`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-40305
VIRGINIA NATIONAL BANKSHARES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Virginia
46-2331578
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
404 People Place
Charlottesville, Virginia
22911
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (434) 817-8621
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock
VABK
The Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of May 7, 2025, the registrant had 5,391,979 shares of common stock, $2.50 par value per share, outstanding.
TABLE OF CONTENTS
Part I. Financial Information
Item 1 Financial Statements
Page 4
Consolidated Balance Sheets (unaudited)
Consolidated Statements of Income (unaudited)
Page 5
Consolidated Statements of Comprehensive Income (unaudited)
Page 6
Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
Page 7
Consolidated Statements of Cash Flows (unaudited)
Page 8
Notes to Consolidated Financial Statements (unaudited)
Page 9
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Page 33
Application of Critical Accounting Policies and Estimates
Page 34
Financial Condition
Results of Operations
Page 40
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Page 45
Item 4 Controls and Procedures
Part II. Other Information
Item 1 Legal Proceedings
Item 1A Risk Factors
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Page 46
Item 3 Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 Other Information
Item 6 Exhibits
Page 47
Signatures
Page 48
2
Glossary of Acronyms and Defined Terms
2014 Plan
-
2014 Stock Incentive Plan
2022 Plan
2022 Stock Incentive Plan
ACL
Allowance for credit losses
Acquired Loans
Loans acquired from Fauquier
AFS
Available for sale
ALM
Asset liability management
ASC
Accounting Standards Codification
ASC 326
ASU 2016-13, Financial Instruments and Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASC 820
ASC 820, Fair Value Measurements and Disclosures
ASU
Accounting Standards Update
ATM
Automated teller machine
the Bank
Virginia National Bank
bps
Basis points
CD
Certificate of deposit
CDARS™
Certificates of Deposit Account Registry Service
CECL
Current expected credit losses
CME
Chicago Mercantile Exchange
CMO
Collateralized mortgage obligation
the Company
Virginia National Bankshares Corporation and its subsidiaries
CRE
Commercial real estate
DCF
Discounted cash flow
EBA
Excess Balance Account
Effective Date
April 1, 2021
Exchange Act
Securities Exchange Act of 1934, as amended
Fauquier
Fauquier Bankshares, Inc. and its subsidiaries
FASB
Financial Accounting Standards Board
Federal Reserve
Board of Governors of the Federal Reserve System
Federal Reserve Bank or FRB
Federal Reserve Bank of Richmond
FHLB
Federal Home Loan Bank of Atlanta
FOMC
Federal Open Market Committee
Form 10-K
Annual Report on Form 10-K for the year ended December 31, 2024
FTE
Fully taxable equivalent
GAAP or U.S. GAAP
Accounting principles generally accepted in the United States
ICS®
Insured Cash Sweep®
IRR
Interest rate risk
LIBOR
London Interbank Offering Rate
Masonry Capital
Masonry Capital Management, LLC
Merger
Mergers of Fauquier Bankshares, Inc. and The Fauquier Bank with and into the Company and the Bank, respectively
NPA
Nonperforming assets
PCA
Prompt Corrective Action
PCD
Purchased loan with credit deterioration
the Plans
2014 Stock Incentive Plan and 2022 Stock Incentive Plan
ROAA
Return on Average Assets
ROAE
Return on Average Equity
SBA
Small Business Administration
SEC
U.S. Securities and Exchange Commission
SOFR
Secured Overnight Financing Rate
TLM
Troubled loan modification
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, 2025
December 31, 2024 *
ASSETS
Unaudited
Cash and due from banks
$
16,574
5,311
Interest-bearing deposits in other banks
9,658
11,792
Federal funds sold
3,341
Securities:
Available for sale, at fair value
262,923
263,537
Restricted securities, at cost
6,172
6,193
Total securities
269,095
269,730
Loans, net of deferred fees and costs
1,242,498
1,235,969
(8,328
)
(8,455
Loans, net
1,234,170
1,227,514
Premises and equipment, net
12,479
15,383
Bank owned life insurance
40,352
40,059
Goodwill
7,768
Core deposit intangible, net
3,497
3,792
Right of use asset, net
5,179
5,551
Deferred tax asset, net
14,469
15,407
Accrued interest receivable and other assets
17,443
14,519
Total assets
1,634,025
1,616,826
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest bearing
379,059
374,079
Interest bearing
283,704
303,405
Money market and savings deposit accounts
472,952
437,619
Certificates of deposit and other time deposits
298,498
308,443
Total deposits
1,434,213
1,423,546
Federal funds purchased
236
Borrowings
20,000
Junior subordinated debt, net
3,518
3,506
Lease liability
5,026
5,389
Accrued interest payable and other liabilities
4,487
3,847
Total liabilities
1,467,244
1,456,524
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $2.50 par value
Common stock, $2.50 par value
13,296
13,263
Capital surplus
106,609
106,394
Retained earnings
85,217
82,507
Accumulated other comprehensive loss
(38,341
(41,862
Total shareholders' equity
166,781
160,302
Total liabilities and shareholders' equity
Common shares outstanding
5,391,979
5,370,912
Common shares authorized
10,000,000
Preferred shares outstanding
Preferred shares authorized
2,000,000
* Derived from audited Consolidated Financial Statements
See Notes to Consolidated Financial Statements
4
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months ended
March 31, 2024
Interest and dividend income:
Loans, including fees
17,033
15,661
184
239
Other interest-bearing deposits
42
57
Investment securities:
Taxable
1,309
2,159
Tax exempt
323
326
Dividends
115
118
Total interest and dividend income
19,006
18,560
Interest expense:
Demand deposits
69
71
Money market and savings deposits
3,003
2,922
Certificates and other time deposits
3,054
4,050
509
486
7
Junior subordinated debt
70
88
Total interest expense
6,712
7,624
Net interest income
12,294
10,936
Recovery of credit losses
(160
(22
Net interest income after recovery of credit losses
12,454
10,958
Noninterest income:
Wealth management fees
229
426
Deposit account fees
307
387
Debit/credit card and ATM fees
370
488
Bank owned life insurance income
293
275
Gains on sale of assets, net
278
39
Gain on early redemption of debt
379
Loss on sales of AFS, net
(4
Other
283
188
Total noninterest income
1,760
2,178
Noninterest expense:
Salaries and employee benefits
3,936
