.16% realized in same period in the prior year, primarily due to the increase in accumulated other comprehensive loss of $8.3 million period over period related to unrealized losses in the securities portfolio.
• The efficiency ratio on a fully tax equivalent basis ("FTE") (a non-GAAP financial measure)¹ was 54.1% for the three months ended June 30, 2023, an improvement over 58.3% for the same period in the prior year.
• Net interest margin (FTE), (a non-GAAP financial measure)¹, for the three months ended June 30, 2023 rose to 3.83%, compared to 3.02% for the three months ended June 30, 2022. Yield on loans elevated to 6.35% for the three months ended June 30, 2023, from 4.32% for the same period in the prior year. The accretion of the credit mark related to purchased loans positively impacted interest income by 88 bps in the second quarter of 2023, compared to 12 bps in the second quarter of 2022, increasing primarily due to the treatment of the credit mark under CECL². When a purchased loan, which was identified as purchased credit-deteriorated as of the date of the acquisition, is satisfied by the borrower, the remaining mark is recognized as interest income in accordance with CECL, whereas former accounting treatment required that the credit mark be spread among the remaining loan pool.
• Total deposits declined $130.3 million from December 31, 2022 to June 30, 2023, as many customers moved funds outside of the Bank to earn higher yields while the Bank's strategy was to keep cost of funds low during the first two months of the year. Borrowings and federal funds purchased increased over the same period by $80.1 million. As of June 30, 2023, the Company had unused borrowing facilities in place of approximately $106.6 million.
• The Company had no brokered deposits as of June 30, 2023 or December 31, 2022. The Company utilizes a third-party to offer multi-million-dollar FDIC insurance to customers with balances in excess of single-bank limits through Insured Cash Sweep^® (ICS) plans. Deposit balances held in ICS plans amounted to $132.8 million as of June 30, 2023 and $134.6 million as of December 31, 2022.

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Share Repurchase Plan

During the second quarter of 2023, the Board of Directors approved a share repurchase plan of up to 5% of outstanding common stock, subject to consultation with the Federal Reserve.  More information will be forthcoming for shareholders regarding the specifics of the plan after the consultation has been completed.

Loans and Asset Quality

• Gross loans outstanding as of June 30, 2023 totaled $973.3 million, an increase of $36.9 million, or 3.9%, compared to December 31, 2022.
• Credit performance remains strong with nonperforming assets as a percentage of total assets of 0.08% as of June 30, 2023 and December 31, 2022, compared to 0.07% as of June 30, 2022. Nonperforming assets have been reduced to $1.3 million as of June 30, 2023, compared to $1.4 million as of December 31, 2022 and increased from $1.1 million as of June 30, 2022; the Company currently holds no other real estate owned.
• Six loans to five borrowers are in non-accrual status, totaling $1.2 million, as of June 30, 2023, compared to $673 thousand as of December 31, 2022 and $511 thousand as of June 30, 2022. The adoption of CECL altered the manner in which purchased loans that were in non-accrual status are presented, and as a result, two such loans totaling $534 thousand are now included in this figure.
• Loans 90 days or more past due and still accruing interest amounted to $107 thousand as of June 30, 2023, compared to $705 thousand as of December 31, 2022 and $626 thousand as of June 30, 2022.
• The period-end Allowance for Credit Losses ("ACL") as a percentage of total loans was 0.81% as of June 30, 2023 and 0.57% as of June 30, 2022. The fair value mark that was allocated to the acquired loans was $21.3 million as of April 1, 2021, with a remaining balance of $11.0 million as of June 30, 2023. The total of the ACL and the fair value mark as a percentage of gross loans (a non-GAAP financial measure)¹ amounted to 1.94% as of June 30, 2023 and 2.39% as of June 30, 2022.
• For the three months ended June 30, 2023, the Company recorded a provision for credit losses of $261 thousand, which includes $45 thousand related to provision for unfunded commitments. The increase in provision over the prior year is due primarily to increased loan balances.

Net Interest Income

• Net interest income for the three months ended June 30, 2023 of $13.7 million increased $1.2 million, or 10%, compared to the three months ended June 30, 2022, due primarily to the increase in average balances of securities, positively impacting net interest income through rate and volume, as well as the increase in average yields on loans, offset by increased interest expense on deposit accounts and borrowings.
• The overall cost of funds, including noninterest deposits, of 133 bps incurred in the three months ended June 30, 2023 increased 116 bps from 17 bps in the same period in the prior year. Overall, the cost of interest-bearing deposits increased period over period, from a cost of 24 bps to 174 bps.
• Low-cost deposits, which include noninterest checking accounts and interest-bearing checking, savings and money market accounts, remained in excess of 83% of total deposits as of June 30, 2023 and 2022.

