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Loans and Asset Quality

• Nonperforming assets amounted to $3.1 million as of March 31, 2024, compared to $2.7 million as of December 31, 2023 and $1.3 million as of March 31, 2023;

  • Nine loans to seven borrowers are in non-accrual status, totaling $2.2 million, as of March 31, 2024, compared to $1.9 million as of December 31, 2023 and $1.2 million as of March 31, 2023.

  • Loans 90 days or more past due and still accruing interest amounted to $876 thousand as of March 31, 2024, compared to $880 thousand as of December 31, 2023 and $69 thousand as of March 31, 2023. The past due balance as of March 31, 2024 is comprised of two loans totaling $783 thousand which are 100% government-guaranteed, and five student loans totaling $93 thousand.

  • The Company currently holds no other real estate owned.

• The period-end Allowance for Credit Losses ("ACL") as a percentage of total loans was 0.73% as of March 31, 2024, 0.77% as of December 31, 2023 and 0.83% as of March 31, 2023. The proportionate increase in government-guaranteed loans over the respective periods is the driver of the decrease in the ACL as a percentage of total loans. Balances in government-guaranteed loans have increased $32.2 million during the first quarter of 2024 and have increased $112.9 million since March 31, 2023. Such loans are 100% government-guaranteed and do not require an ACL.

• 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 $8.8 million as of March 31, 2024.

• For the three months ended March 31, 2024, the Company recorded a net recovery of provision for credit losses of $22 thousand, which includes a $33 thousand recovery of provision for unfunded commitments.

Net Interest Income

• Net interest income for the three months ended March 31, 2024 of $10.9 million decreased $2.5 million, or 18.5%, compared to the three months ended March 31, 2023, as the increase in interest expense on deposit accounts and borrowings outweighed the increase in interest income earned on assets.

• Net interest margin (FTE), (a non-GAAP financial measure)¹, for the three months ended March 31, 2024 declined to 2.93%, compared to 3.71% for the three months ended March 31, 2023, yet increased from 2.89% for the three months ended December 31, 2023.

• The overall cost of funds, including noninterest-bearing deposits, of 211 bps incurred in the three months ended March 31, 2024 increased 128 bps from 83 bps in the same period in the prior year. Overall, the cost of interest-bearing deposits increased period over period, from a cost of 109 bps to 273 bps. As stated above, management believes that the Bank's cost of funds has stabilized during the first quarter of 2024.

Noninterest Income

Noninterest income for the three months ended March 31, 2024 decreased $98 thousand, or 4.3%, compared to the three months ended March 31, 2023, primarily as a result of the gain on termination of an interest rate swap in the first quarter of 2023 being larger than the gain on termination of debt in the first quarter of 2024 by $81 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2024 decreased $42 thousand, or 0.5%, compared to the three months ended March 31, 2023.  This decrease is primarily the result of lower occupancy costs from right-sizing our branch network from the merger and reduced marketing, advertising and promotion expense.

Book Value

Book value per share increased to $28.31 as of March 31, 2024, compared to $26.50 as of March 31, 2023, and tangible book value per share (a non-GAAP financial measure)¹ was $25.99 as of March 31, 2024 compared to $23.88 as of March 31, 2023.  These values increased as net retained income increased and unrealized losses in the investment portfolio remained relatively constant period over period.

Income Taxes

The effective tax rates amounted to 15.5% and 18.2% for the three months ended March 31, 2024 and 2023, respectively,  which are 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 income from bank owned life insurance policies.

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¹ See "Reconciliation of Certain  Quarterly Non-GAAP Financial Measures" at the end of this release.

Dividends

Cash dividends of $1.8 million, or $0.33 per share, were declared and paid during the first quarter of 2024.

Share Repurchase Plan

During the first quarter of 2024, the Company enacted a share repurchase plan, repurchasing 874 shares at an average price of $29.60 per share.  The Company will continue to repurchase shares in the second quarter in accordance with its share repurchase plan.

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. 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.

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 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, 2023 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.