4,152
Net occupancy
1,016
972
Equipment
186
171
Bank franchise tax
339
340
Computer software
256
208
Data processing
735
739
FDIC deposit insurance assessment
145
195
Marketing, advertising and promotion
254
248
Professional fees
252
Legal fees
Core deposit intangible amortization
295
343
1,170
1,128
Total noninterest expense
8,824
8,819
Income before income taxes
5,390
4,317
Provision for income taxes
901
671
Net income
4,489
3,646
Net income per common share, basic
0.83
0.68
Net income per common share, diluted
Weighted average common shares outstanding, basic
5,378,871
5,366,890
Weighted average common shares outstanding, diluted
5,402,936
5,380,081
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Other comprehensive income (loss):
Unrealized gains (losses) on securities, net of tax of $936 and ($668) for the three months ended March 31, 2025 and 2024, respectively
3,521
(2,511
Reclassification adjustment for realized losses on securities, net of tax of $0 and $1 for the three months ended March 31, 2025 and 2024, respectively
—
Total other comprehensive income (loss)
(2,508
Total comprehensive income
8,010
1,138
6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Loss
Total
Balance, December 31, 2023
13,258
106,045
73,781
(40,044
153,040
Stock option expense
24
Restricted stock grant expense
Vested stock grants
21
(21
Shares repurchased
(2
(24
(26
Cash dividends declared ($0.33 per share)
(1,770
Other comprehensive loss
Balance, March 31, 2024
13,277
106,195
75,657
(42,552
152,577
Balance, December 31, 2024
34
214
33
(33
(1,779
Other comprehensive income
Balance, March 31, 2025
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion of certain acquisition-related adjustments
(531
(576
Amortization of intangible assets
Net amortization (accretion) of securities
200
(51
Net losses on sale of AFS
Net gain on early redemption of debt
(379
Net gains on sale of assets
(278
(39
Earnings on bank owned life insurance
(293
(275
Depreciation and other amortization
766
738
Restricted stock expense
Net change in:
(2,923
(1,204
279
790
Net cash provided by operating activities
2,092
3,170
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in restricted investments
2,193
Proceeds from maturities, calls, sales and principal payments of available for sale securities
4,870
75,610
Net change in loans
(5,953
(34,999
Proceeds from sale of premises and equipment
3,047
44
Purchase of bank premises and equipment
(259
(31
Net cash provided by investing activities
1,726
42,817
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits, money market and savings accounts
20,612
(8,102
Net change in certificates of deposit and other time deposits
(9,945
30,976
Net change in Federal funds purchased
(236
(3,462
Net change in other borrowings
(46,500
Repurchase of shares of stock
Cash dividends paid
Net cash provided by (used in) financing activities
8,652
(28,884
NET INCREASE IN CASH AND CASH EQUIVALENTS
12,470
17,103
CASH AND CASH EQUIVALENTS:
Beginning of period
28,390
End of period
29,573
45,493
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest
6,852
7,099
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gains (losses) on available for sale securities
4,457
(3,175
Initial right-of-use assets obtained in exchange for new operating lease liabilities
(281
8
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation: The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2024.
Nature of Operations: The accompanying unaudited consolidated financial statements include the accounts of the Company, and its subsidiaries Virginia National Bank and Masonry Capital Management, LLC, a registered investment advisor. Effective April 1, 2024, the Company sold the membership interests in Masonry Capital Management, LLC to an officer of the Company. Subsequent to the date of sale, the Company will receive an annual revenue-share amount for a period of six years. 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. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation: The preparation of financial statements in conformity with GAAP and the reporting guidelines prescribed by regulatory authorities requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the ACL, goodwill and core deposit intangible and fair value measurements. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
Reclassifications: If needed, certain previously reported amounts have been reclassified to conform to current period presentation. No such reclassifications were considered material to shareholders' equity and net income.
Refer to Note 1, "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in the 2024 Annual Report on Form 10-K for a discussion of the Company's significant accounting policies. Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows.
Note 2. Recent Significant Accounting Pronouncements
Disaggregation of Income Statement Expenses - In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
Income Tax Disclosures - In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense
9
(or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 was effective for the Company on January 1, 2025. There was no material impact to the Company upon adoption of this ASU and the Company will include the applicable and relevant required disclosures in the Annual Report on Form 10-K as of December 31, 2025.
Note 3. Securities
The amortized cost and fair values of securities available for sale as of March 31, 2025 and December 31, 2024 were as follows (dollars in thousands):
Gross
Amortized
Unrealized
Fair
Cost
Gains
(Losses)
Value
U.S. Government treasuries
1,500
(1
1,499
U.S. Government agencies
32,066
(4,369
27,697
Mortgage-backed/CMOs
157,143
(22,512
134,655
Corporate bonds
17,807
(107
17,700
Municipal bonds
102,939
(21,567
81,372
Total Securities Available for Sale
311,455
(48,556
December 31, 2024
(7
1,493
34,998
(5,363
29,635
158,554
14
(25,757
132,811
17,782
(191
17,591
103,693
(21,686
82,007
316,527
(53,004
As of March 31, 2025, there were $260.4 million or 271 issues of individual securities, held in an unrealized loss position. These securities have an unrealized loss of $48.6 million and consist of 115 mortgage-backed/collateralized mortgage obligations, 127 municipal bonds, 19 agency bonds, 9 corporate bonds and 1 treasury bond.
Accrued interest receivable on AFS securities amounted to $1.4 million and $1.5 million as of March 31, 2025 and December 31, 2024, respectively.