Noninterest Income

Noninterest income for the three months ended June 30, 2023 decreased $1.6 million, or 44%, compared to the three months ended June 30, 2022, primarily due to gains on the sale of property of $1.1 million in the second quarter of the prior year.  In addition, $210 thousand of income was recognized in the second quarter of the prior year related to advisory and brokerage income; this business line was sold in the fourth quarter of 2022, eliminating future income or expense related thereto.  In the second quarter of 2023, the Company received an additional $267 thousand recovery of unearned premiums related to the loss of insurance on the student loan portfolio, bringing the total recovered from liquidation of the insurance company to over $1.3 million.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2023 decreased $878 thousand, or 9%, compared to the three months ended June 30, 2022, primarily due to lower occupancy expense and reduced professional and consulting fees as a result of efficiencies gained from the merger.     

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Book Value 

Book value per share was $26.54 as of June 30, 2023 and $25.20 as of June 30, 2022, and tangible book value per share (a non-GAAP financial measure)¹ was $24.01 as of June 30, 2023 compared to $22.28 as of June 30, 2022.  These values increased as the impact of net income outweighed the increase in unrealized losses in the investment portfolio period over period. 

Income Taxes

The effective tax rate amounted to 18.4% compared to 17.4% for the three months ended June 30, 2023 and 2022, respectively, which are both lower than the statutory rate, due to the recognition of low-income housing tax credits and the effect of tax-exempt income from municipal bonds and bank owned life insurance policies.

Dividends

Cash dividends of $1.8 million, or $0.33 per share, were declared and paid during the second quarter of the current year.

About Virginia National Bankshares Corporation

Virginia National Bankshares Corporation, headquartered in Charlottesville, Virginia, is the bank holding company for Virginia National Bank. The Bank has nine banking offices throughout Fauquier and Prince William counties, three banking offices in Charlottesville and Albemarle County, and banking offices in Winchester and Richmond, Virginia.  The Bank offers a full range of banking and related financial services to meet the needs of individuals, businesses and charitable organizations, including the fiduciary services of VNB Trust and Estate Services. Investment management services are offered through Masonry Capital Management, LLC, a registered investment adviser and wholly-owned subsidiary of the Company.

The Company's common stock trades on the Nasdaq Capital Market under the symbol "VABK."  Additional information on the Company is also available at www.vnbcorp.com.

Non-GAAP Financial Measures

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP") and prevailing practices in the banking industry. However, management uses certain non-GAAP measures to supplement the evaluation of the Company's performance. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP measures are included at the end of this release.

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Forward-Looking Statements; Other Information

Certain statements in this release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, statements with respect to the Company's operations, performance, future strategy and goals, and are often characterized by use of qualified words such as "expect," "believe," "estimate," "project," "anticipate," "intend," "will," "should," or words of similar meaning or other statements concerning the opinions or judgement of the Company and its management about future events. While Company management believes such statements to be reasonable, future events and predictions are subject to circumstances that are not within the control of the Company and its management.  Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in: inflation, interest rates, market and monetary fluctuations; liquidity and capital requirements; market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts (including the ongoing military conflict between Russia and Ukraine) or other major events, the governmental and societal responses thereto, or the prospect of these events; changes, particularly declines, in general economic and market conditions in the local economies in which the Company operates, including the effects of declines in real estate values;  the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the impact of changes in laws, regulations and guidance related to financial services  including, but not limited to, taxes, banking, securities and insurance; changes in accounting principles, policies and guidelines; the financial condition of the Company's borrowers; the Company's ability to attract, hire, train and retain qualified employees; an increase in unemployment levels; competitive pressures on loan and deposit pricing and demand; fluctuation in asset quality; assumptions that underlie the Company's ACL; the value of securities held in the Company's investment portfolio; performance of assets under management; cybersecurity threats or attacks and the development and maintenance of reliable electronic systems; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors' products and services for the Company's products and services; the risks and uncertainties described from time to time in the Company's press releases and filings with the SEC; and the Company's performance in managing the risks involved in any of the foregoing.  Many of these factors and additional risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and other reports filed from time to time by the Company with the Securities and Exchange Commission. These statements speak only as of the date made, and the Company does not undertake to update any forward-looking statements to reflect changes or events that may occur after this release.