VABK Virginia National Bankshares Corporation

CHARLOTTESVILLE, Va., Oct. 20, 2023 /PRNewswire/ -- Virginia National Bankshares Corporation (NASDAQ: VABK) (the "Company") today reported quarterly net income of $4.7 million, or $0.86 per diluted share, for the quarter ended September 30, 2023, compared to $5.8 million, or $1.08 per diluted share, recognized for the quarter ended September 30, 2022.  For the nine months ended September 30, 2023, the Company recognized net income of $16.1 million, or $2.99 per diluted share, compared to $16.4 million, or $3.06 per diluted share, for the nine months ended September 30, 2022. 

Third Quarter 2023 Highlights

• The Company continued to experience loan growth in the third quarter of 2023, resulting in a 5% increase from the prior quarter.
• Yield on loans elevated to 5.53% for the three months ended September 30, 2023, from 4.56% for the prior year same period.
• Credit performance remains strong with nonperforming assets as a percentage of total assets of 0.13% as of September 30, 2023, and 0.08% as of December 31, 2022 and September 30, 2022, with 92% of past due loan balances as of the current quarter-end being government-guaranteed.
• Noninterest expense for the three months ended September 30, 2023 decreased $1.2 million, or 12%, compared to the three months ended September 30, 2022, due to continued efficiencies gained from the merger, including: reduced headcount resulting in lower salaries and employee benefit costs; lower occupancy costs from right-sizing our branch network; and reduced professional fees.
• The Company had no brokered deposits as of September 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 $128.7 million as of September 30, 2023 and $134.6 million as of December 31, 2022.
• Total deposits declined $108.0 million, or 7.3% from December 31, 2022 to September 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 quarter of the year. Deposit balances increased $22.2 million, or 1.6%, from June 30, 2023 to September 30, 2023, as the Bank's strategy shifted to meet customer rate demands.
• Correlated with the year-to-date deposit decline noted above, borrowings increased from December 31, 2022 to September 30, 2023 by $43.0 million. As of September 30, 2023, the Company had unused borrowing facilities in place of approximately $143.4 million and management closely monitors its liquidity position.
• Return on average assets ("ROAA") for the three months ended September 30, 2023 amounted to 1.18% compared to 1.30% realized in the same period in the prior year.
• Return on average equity ("ROAE") for the three months ended September 30, 2023 was 12.91% compared to 16.50% realized in same period in the prior year. The change is due to the net income declining by $1.1 million, combined with the increase in accumulated other comprehensive loss of $5.4 million period over period related to unrealized losses in the securities portfolio as a result of the increased rate environment.
• The efficiency ratio on a fully tax equivalent basis ("FTE") (a non-GAAP financial measure)¹ was 60.3% for the three months ended September 30, 2023, compared to 57.0% for the same period in the prior year.

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

Loans and Asset Quality

• Gross loans outstanding as of September 30, 2023 totaled $1.0 billion, an increase of $84.1 million, or 9.0%, compared to December 31, 2022. 
• Nonperforming assets amounted to $2.0 million as of September 30, 2023, compared to $1.4 million as of December 31, 2022 and $1.5 million as of September 30, 2022; the Company currently holds no other real estate owned.
  • Six loans to five borrowers are in non-accrual status, totaling $1.1 million, as of September 30, 2023, compared to $673 thousand as of December 31, 2022 and $607 thousand as of September 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 $501 thousand are now included in this figure.
  • Loans 90 days or more past due and still accruing interest amounted to $854 thousand as of September 30, 2023, compared to $705 thousand as of December 31, 2022 and $859 thousand as of September 30, 2022.  The past due balance as of September 30, 2023 is comprised of two loans totaling $783 thousand which are 100% government-guaranteed, and five student loans totaling $71 thousand. 
• The period-end Allowance for Credit Losses ("ACL") as a percentage of total loans was 0.76% as of September 30, 2023 and 0.58% as of September 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 $10.0 million as of September 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 1.74% as of September 30, 2023 and 2.38% as of September 30, 2022.
• For the three months ended September 30, 2023, the Company recorded a recovery of provision for credit losses of $73 thousand, driven by a $75 thousand recovery related to provision for unfunded commitments.  The decrease in provision over the prior year is primarily the result of the increase in loan balances originating from the purchase of government-guaranteed loans for which an ACL is not deemed necessary.

Net Interest Income

• Net interest income for the three months ended September 30, 2023 of $11.1 million decreased $3.2 million, or 22%, compared to the three months ended September 30, 2022, due primarily to the increased interest expense on deposit accounts and borrowings.
• Net interest margin (FTE), (a non-GAAP financial measure)¹, for the three months ended September 30, 2023 declined to 3.04%, compared to 3.47% for the three months ended September 30, 2022.
• The overall cost of funds, including noninterest-bearing deposits, of 172 bps incurred in the three months ended September 30, 2023 increased 156 bps from 16 bps in the same period in the prior year. Overall, the cost of interest-bearing deposits increased period over period, from a cost of 22 bps to 226 bps.

Noninterest Income

Noninterest income for the three months ended September 30, 2023 increased $344 thousand, or 15%, compared to the three months ended September 30, 2022, primarily due to the receipt of a payout from bank owned life insurance following the death of a former employee.  This was partially offset by $213 thousand of income recognized in the third 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.

Book Value

Book value per share was $25.29 as of September 30, 2023 and $23.65 as of September 30, 2022, and tangible book value per share (a non-GAAP financial measure)¹ was $22.83 as of September 30, 2023 compared to $20.81 as of September 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 15.0% compared to 18.0% for the three months ended September 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.  The current period effective tax rate was lower than the prior year due primarily to the non-taxability of the death proceeds from bank owned life insurance.

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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 third 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.

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 and in the Middle East) 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.