The following tables summarize all securities with unrealized losses, segregated by length of time in a continuous unrealized loss position, for which no allowance for credit losses was recorded, at March 31, 2025, and December 31, 2024 (dollars in thousands):
Less than 12 Months
12 Months or More
Losses
27,630
132,159
3,355
78,017
(21,543
257,005
(48,532
260,360
10
29,551
130,128
2,284
(19
78,648
(21,667
80,932
257,411
(52,985
259,695
The Company’s securities portfolio is primarily made up of fixed rate instruments, the prices of which move inversely with interest rates. Any unrealized losses are considered by management to be driven by increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the instruments approach their maturity date or repricing date or if market yields for such investments decline. At the end of any accounting period, the portfolio may have both unrealized gains and losses.
Impairment of debt securities occurs when the fair value of a security is less than its amortized cost. The Company has elected to exclude accrued interest receivable from the amortized cost basis. For debt securities AFS, impairment is recognized in its entirety in net income if either, (i) we intend to sell the security; or, (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell the security before recovery, the Company evaluates unrealized losses to determine whether a decline in fair value below amortized cost basis is a result of a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security, or other factors such as changes in market interest rates. If a credit loss exists, an ACL is recorded that reflects the amount of the impairment related to credit losses, limited by the amount by which the security’s amortized cost basis exceeds its fair value. Changes in the ACL are recorded in net income in the period of change and are included in the provision for credit losses. Changes in the fair value of debt securities AFS not resulting from credit losses are recorded in other comprehensive income (loss). The Company regularly reviews unrealized losses in its investments in securities and cash flows expected to be collected from impaired securities based on criteria including the extent to which market value is below amortized cost, the financial health of and specific prospects for the issuer, the Company’s intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.
Management does not believe any of the securities in an unrealized loss position are impaired due to credit quality. In addition, issuers have continued to make timely payments of principal and interest. Accordingly, as of March 31, 2025, management believes the impairments detailed in the table above are temporary, and no credit loss has been realized in the Company’s consolidated statements of income. Additionally, management has the ability to hold any security with an unrealized loss until maturity or until such time as the value of the security has recovered from its unrealized loss position.
Securities pledged as collateral to secure public deposits and to facilitate borrowing from the FRB had carrying values of $22.5 million and $21.9 million at March 31, 2025 and December 31, 2024, respectively.
There were no sales of AFS securities during the three months ended March 31, 2025. During the three months ended March 31, 2024, the Company sold AFS securities with a total book value of $39.6 million, incurring a pre-tax loss of $4 thousand. The sales were executed as the result of a strategic decision to reinvest proceeds into higher yielding assets.
Restricted securities are securities with limited marketability and consist of stock in the FRB, the Federal Home Loan Bank of Atlanta, CBB Financial Corporation (the holding company for Community Bankers' Bank) and an investment in an SBA loan fund. These restricted securities, totaling $6.2 million as of March 31, 2025 and December 31, 2024, are carried at cost.
11
The amortized cost and fair value of AFS debt securities at March 31, 2025 are presented below based upon contractual maturities, by major investment categories (dollars in thousands). Expected maturities may differ from contractual maturities because issuers have the right to call or prepay obligations.
Amortized Cost
Fair Value
One year or less
After one year to five years
12,135
10,993
After five years to ten years
15,931
13,649
Ten years or more
4,000
3,055
1,475
1,455
6,272
5,913
3,439
3,256
145,957
124,031
9,998
9,964
7,809
7,736
5,624
5,489
22,890
20,757
74,425
55,126
Total Debt Securities Available for Sale
12
Note 4. Loans
The composition of the loan portfolio by major loan classifications at March 31, 2025 and December 31, 2024, stated at their face amount, net of deferred fees and costs and unamortized premiums and discounts, including fair value marks, appears below (dollars in thousands). The Company has elected to exclude accrued interest receivable, totaling $4.7 million and $4.9 million as of March 31, 2025 and December 31, 2024, respectively, from the amortized cost basis of loans.
March 31,
December 31,
2025
2024
Commercial
254,066
257,671
Real estate construction and land
35,176
36,977
1-4 family residential mortgages
310,297
313,610
Commercial mortgages
610,835
593,496
Consumer
32,124
34,215
Total loans
Less: Allowance for credit losses
Net loans
As of March 31, 2025 and December 31, 2024, unamortized premiums from purchases of loans (excluding loans acquired during the Merger) were $10.1 million, and $10.3 million, respectively. Net deferred loan costs and fees totaled $3.0 million as of March 31, 2025 and $3.1 million as of December 31, 2024.
Consumer loans include $42 thousand and $36 thousand of demand deposit overdrafts as of March 31, 2025 and December 31, 2024, respectively.
Loans acquired in business combinations are recorded in the consolidated balance sheets at fair value at the acquisition date under the acquisition method of accounting. The fair value mark as of the Effective Date was $23.1 million. The table above includes a remaining net fair value mark of $6.2 million as of March 31, 2025 on the Acquired Loans.
The following table shows the aging of the Company's loan portfolio, by class, at March 31, 2025 (dollars in thousands):
30-59 Days
60-89 Days
90 Days or More Past Due and Still Accruing
Nonaccrual Loans
Current Loans
Total Loans
7,294
3,160
2,213
241,399
480
2,764
307,053
120
610,715
Consumer loans
56
54
61
31,953
7,950
3,214
2,274
1,226,296
13
The following table shows the aging of the Company's loan portfolio, by class, at December 31, 2024 (dollars in thousands):
90 Days or More
9,173
354
705
247,439
1,131
317
2,267
309,895
66
90
49
34,010
10,370
761
754
1,221,817
The following tables show the Company's amortized cost basis of loans on nonaccrual status as of March 31, 2025 and December 31, 2024 (dollars in thousands). All nonaccrual loans are evaluated for an ACL on an individual basis. As of March 31, 2025, one nonaccrual loans required an ACL, in the amount of $4 thousand, due to collateral value shortfall. As of December 31, 2024, one nonaccrual loan required an ACL, in the amount of $28 thousand, due to collateral value shortfall.
