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Loans and Asset Quality

• Credit performance remains strong with nonperforming assets as a percentage of total assets of 0.25% as of June 30, 2024, 0.17% as of December 31, 2023 and 0.08% as of June 30, 2023.

• Nonperforming assets amounted to $4.0 million as of June 30, 2024, compared to $2.7 million as of December 31, 2023 and $1.3 million as of June 30, 2023;

  • Ten loans to nine borrowers are in non-accrual status, totaling $2.4 million, as of June 30, 2024, compared to $1.9 million as of December 31, 2023 and $1.2 million as of June 30, 2023.

  • Loans 90 days or more past due and still accruing interest amounted to $1.6 million as of June 30, 2024, compared to $880 thousand as of December 31, 2023 and $107 thousand as of June 30, 2023. The past due balance as of June 30, 2024 is comprised of four loans totaling $1.5 million which are 100% government-guaranteed, and seven student loans totaling $63 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 0.69% as of June 30, 2024, 0.77% as of December 31, 2023 and 0.81% as of June 30, 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 $42.4 million during the second quarter of 2024 and have increased $130.2 million since June 30, 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 $8.2 million as of June 30, 2024.

• For the three months ended June 30, 2024, the Company recorded a net recovery of provision for credit losses of $338 thousand, primarily due to the recovery of a previously charged-off loan; this balance is net of a $180 thousand provision for unfunded commitments.

Net Interest Income

• Net interest income for the three months ended June 30, 2024 of $11.2 million decreased $2.5 million, or 18.4%, compared to the three months ended June 30, 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)², for the three months ended June 30, 2024 was 3.04%, compared to 2.89% and 3.83% for the three months ended December 31, 2023 and the three months ended June 30, 2023, respectively. The increase as compared to the fourth quarter of 2023 was primarily due to the increase in yield on loans, increasing from 5.47% to 5.71% for the periods noted, while the decline when compared to the prior year second quarter was due to increased cost of funds.

• Yield on loans was 5.71% for the three months ended June 30, 2024, compared to 6.35% for the prior year same period, and was 5.67% for the six months ended June 30, 2024, compared to 5.96% for the prior year same period. The accretion of the credit mark related to purchased loans positively impacted interest income by 31 bps in the second quarter of 2024, compared to 88 bps in the second quarter of 2023, fluctuating 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.

• The overall cost of funds, including noninterest-bearing deposits, of 210 bps incurred in the three months ended June 30, 2024 increased 77 bps from 133 bps in the same period in the prior year. Overall, the cost of interest-bearing deposits increased period over period, from a cost of 174 bps to 274 bps. Management believes that the Bank's cost of funds has stabilized during the first half of 2024, as the cost of funds and cost of interest bearing deposits is relatively unchanged from the three months ended March 31, 2024.

Noninterest Income

Noninterest income for the three months ended June 30, 2024 decreased $354 thousand, or 17.3%, compared to the three months ended June 30, 2023, primarily due to lower wealth management, deposit account, debit card, credit card and ATM fees.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2024 decreased $442 thousand, or 5.2%, compared to the three months ended June 30, 2023.  This decrease is primarily the result of lower compensation, occupancy and data processing costs, as a result of right-sizing the branch network from the merger, and reduced marketing, advertising and promotion expense.

Book Value

Book value per share increased to $28.70 as of June 30, 2024, compared to $26.54 as of June 30, 2023, and tangible book value per share (a non-GAAP financial measure)¹ was $26.43 as of June 30, 2024 compared to $24.01 as of June 30, 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 18.3% and 18.4% for the three months ended June 30, 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.

Dividends

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

Share Repurchase Plan

During the second quarter of 2024, the Company continued its share repurchase plan, repurchasing 19,476 shares at an average price of $27.32 per share.  Year-to-date, the Company has repurchased 20,350 shares at an average price of $27.42 per share.

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

² For more information regarding the adoption of FASB's Topic 326, Financial Instruments - Credit Losses ("CECL") effective January 1, 2023, refer to the Company's first quarter 2023 Form 10-Q.

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, or more important than, 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.