VABK Virginia National Bankshares Corporation

CHARLOTTESVILLE, Va., Feb. 18, 2022 /PRNewswire/ -- Virginia National Bankshares Corporation (NASDAQ: VABK) (the "Company") today reported net income of $10.0 million for the year ended December 31, 2021, attaining the highest consolidated net income for any year in the Company's history, even after realizing $7.4 million of pre-tax ($5.6 million after-tax) merger and merger-related expenses.  The record net income of $10.0 million is a  25% increase compared to net income of $8.0 million recognized for the year ended December 31, 2020. 

Net income of $5.2 million for the quarter ended December 31, 2021, represents a 100% increase over net income of $2.6 million recognized for the quarter ended December 31, 2020.  Net income per diluted share of $2.13 for the year ended December 31, 2021 declined from $2.95 for the year ended December 31, 2020 and this decline was driven by the increase in number of shares outstanding as a result of the April 1, 2021 mergers of Fauquier Bankshares, Inc. and The Fauquier Bank ("Fauquier") with and into the Company and Virginia National Bank, respectively. 

Excluding merger and merger-related expenses, the Company would have posted net income of $15.6 million, or $3.31 per diluted share, (a non-GAAP financial measure)¹ for the year ended December 31, 2021.  Return on average assets ("ROAA") of 0.61% for the year ended December 31, 2021 would have amounted to 0.95% excluding merger and merger-related expenses (a non-GAAP financial measure),¹ compared to 1.00%, or 1.09% excluding merger and merger-related expenses (a non-GAAP financial measure),¹ in the  year ended December 31, 2020. 

"We finished the year with strong financial results after successfully integrating our systems, processes and people in the merger with Fauquier," said Glenn W. Rust, President and Chief Executive Officer.  "We have begun to realize significant cost savings, which will allow us to return value to our shareholders earlier than originally anticipated."

Fourth Quarter 2021 Results of Operations

• The efficiency ratio on a fully tax equivalent basis ("FTE") (a non-GAAP financial measure) was 57.7% for the three months ended December 31, 2021, compared to 57.0% for the three months ended December 31, 2020. ¹

• ROAA for the three months ended December 31, 2021 declined to 1.06% compared to 1.23% realized in the same period in the prior year, primarily due to the significant increase in assets as a result of the merger.

• Return on average equity ("ROAE") for the three months ended December 31, 2021 increased to 12.86% compared to 12.75% realized in same period in the prior year, as the increase in net income was greater than the increase in equity as a result of the merger.

• The Company reversed $664 thousand in pre-tax merger and merger-related expenses during the three months ended December 31, 2021, after receiving a refund from a third-party vendor for system implementation credits and adjusting merger-related accrued bonuses. This post-tax reversal of $588 thousand represents an improvement of $0.11 per diluted share.

• The Company has begun realizing savings associated with the merger and expects to realize significant additional savings over the next year. Full-time equivalent employee headcount was 215 as of April 1, 2021 and 173 as of December 31, 2021.

Loans and Asset Quality

• Gross loans outstanding at December 31, 2021 totaled $1.1 billion, an increase of $452 million, or 74%, compared to December 31, 2020. The increase is predominantly due to the acquisition of Fauquier, which added $602.6 million of loan balances, net of the fair value mark, on the consolidated balance sheet beginning April 1, 2021, but was offset by the decline in outstanding balances of Paycheck Protection Program ("PPP") loans of $121.2 million, due to loan forgiveness, the sale of the $6 million student loan portfolio formerly held by Fauquier, and other loan paydowns.

• Loan deferrals declined to $1.2 million as of December 31, 2021, from $3.3 million as of December 31, 2020. Only two loans remain in deferral status as of December 31, 2021, and each loan is government guaranteed.

• One non-accrual loan, in the amount of $495 thousand, was on the books as of December 31, 2021, compared to $8 thousand as of December 31, 2020. Acquired loans which otherwise would be in non-accrual status are not included in this figure, as they earn interest through the yield accretion.

• Loans 90 days or more past due and still accruing interest amounted to $800 thousand as of December 31, 2021, compared to $137 thousand as of December 31, 2020. The December 31, 2021 balance includes a government-guaranteed loan in the amount of $548 thousand. The portfolio only includes eight non-insured student loans that are 90 days or more past due and still accruing interest, amounting to $83 thousand. Loans acquired from Fauquier which are greater than 90 days past due and still accruing interest are included in this figure, net of their fair value mark.

• The period-end allowance for loan losses ("ALLL") as a percentage of total loans was 0.56% as of December 31, 2021 and 0.90% as of December 31, 2020. The decrease is the result of bringing the Fauquier loans onto the Company's balance sheet at fair value, with a credit and liquidity mark of $21.3 million effective April 1, 2021. The ALLL as a percentage of loans, excluding the impact of the acquired loans and fair value mark (a non-GAAP financial measure)¹, would have been 0.95% as of December 31, 2021, and the ALLL as a percentage of total loans, excluding PPP loans (a non-GAAP financial measure)¹, would have been 0.58% as of December 31, 2021.