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
2,580
1,887
380
Troubled loan modifications - From time to time, the Company modifies loans to borrowers who are experiencing financial difficulties by providing term extensions, interest rate reductions or other-than-insignificant payment delays. As the effect of most modifications is already included in the ACL due to the measurement methodologies used in its estimate, the ACL is typically not adjusted upon modification. During the three months ended March 31, 2025, no loans were modified to borrowers experiencing financial difficulty. During the three months ended March 31, 2024, one 1-4 family residential mortgage loan was modified for a borrower experiencing financial difficulty, in the amount of $703 thousand and representing 0.002% of this loan segment as of March 31, 2024, by extending the interest-only term and maintaining the original interest rate.
The Company closely monitors the performance of all modified loans to understand the effectiveness of its modification efforts. Upon determination, if applicable, that all or a portion of a modified loan is uncollectible, that amount is charged against the ACL. One borrower with a TLM was in payment default during the three months ending March 31, 2025; all other TLMs were current as of March 31, 2025. There were no payment defaults during the three months ended March 31, 2024 of loans that were modified during the previous twelve months. All modified loans were current as of March 31, 2024.
Foreclosures - There was one loan totaling $183 thousand secured by 1-4 family residential property that was in the process of foreclosure at March 31, 2025, compared to none in the process of foreclosure as of December 31, 2024.
Note 5. Allowance for Credit Losses
The ACL on the loan portfolio is a material estimate for the Company. The Company estimates is ACL on its loan portfolio on a quarterly basis. The Company utilizes two methodologies in its development of the ACL, discounted cash flow and remaining life.
Maximum Loss Rate - Management utilizes the same model to calculate maximum loss rates and expected loss rates for each segment. No additional models or methodologies were used to quantify the maximum loss rate, rather, a worst-case economic environment is utilized in the models. This process ensures symmetry between the maximum loss rate and the quantified loss rate. This process also leverages the well-documented regression models used in model development.
The process for deriving the maximum loss rate is outlined below:
15
Qualitative Factors - ASC 326 requires an entity to adjust historical loss information to reflect the extent to which management expects reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The adjustments for reasonable and supportable forecasts may be qualitative in nature and should reflect changes related to relevant data.
The Company utilizes a scorecard approach to assign qualitative factors. The scorecard approach is in alignment with the AICPA audit considerations for CECL which states:
These adjustments should be grounded in a methodology that is subject to appropriate governance, challenge, and periodic controlled reevaluation. Such methodology will generally require significant management judgment. The information used to support management’s adjustments may be publicly available information, information specifically developed for the entity via management’s specialist (internal or external), or other relevant and reliable information.
The purpose of the qualitative scorecard is to provide a qualitative estimate of the expected credit losses of the current loan portfolio in response to potential limitations of the quantitative model. It is used to aid in the assessment of the unquantifiable factors affecting expected credit losses in the loan portfolio. Benefits of the scorecard include directional consistency, objectivity, controls and quantification framework (auditable).
For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the maximum loss rate. This difference represents all available qualitative adjustment that can be applied to that segment.
Individual Evaluation - In accordance with ASC 326, the Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. Loans will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for each loan, using one of four methods: 1) Fair Value of Collateral Method (Collateral Relationship); 2) Cash Flow Method; 3) Advanced Cash Flow Method; or 4) Loan Pricing Method.
Management has elected to perform an individual evaluation on all loans in nonaccrual status. As of March 31, 2025, after reviewing each loan in nonaccrual status, a specific reserve of $4 thousand was established. As of December 31, 2024, a specific reserve of $28 thousand was established.
The ACL as a percentage of gross loans declined from 68 bps as of December 31, 2024 to 67 bps as of March 31, 2025. The primary driver in the change in reserves as a percentage of gross loans from December 31, 2024 to March 31, 2025 was due to declines in balances within loan pools that had higher loss rates.
The following table shows the ACL activity by loan portfolio for the three months ended March 31, 2025 (dollars in thousands):
CommercialLoans
Real EstateConstructionand Land
1-4 Family Residential Mortgages
Commercial Mortgages
ConsumerLoans
Allowance for Credit Losses:
Balance as of beginning of year
760
737
2,551
3,533
874
8,455
Charge-offs
(6
(64
(70
Recoveries
1
48
Provision for (recovery of) credit losses
(66
(12
(36
(30
(105
Balance as of March 31, 2025
692
725
2,516
3,573
822
8,328
16
The following table shows the ACL activity by loan portfolio at December 31, 2024 (dollars in thousands):
CommercialMortgages
193
462
1,492
5,261
987
8,395
(288
(471
(759
723
573
230
1,537
132
1,048
(2,301
128
(718
Ending Balance, December 31, 2024
The following table presents a breakdown of the provision for (recovery of) credit losses for the periods indicated (dollars in thousands):
Three Months Ended
Recovery of credit losses:
Provision for (recovery of) loan losses
Recovery of unfunded commitments
(55
The following table presents the Company's amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as of the periods indicated (dollars in thousands):
Real Estate Secured Loans
Allowance for Credit Losses - Loans
28
17
Credit Quality Indicators
The Company utilizes the following credit quality indicators:
Pass
Loans with the following risk ratings are pooled by class and considered together as “Pass”:
Excellent – minimal risk loans secured by cash or fully guaranteed by a U.S. government agency
Good – low risk loans secured by marketable collateral within margin
Satisfactory – modest risk loans where the borrower has strong and liquid financial statements and more than adequate cash flow
Average – average risk loans where the borrower has reasonable debt service capacity
Marginal – acceptable risk loans where the borrower has acceptable financial statements but is leveraged
Watch
These loans have an acceptable risk but require more attention than normal servicing.
Special Mention
These potential problem loans are currently protected but are potentially weak.
Substandard
These problem loans are inadequately protected by the sound worth and paying capacity of the borrower and/or the value of any collateral pledged. If such loans are not accruing interest, they would be evaluated on an individual basis.
Doubtful
Loans with this rating have significant deterioration in the sound worth and paying capacity of the borrower and/or the value of any collateral pledged, making collection or liquidation of the loan in full highly questionable. These loans would be considered impaired and evaluated on an individual basis.
