VABK Virginia National Bankshares Corporation

CHARLOTTESVILLE, Va., April 28, 2022 /PRNewswire/ -- Virginia National Bankshares Corporation (NASDAQ: VABK) (the "Company") today reported net income of $4.9 million for the quarter ended March 31, 2022, which represents a 227% increase over net income of $1.5 million recognized for the quarter ended March 31, 2021.  Net income per diluted share of $0.92 for the quarter ended March 31, 2022 improved from $0.55 for the same quarter in the prior year.  Note that the diluted weighted average common shares outstanding increased from 2,727,448 to 5,343,564 period over period 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 (the "Bank"), respectively. 

President and Chief Executive Officer, Glenn W. Rust, commented, "The Company finished the first quarter with strong results and marked the one-year anniversary of the merger with Fauquier on April 1, 2022.  The Bank is positioned to benefit from recent and anticipated increases in interest rates.  We are excited about our strategy for expanded growth into the northern Virginia markets, with the hiring of Bank President Diane Corscadden-Weaver and a new team of lenders, and our credit quality remains strong."

First Quarter 2022 Results of Operations

• The efficiency ratio on a fully tax equivalent basis ("FTE") (a non-GAAP financial measure) was 62.0% for the three months ended March 31, 2022, an improvement over 67.7% for the three months ended March 31, 2021. ¹
• Return on average assets ("ROAA") for the three months ended March 31, 2022 increased to 1.03% compared to 0.68% realized in the same period in the prior year, as the increase in net income outweighed the increase in assets as a result of the merger.
• Return on average equity ("ROAE") for the three months ended March 31, 2022 improved to 12.53% compared to 7.40% 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 has not incurred any merger and merger-related expenses since December 31, 2021, compared to $278 thousand incurred in the three months ended March 31, 2021.
• The Company has begun realizing savings associated with the merger and expects to realize significant additional savings in salaries and employee benefits, data processing and professional fees over the next year. Full-time equivalent employee headcount was 215 as of April 1, 2021, the effective date of the merger, and is down to 163 as of March 31, 2022.

Loans and Asset Quality

• Gross loans outstanding at March 31, 2022 totaled $1.0 billion, an increase of $386 million, or 62%, compared to March 31, 2021. The increase is predominantly due to the merger with Fauquier, which added $602.6 million of loan balances, net of the fair value mark, on the consolidated balance sheet beginning April 1, 2021. This increase was offset by the net decline in outstanding balances of Paycheck Protection Program ("PPP") loans of $60.2 million, due to loan forgiveness, the sale of the $6 million student loan portfolio acquired from Fauquier, and other loan paydowns.

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

Loans and Asset Quality (continued)

• Two loans to one borrower are in non-accrual status, totaling $518 thousand, as of March 31, 2022, compared to $5 thousand as of March 31, 2021. Loans acquired from Fauquier ("acquired loans") that 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 $837 thousand as of March 31, 2022, compared to $399 thousand as of March 31, 2021. The March 31, 2022 balance includes a government-guaranteed loan in the amount of $548 thousand. The portfolio only includes four non-insured student loans that are 90 days or more past due and still accruing interest, amounting to $79 thousand. Acquired loans that 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 0.58% as of March 31, 2022 and 0.90% as of March 31, 2021. The decrease is the result of bringing the acquired 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 March 31, 2022, and the ALLL as a percentage of total loans, excluding PPP loans (a non-GAAP financial measure)1, would have been 0.59% as of March 31, 2022.
• A provision for loan losses of $148 thousand was recognized during the three months ended March 31, 2022, compared to $351 thousand recognized in the three months ended March 31, 2021.

Net Interest Income

• Net interest income for the three months ended March 31, 2022 of $11.4 million increased $5.5 million, or 91%, compared to the three months ended March 31, 2021, 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.
• The fair value accretion on acquired loans positively impacted net interest income by 12 basis points ("bps") during the current quarter.
• The overall cost of funds, including noninterest deposits, of 21 bps incurred in the three months ended March 31, 2022 decreased 13 bps from 34 bps in the same period in the prior year, due primarily to lower rates paid on deposit accounts.
• Low-cost deposits, which include noninterest checking accounts and interest-bearing checking, savings and money market accounts, remained in excess of 91% of total deposits at March 31, 2022 and 2021.

Noninterest Income

Noninterest income for the three months ended March 31, 2022 increased $3.7 million, or 361%, compared to the three months ended March 31, 2021 largely due to the receipt and recognition of a $2.4 million one-time payment to resolve a commercial dispute, which is included within wealth management fees.  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 contributed to increases in each of those categories. 

Noninterest Expense

Noninterest expense for the three months ended March 31, 2022 increased $5.3 million, or 111%, compared to the three months ended March 31, 2021, due to the inclusion of noninterest expense related to the legacy Fauquier business in nearly all line items within the category.  In addition, core deposit intangible amortization expense, which was not incurred prior to the merger with Fauquier, was $439 thousand for the three months ended March 31, 2022.

Book Value

Book value per share was $27.42 as of March 31, 2022 and $29.33 as of March 31, 2021, declining primarily due to the  increase in unrealized loss on the investment portfolio period over period.  Tangible book value per share (a non-GAAP financial measure)¹ as of March 31, 2022 was $24.37 compared to $29.07 as of March 31, 2021, declining also due to the impact of goodwill and other intangible assets recorded upon the merger with Fauquier.  These amounts are impacted by the increase in shares outstanding as a result of the merger.

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

Income Taxes

The effective tax rate for the three months ended March 31, 2022 amounted to 17.5%, due to the recognition of low-income housing tax credits, compared to 20.0% for the three months ended March 31, 2021. 

Dividends

Cash dividends of $1.6 million were declared during the first quarter of 2022.  The remaining 68% 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 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 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, 2021 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.