• A provision for loan losses of $537 thousand was recognized during the three months ended December 31, 2021, compared to $255 thousand recognized in the three months ended December 31, 2020. A provision for loan losses of $1.0 million was recognized during the year ended December 31, 2021, compared to $1.6 million recognized during the year ended December 31, 2020.

Net Interest Income

• Net interest income for the three months ended December 31, 2021 of $12.4 million increased $5.7 million, or 84%, compared to the three months ended December 31, 2020, due to the inclusion of Fauquier's interest income and expense for the current quarter and the lower rates paid on deposits as compared to the prior year. Net interest income for the year ended December 31, 2021 of $45.0 million increased $21.1 million, or 88%, compared to the prior year due to the inclusion of Fauquier's interest income and expense for three quarters and lower rates paid on deposits.

• The fair value accretion on loans acquired positively impacted net interest income by 19 basis points ("bps") during the current quarter and by 72 bps for the year ended December 31, 2021.

• The overall cost of funds, including noninterest deposits, of 22 bps incurred in the three months ended December 31, 2021 decreased 14 bps from 36 bps in the same period in 2020, due to lower rates paid on deposit accounts, coupled with the acceleration of the fair value accretion related to the payoff of FHLB advances.

• Low-cost deposits, which include noninterest checking accounts and interest-bearing checking, savings and money market accounts, remained in excess of 86% of total deposits at December 31, 2021 and 2020.

Noninterest Income

Noninterest income for the three months ended December 31, 2021 increased $1.2 million, or 64%, compared to the three months ended December 31, 2020 primarily due to the recognition of $822 thousand of performance fee income by Masonry's Capital LLC (a wholly-owned subsidiary of the Company), included in wealth management fees on the consolidated statements of income.  Also, the inclusion of Fauquier's wealth management fees, advisory and brokerage income, income from bank-owned life insurance policies, deposit fees and debit card income attributed to increases in each of those categories.  Swap fee income declined $314 thousand, as swap arrangements are not as attractive to borrowers in the current rate environment.

Noninterest income for the year ended December 31, 2021  increased $3.9 million, or 59%, compared to the prior year.  Wealth management income, including the performance fees noted above, contributed $2.4 million of this increase.  The inclusion of Fauquier's wealth management fees, advisory and brokerage income,  income from bank-owned life insurance policies, deposit fees and debit card income also attributed to the year-over-year increase.  Swap fee income declined $1.2 million, and limited securities were sold in the current year, compared to a gain of $743 thousand in the prior year. 

Noninterest Expense

Noninterest expense for the three months ended December 31, 2021 increased $4.0 million, or 82%, compared to the three months ended December 31, 2020, due to the inclusion of Fauquier's noninterest expense, in nearly all line items within the category, offset by an adjustment to merger and merger-related expenses after receiving a refund from a third-party vendor for system implementation credits and adjusting merger-related accrued bonuses.  

Noninterest expense for the year ended December 31, 2021 increased $23.7 million, or 126%, due to the inclusion of Fauquier's noninterest expenses and an increase of $6.4 million in merger and merger-related expenses.

Book Value

Book value per share was $30.50 as of December 31, 2021 and $30.43 as of December 31, 2020.  Tangible book value per share (a non-GAAP financial measure)¹ as of December 31, 2021 was $27.36 compared to $30.17 as of December 31, 2020, declining due to the impact of goodwill and other intangible assets recorded upon the acquisition of Fauquier.  These amounts are impacted by the increase in shares outstanding as a result of the merger.

Income Taxes

The effective tax rate for the three months ended December 31, 2021 amounted to 11.9%, due to the recognition of low-income housing tax credits, compared to 22.9% for the three months ended December 31, 2020.  The effective tax rate for 2021 was 16.0%, also less than the statutory rate due to the recognition of low-income housing tax credits, compared to 20.6% in the prior year.

Dividends

Cash dividends of $1.6 million were declared during the fourth quarter of 2021.  The remaining 69% of net income was retained.

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 ten banking offices throughout Fauquier and Prince William counties, four banking offices in Charlottesville and Albemarle County, and one banking office in Winchester, and offers loan, deposit and treasury management services in 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 Bank also offers, through its networking agreements with third parties, investment advisory and other investment services under Sturman Wealth Advisors.  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: general economic and market conditions, including the effects of declines in real estate values, an increase in unemployment levels and general economic contraction as a result of COVID-19 or other pandemics; fluctuations in interest rates, deposits, loan demand, and asset quality; assumptions that underlie the Company's allowance for loan losses; the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (e.g., COVID-19 or other pandemics), and of governmental and societal responses thereto; the performance of vendors or other parties with which the Company does business; competition; technology; changes in laws, regulations and guidance; changes in accounting principles or guidelines; performance of assets under management; expected revenue synergies and cost savings from the recently completed merger with Fauquier may not be fully realized or realized within the expected timeframe; the businesses of the Company and Fauquier may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; revenues following the merger may be lower than expected; customer and employee relationships and business operations may be disrupted by the merger; and other factors impacting financial services businesses.  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, 2020 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.