18
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of March 31, 2025 (dollars in thousands). Current period gross write-off amounts represent write-offs for the three months ended March 31, 2025 (dollars in thousands):
Term Loans Amortized Cost Basis by Origination Year
2023
2022
2021
Prior
Revolving Loans
Loans Converted to Term
3,511
102,443
94,869
10,950
1,662
25,974
13,412
252,821
40
144
53
92
400
600
840
Total commercial
102,483
94,943
11,694
1,715
26,301
13,419
Current period gross write-off
.
7,951
13,177
528
2,324
2,340
26,320
1,049
157
1,206
791
6,121
7,421
Total real estate construction and land
8,742
14,226
6,649
2,481
3,078
21,680
17,399
10,094
48,300
165,626
16,216
280,814
322
4,764
2,112
3,246
1,692
1,036
13,172
198
808
2,337
5,471
8,814
206
995
1,699
165
3,824
490
7,497
Total 1-4 family residential mortgage
22,406
23,158
14,713
54,048
176,613
17,742
22,215
99,065
108,230
38,548
39,003
271,765
1,106
579,932
2,761
11,678
14,439
80
1,394
11,086
14,059
1,365
1,040
2,405
Total commercial mortgages
99,145
110,991
40,047
41,762
295,569
130
646
1,099
50
216
15,979
13,962
32,082
22
Total consumer
651
1,100
238
15,993
64
19
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024 (dollars in thousands). Current period gross write-off amounts represent write-offs for the twelve months ended December 31, 2024 (dollars in thousands):
2020
102,378
99,341
11,116
1,770
2,818
23,171
15,821
256,418
41
74
154
104
458
294
20
331
789
102,419
99,420
11,564
1,827
2,942
23,331
15,828
38
103
133
288
6,613
14,844
2,445
2,364
1,615
1,476
29,357
1,057
159
1,216
243
6,161
15,901
8,566
2,523
1,759
21,285
16,942
11,889
51,277
71,422
97,356
17,555
563
288,289
4,787
501
2,417
247
1,706
767
654
11,079
199
1,000
918
5,291
8,557
1,434
1,292
2,293
397
215
5,685
21,484
22,729
14,881
54,666
72,961
106,646
18,811
1,432
98,264
106,442
37,153
39,435
80,542
197,875
1,215
572
561,498
1,776
11,385
4,594
17,755
82
1,511
1,406
1,506
7,701
12,206
1,750
287
2,037
98,346
108,218
38,664
42,591
93,720
210,170
698
1,104
67
134
16,603
15,135
33,987
23
59
89
1,105
266
16,800
466
471
Note 6. Goodwill and Other Intangible Assets
The carrying amount of goodwill was $7.8 million at March 31, 2025, December 31, 2024 and March 31, 2024, resulting from the Merger.
The Company had $3.5 million, $3.8 million and $4.8 million of other intangible assets as of March 31, 2025, December 31, 2024 and March 31, 2024, respectively. Other intangible assets were recognized in connection with the core deposits acquired from Fauquier in 2021. The following table summarizes the gross carrying amounts and accumulated amortization of other intangible assets (dollars in thousands):
Gross Carrying Amount
Accumulated Amortization
Amortized intangible assets:
Core deposit intangible
9,660
(6,163
(5,868
(4,910
Amortization expense was $295 thousand and $343 thousand for the three months ended March 31, 2025 and 2024, respectively.
Estimated future amortization expense as of March 31, 2025 is as follows (dollars in thousands):
Core
Deposit
Intangible
For the nine months ending December 31, 2025
815
For the year ending December 31, 2026
For the year ending December 31, 2027
726
For the year ending December 31, 2028
535
For the year ending December 31, 2029
Thereafter
160
Note 7. Leases
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease for a term similar to the length of the lease, including any probable renewal options available. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term. Payments for leases with terms longer than twelve months are included in the determination of the lease liability.
Each of the Company’s long-term lease agreements is classified as an operating lease. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases (dollars in thousands):
Right-of-use asset
Weighted average remaining lease term
4.51 years
5.14 years
Weighted average discount rate
2.75
%
3.02
Three Months Ended March 31,
Lease Expense:
Operating lease cost
429
Short-term lease expense
Total lease expense
437
441
Cash paid for amounts included in lease liabilities
403
388
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):
Undiscounted Cash Flow
Nine months ending December 31, 2025
1,093
Twelve months ending December 31, 2026
1,159
Twelve months ending December 31, 2027
1,063
Twelve months ending December 31, 2028
942
Twelve months ending December 31, 2029
541
Total undiscounted cash flows
5,452
Less: Discount
(426
Note 8. Net Income Per Share
The table below shows the weighted average number of shares used in computing net income per common share and the effect of the weighted average number of shares of potential dilutive common stock for the three months ended March 31, 2025 and 2024. Diluted net income per share is computed based on the weighted average number of shares of common stock equivalents outstanding, to the extent dilutive. The Company’s common stock equivalents relate to outstanding common stock options. The recipients of unvested restricted shares have full voting and dividend rights, and as such, unvested restricted stock as of March 31, 2025 and March 31, 2024 is included in the calculation of basic and diluted net income per share (dollars below reported in thousands except per share data).
NetIncome
WeightedAverageShares
PerShareAmount
Basic net income per share
Effect of dilutive stock options
24,065
13,191
Diluted net income per share
For the three months ended March 31, 2025, there were 117,284 option shares considered anti-dilutive and excluded from this calculation. For the three months ended March 31, 2024, there were 117,601 option shares considered anti-dilutive and excluded from this calculation.
Note 9. Stock Incentive Plans
At the Annual Shareholders Meeting on June 23, 2022, shareholders approved the Virginia National Bankshares Corporation 2022 Stock Incentive Plan. The 2022 Plan made available up to 150,000 shares of the Company’s common stock to be issued to plan participants. The 2022 Plan provides for granting of both incentive and nonqualified stock options, as well as restricted stock, unrestricted stock and other stock based awards. No new grants can be issued under the 2014 Stock Incentive Plan as that plan has expired.
