VABK Virginia National Bankshares Corporation

CHARLOTTESVILLE, Va., July 29, 2022 /PRNewswire/ -- Virginia National Bankshares Corporation (NASDAQ: VABK) (the "Company") today reported net income of $5.7 million, or $1.06 per diluted share, for the quarter ended June 30, 2022, which represents a $5.5 million increase over net income of $147 thousand, or $0.03 per diluted share, recognized for the quarter ended June 30, 2021.  For the six months ended June 30, 2022, net income of $10.6 million, or $1.98 per diluted share, was recognized, compared to $1.6 million, or $0.41 per diluted share, for the six months ended June 30, 2021.  Note that merger and merger-related expenses of $5.9 million and $6.2 million were incurred in the quarterly and year-to-date periods ended June 30, 2021, respectively, in connection with 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. 

"We finished the first half of the year with strong financial results," commented President and Chief Executive Officer, Glenn W. Rust. "We continue to add talent in the Northern Virginia and Richmond markets.  The Bank remains positioned to benefit from recent and anticipated increases in interest rates, and our history of strong credit quality has proven beneficial in trying economic times." 

Second Quarter 2022 and Selected Balance Sheet Financial Highlights

• The efficiency ratio on a fully tax equivalent basis ("FTE") (a non-GAAP financial measure) was 58.3% for the three months ended June 30, 2022, an improvement over 99.1% for the three months ended June 30, 2021. ¹
• Return on average assets ("ROAA") for the three months ended June 30, 2022 increased to 1.27% compared to 0.03% realized in the same period in the prior year.
• Return on average equity ("ROAE") for the three months ended June 30, 2022 improved to 16.16% compared to 0.37% realized in same period in the prior year.
• The Company has not incurred any merger or merger-related expenses since December 31, 2021, compared to $5.9 million incurred in the three months ended June 30, 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 161 as of June 30, 2022.

Loans and Asset Quality

• Gross loans outstanding at June 30, 2022 totaled $960 million, a decrease of $206 million, or 18%, compared to June 30, 2021. The decrease is due predominantly to: 1) the forgiveness of Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans in the amount of $71.9 million, 2) paydowns of legacy organic loans due mainly to business sales, property sales and participation fluctuations of $53.8 million, and 3) workouts and paydowns of loans acquired from Fauquier ("acquired loans") of $50.4 million.
• Two loans to one borrower are in non-accrual status, totaling $511 thousand, as of June 30, 2022, compared to $17 thousand as of June 30, 2021. Acquired loans that otherwise would be in non-accrual status are not included in this figure, as they earn interest through the yield accretion.

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

Loans and Asset Quality (continued)

• Loans 90 days or more past due and still accruing interest amounted to $626 thousand as of June 30, 2022, compared to $2.8 million as of June 30, 2021. The June 30, 2022 balance includes a government-guaranteed loan in the amount of $548 thousand. The portfolio includes four non-insured student loans that are 90 days or more past due and still accruing interest, amounting to $29 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 0.57% as of June 30, 2022 and 0.47% as of June 30, 2021. 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 $17.5 million as of June 30, 2022. The ALLL as a percentage of gross loans, excluding the impact of the acquired loans and fair value mark (a non-GAAP financial measure)¹, would have been 0.91% as of June 30, 2022, compared to 0.88% as of June 30, 2021. The total of the ALLL and the fair value mark as a percentage of gross loans (a non-GAAP financial measure)¹ amounted to 2.39% as of June 30, 2022 and 2.23% as of June 30, 2021.
• A recovery of provision for loan losses of $217 thousand was recognized during the three months ended June 30, 2022, compared to $141 thousand recognized in the three months ended June 30, 2021.

Net Interest Income

• Net interest income for the three months ended June 30, 2022 of $12.5 million decreased $690 thousand, or 5%, compared to the three months ended June 30, 2021, due primarily to the reduction in average balances of loans, which declined from an average of $1.2 billion for the three months ended June 30, 2021 to an average of $985 million for the three months ended June 30, 2022.
• 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 17 bps incurred in the three months ended June 30, 2022 decreased 6 bps from 23 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 89% of total deposits at June 30, 2022 and 2021.

Noninterest Income

Noninterest income for the three months ended June 30, 2022 increased $726 thousand, or 25%, compared to the three months ended June 30, 2021 largely due to the gain on sale of two buildings of $1.1 million, offset by a $408 thousand decline in wealth management fees due to a reduction in the number of accounts. 

Noninterest Expense

Noninterest expense for the three months ended June 30, 2022 declined $6.6 million, or 41%, compared to the three months ended June 30, 2021, primarily due to reduction in merger and merger-related expenses of $5.9 million and the reduction of salaries and employee benefits of $655 thousand. 

Book Value

Book value per share was $25.20 as of June 30, 2022 and $29.89 as of June 30, 2021, and tangible book value per share (a non-GAAP financial measure)¹ was $22.24 as of June 30, 2022 compared to $26.60 as of June 30, 2021.  These values declined primarily due to the increase in unrealized loss on the investment portfolio period over period. 

Income Taxes

The effective tax rate for the three months ended June 30, 2022 amounted to 17.4%, due to the recognition of low-income housing tax credits in 2022, compared to 32.9% for the three months ended June 30, 2021, which was higher than the statutory rate due to the non-deductibility of certain merger and merger-related expenses. 

Dividends

Cash dividends of $1.6 million were declared during the current quarter.  The remaining 72% of net income was retained.

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

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.