For the 2022 Plan, the option price for any stock options cannot be less than the fair value of the Company’s stock on the grant date. In addition, 95% of the common stock authorized for issuance must have a vesting or exercise schedule of at least one year. For the 2014 Plan, the option price of incentive stock options cannot be less than the fair value of the stock at the time an option is granted and nonqualified stock options may be granted at prices established by the Board of Directors, including prices less than the fair value on the date of grant. Outstanding stock options generally expire ten years from the grant date. Stock options generally vest by the fourth or fifth anniversary of the date of the grant.
A summary of the shares issued and available under each of the Plans is shown below as of March 31, 2025. Share data and exercise price range per share have been adjusted to reflect previously issued stock dividends. Although the 2014 Plan has expired and no new grants will be issued under such plan, there were options issued before the plan expired that are still outstanding as shown below.
Aggregate shares issuable
150,000
275,625
Options issued, net of forfeited and expired options
(50,300
(174,006
Unrestricted stock issued
(11,635
Restricted stock grants issued, net of forfeited
(65,280
(83,653
Cancelled due to Plan expiration
(6,331
Remaining available for grant
34,420
Restricted stock grants issued and outstanding:
Total vested and unvested shares
65,280
95,888
Fully vested shares
11,053
76,630
Stock option grants issued and outstanding:
50,300
173,084
148,603
Exercise price range
$28.82 to $33.20
$23.75 to $42.62
The Company accounts for all of its stock incentive plans under recognition and measurement accounting principles which require that the compensation cost relating to stock-based payment transactions be recognized in the financial statements. Stock-based compensation arrangements include stock options and restricted stock. All stock-based payments to employees are required to be valued at a fair value on the date of grant and expensed based on that fair value over the applicable vesting period.
Stock Options
Changes in the stock options outstanding related to the Plans are summarized below (dollars in thousands except per share data):
Number of Options
Weighted AverageExercise Price
AggregateIntrinsic Value
Outstanding at January 1, 2025
223,001
33.22
Issued
5,600
34.78
Exercised
Forfeited
(5,217
40.78
Expired
Outstanding at March 31, 2025
223,384
33.08
1,091
Options exercisable at March 31, 2025
34.30
659
For the three months ended March 31, 2025 and 2024, the Company recognized $34 thousand and $24 thousand, respectively, in compensation expense for stock options. As of March 31, 2025, there was $359 thousand in unrecognized compensation expense remaining to be recognized in future reporting periods through 2030. The fair value of any stock option grant is estimated at the grant date using the Black-Scholes pricing model. There were 5,600 stock options grants issued during the three months ended March 31, 2025, and 8,400 stock option grants issued during the three months ended March 31, 2024.
Summary information pertaining to options outstanding at March 31, 2025 is shown below. Share and per share data have been adjusted to reflect the prior stock dividends issued.
Options Outstanding
Options Exercisable
Exercise Price
Number ofOptionsOutstanding
Weighted-AverageRemainingContractual Life
Weighted-AverageExercisePrice
Number ofOptionsExercisable
$23.75 to $30.00
101,300
6.6 Years
25.85
57,680
24.82
$30.01 to $40.00
68,540
6.9 Years
36.31
37,380
36.99
$40.01 to $42.62
53,544
3.1 Years
42.62
53,543
5.9 Years
Stock Grants
Restricted stock grants – 9,004 and 12,064 shares of restricted stock were granted to an employee and non-employee directors, respectively, during the three months ended March 31, 2025, vesting over a four-year period. During the three months ended March 31, 2024,10,816 and 14,464 shares of restricted stock were granted to employees and non-employee directors, respectively, vesting over a four-year period. For the three months ended March 31, 2025 and 2024, $214 thousand and $171 thousand, respectively, were expensed as a result of restricted stock grants. As of March 31, 2025, there was $2.1 million in unrecognized compensation expense for all restricted stock grants remaining to be recognized in future reporting periods through 2029.
Changes in the restricted stock grants outstanding during the three months ended March 31, 2025 are summarized below (dollars in thousands except per share data):
Number of Shares
Weighted Average Grant Date Fair Value Per Share
Nonvested as of January 1, 2025
65,889
31.96
2,377
21,068
36.09
Vested
(13,472
(31.86
(486
Nonvested at March 31, 2025
73,485
33.16
2,651
25
Note 10. Fair Value Measurements
Determination of Fair Value
The Company follows ASC 820, “Fair Value Measurements and Disclosures,” to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value:
Level 1 –
Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –
Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –
Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:
Securities available for sale
Securities AFS are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).
26
The following tables present the balances measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024 (dollars in thousands):
Fair Value Measurements at March 31, 2025 Using:
Quoted Pricesin ActiveMarkets forIdentical Assets
SignificantOtherObservableInputs
SignificantUnobservableInputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
Total securities available for sale
Fair Value Measurements at December 31, 2024 Using:
27
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:
Collateral Dependent Loans with an ACL
In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the ACL are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.
The following table presents the Company's assets that were measured at fair value on a nonrecurring basis as of March 31, 2025 and December 31, 2024:
Individually evaluated loans
180
Valuation Technique
Unobservable Inputs
Discount Rate
Market comparables
Discount applied to recent appraisal
20.0
352
ASC 825, “Financial Instruments,” requires disclosures about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis. The carrying values and estimated fair values of the Company's financial instruments as of March 31, 2025 and December 31, 2024 are as follows (dollars in thousands):
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Assets
Cash and cash equivalent
Available for sale securities
Restricted securities
1,181,501
Accrued interest receivable
6,069
1,358
4,711
Liabilities
Demand deposits and interest-bearing transaction and money market accounts
1,135,715
Certificates of deposit
298,489
19,948
Accrued interest payable
1,609
1,183,182
6,426
1,509
4,917
1,115,103
308,856
1,837
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. Consequently, the fair values of the Company’s financial instruments will fluctuate when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk; however, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
29
Note 11. Other Comprehensive Income (Loss)
The following table presents the changes in each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2025 and March 31, 2024 (dollars in thousands):
AFS Securities
Accumulated other comprehensive loss at December 31, 2024
Other comprehensive gain arising during the period
Related income tax effects
(936
Accumulated other comprehensive loss at March 31, 2025
Accumulated other comprehensive loss at December 31, 2023
(3,179
668
Reclassification into net income
Accumulated other comprehensive loss at March 31, 2024
Reclassification into net income and the related income tax effects are reflected in the line items for Loss on sale of AFS, net and Provision for income taxes, respectively, on the Consolidated Statements of Income.
Note 12. Segment Reporting
For the financial periods noted in this report, the Company has three reportable segments. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.
The three reportable segments are:
30
Segment information for the three months ended March 31, 2025 and 2024 is shown in the following tables (dollars in thousands). Note that asset information is not reported below, as the assets of VNB Trust & Estate Services are reported at the Bank level; also, assets specifically allocated to the lines of business other than the Bank are insignificant and are no longer provided to the chief operating decision maker.
Three months ended March 31, 2025
Bank
VNB Trust &EstateServices
Consolidated
1,531
3,697
984
32
182
696
222
1,162
8,468
356
5,517
(127
Provision for (benefit of) income taxes
927
Net income (loss)
4,590
(101
31
Three months ended March 31,2024
MasonryCapital
190
Gain termination of interest rate swap
Losses on sales of AFS, net
68
1,684
304
3,775
138
933
713
185
8,270
349
4,372
(45
(10
683
3,689
(35
(8
Note 13. Sale of Masonry Capital Management, LLC
Effective April 1, 2024, the Company sold the membership interests in Masonry Capital Management, LLC to an officer of the Company. Subsequent to the date of sale, the Company will receive an annual revenue-share amount for a period of six years. No expenses will be incurred by the Company related to Masonry Capital subsequent to the effective date of sale. The sale of this business line did not meet the requirements for classification of discontinued operations, as the sale did not represent a strategic shift in the Company's operations or plans and will not have a major effect on the Company's future operations or financial results.
Note 14. Share Repurchase Plan
During the second quarter of 2023, the Board of Directors approved a share repurchase plan of up to 5% of outstanding common stock. Repurchases may be made through open market purchases or in privately negotiated transactions. The actual timing, number, and value of shares repurchased under the plan will be determined by a committee of the Board.
No shares were repurchased during the three months ended March 31, 2025. During the three months ended March 31, 2024, the Company repurchased 874 shares at an average price of $29.60 per share and during calendar year 2024, a total of 20,350 shares were repurchased at an average price of $27.42.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited consolidated financial statements, and notes thereto, of Virginia National Bankshares Corporation included in this report and the audited consolidated financial statements, and notes thereto, of the Company included in the Company’s Form 10-K for the year ended December 31, 2024. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results for the year ending December 31, 2025 or any future period.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS
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 judgment 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 underlying 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, 2024 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.
OVERVIEW
Our primary financial goal is to maximize the Company’s earnings to increase long-term shareholder value. We monitor three key financial performance measures to determine our success in realizing this goal: 1) return on average assets, 2) return on average equity, and 3) net income per share.
We also manage our capital levels through growth, quarterly cash dividends, and share repurchases, when prudent, while maintaining a strong capital position. During the second quarter of 2023, the Board of Directors approved a share repurchase plan of up to 5% of outstanding common stock. Repurchases may be made through open market purchases
or in privately negotiated transactions. The actual timing, number, and value of shares repurchased under the program will be determined by a committee of the Board. During the first half of 2024, 20,350 shares were repurchased. No additional repurchases were made during the second half of 2024 or the first quarter of 2025.
Refer to the Results of Operations, Non-GAAP Presentation section, later in this Management’s Discussion and Analysis for more discussion on these financial performance measures.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
The Company considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s consolidated financial statements. The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of financial condition and results of operations.
For additional information regarding critical accounting policies, refer to the Application of Critical Accounting Policies and Critical Accounting Estimates section under Item 8 in the Company’s 2024 Form 10-K.
FINANCIAL CONDITION
The total assets of the Company as of March 31, 2025 were $1.6 billion. This is a $17.2 million, or 1.1%, increase from total assets reported at December 31, 2024 and a $14.5 million, or 0.9%, increase from total assets reported at March 31, 2024. For the three months ended March 31, 2025, funds from increased deposits were utilized to fund loan growth.
Securities
The Company’s investment securities portfolio as of March 31, 2025 totaled $269.1 million, a decrease of $0.6 million compared with the $269.7 million reported at December 31, 2024 and a $79.0 million decrease from the $348.0 million reported at March 31, 2024. The decrease from year-end and the prior year was part of a strategic decision to reinvest proceeds into higher yielding assets. At March 31, 2025 and December 31, 2024, the investment securities holdings represented 16.5% and 16.7% of the Company’s total assets, respectively.
The Company’s investment securities portfolio included restricted securities totaling $6.2 million as of March 31, 2025, December 31, 2024 and March 31, 2024. These securities represent stock in the FRB, the FHLB, CBB Financial Corporation (the holding company for Community Bankers' Bank), and an investment in an SBA loan fund. The level of FRB and FHLB stock that the Company is required to hold is determined in accordance with membership guidelines provided by the Federal Reserve and the FHLB, respectively. Stock ownership in the bank holding company for Community Bankers’ Bank provides the Company with several benefits that are not available to non-shareholder correspondent banks. None of these restricted securities are traded on the open market and can only be redeemed by the respective issuer.
At March 31, 2025, the unrestricted securities portfolio totaled $262.9 million. The following table summarizes the Company's AFS securities by type as of March 31, 2025, December 31, 2024, and March 31, 2024 (dollars in thousands):
% of
0.6
51,132
15.0
10.5
11.2
36,451
10.7
51.3
50.4
151,660
44.3
6.7
19,163
5.6
30.9
31.1
83,451
24.4
Total available for sale securities
100.0
341,857
The unrestricted securities are held primarily for earnings, liquidity, and asset/liability management purposes and are reviewed quarterly for possible impairments indicating credit losses. During this review, management analyzes the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer, and the Company’s intent and ability to hold the security to recovery or maturity. These factors are analyzed for each individual security.
Loan portfolio
A management objective is to grow loan balances while maintaining the asset quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of, and the designation of lending limits for, each borrowing relationship. The portfolio strategies include seeking industry, loan size, and loan type diversification to minimize credit exposure and originating loans in markets with which the Company is familiar. The Company's geographical trade area includes localities in Virginia, Maryland and the District of Columbia that are within a 100-mile radius of any office of the Company as well as the counties of Jefferson and Berkeley in West Virginia.
Total loans were $1.2 billion as of March 31, 2025, $1.2 billion as of December 31, 2024, and $1.1 billion as of March 31, 2024. Loans as a percentage of total assets at March 31, 2025 were 76.0%, compared to 69.7% as of March 31, 2024. Loans as a percentage of deposits at March 31, 2025 were 86.6%, compared to 78.8% as of March 31, 2024.
The following table summarizes the Company's loan portfolio by type of loan as of March 31, 2025, December 31, 2024, and March 31, 2024 (dollars in thousands):
% ofTotal
Commercial loans
20.4
20.8
182,568
16.1
Real estate mortgage:
Construction and land
2.8
3.0
33,371
25.0
25.4
316,502
28.1
49.2
48.1
558,779
49.6
Total real estate mortgage
956,308
77.0
944,083
76.5
908,652
80.7
2.6
2.7
36,948
3.2
1,128,168
Loan balances increased by $6.5 million, or 0.5%, from December 31, 2024 to March 31, 2025 and increased $114.3 million, or 10.1%, since March 31, 2024.
35
The following tables details the Company's levels of non-owner occupied commercial real estate as of March 31, 2025 and December 31, 2024, along with the average loan size and % of risk ratings for each category (dollars in thousands):
Loan Type
% of Total CRE
Average Loan Size
Sub-standard
Nonaccrual
Hotels
45,543
14.34
5,693
0.00
Office Building
67,786
21.34
797
Warehouses/Industrial
59,243
18.65
2,194
1.04
Retail
125,715
39.57
1,905
0.01
Day Cares / Schools
9,985
3.14
1,248
15.01
All Other Commercial Buildings
9,431
2.97
857
Total Non-Owner Occupied CRE
317,703
45,840
14.80
5,730
61,893
19.98
764
61,243
19.77
120,655
38.95
1,856
0.89
10,606
3.42
1,178
14.25
9,520
3.07
865
309,757
Loan quality
The Company continues to experience extremely low levels of NPAs, as a result of strict underwriting standards and practices. However, the economic environment in the Company's lending footprint could be impacted as persistent inflation, volatile interest rates, and other signs of recession materialize, which could increase NPAs in future periods.
Nonaccruals - Nonaccrual loans, comprised of sixteen loans to fifteen borrowers, totaled $2.8 million at March 31, 2025, compared to balances of $2.3 million and $2.2 million reported at December 31, 2024 and March 31, 2024, respectively.
Past Due Loans - The Company had loans in its portfolio totaling $2.3 million, $754 thousand and $876 thousand, as of March 31, 2025, December 31, 2024 and March 31, 2024, respectively, that were 90 or more days past due and still accruing interest as the Company deemed them to be collectible. The past due balance as of March 31, 2025 is comprised of two loans totaling $2.2 million which are 100% government-guaranteed, and eight student loans totaling $61 thousand.
Troubled Loan Modifications - No loans were modified during the three months ended March 31, 2025 or three months ended March 31, 2024. As of March 31, 2025, the Company had TLMs totaling $1.2 million.
Foreclosures - There was one loan secured by 1-4 family residential property, with a total balance of $183 thousand, in the process of foreclosure at March 31, 2025, and no loans in the process of foreclosure at December 31, 2024.
Management identifies potential problem loans through its periodic loan review process and considers potential problem loans as those loans classified as special mention, substandard, or doubtful.
36
Allowance for Credit Losses
The relationship of the ACL to total loans and nonaccrual loans appears below (dollars in thousands):
Nonaccrual loans
8,289
Nonaccrual loans to total loans
0.22
0.18
0.19
ACL to total loans
0.67
0.73
ACL to nonaccrual loans
301.30
372.96
380.58
The ACL on loans as a percentage of loans was 0.67% as of March 31, 2025, 0.68% as of December 31, 2024, and 0.73% as of March 31, 2024. The fair value mark that was allocated to the acquired loans was $21.3 million as of the Effective Date, with a remaining balance of $6.2 million as of March 31, 2025.
Recoveries of credit losses totaling $105 thousand and provision for credit losses of $11 thousand were recorded in the three months ended March 31, 2025 and 2024, respectively. The following is a summary of the changes in the ACL for the three months ended March 31, 2025 and 2024 (dollars in thousands):
Allowance for credit losses, December 31 of prior year
(184
(Recovery of) provision for credit losses
Allowance for credit losses, March 31
For additional insight into management’s approach and methodology in estimating the ACL, please refer to the earlier discussion of “Allowance for Credit Losses” in Note 5 of the Notes to Consolidated Financial Statements. In addition, Note 5 includes details regarding the rollforward of the allowance by loan portfolio segments. The rollforward tables indicate the activity for loans that are charged-off, amounts received from borrowers as recoveries of previously charged-off loan balances, and the allocation by loan portfolio segment of the provision made during the period. The events that can positively impact the amount of allowance in a given loan segment include any one or all of the following: the recovery of a previously charged-off loan balance; the decline in the amount of classified or delinquent loans in a loan segment from the previous period, which most commonly occurs when these loans are repaid or are foreclosed; or when there are improvements in the ratios used to estimate the probability of loan losses. Improvements to the ratios could include lower historical loss rates, improvements to any of the qualitative factors mentioned above, or reduced loss expectations for individually evaluated loans.
Management reviews the ACL on a quarterly basis to ensure it is adequate based upon the calculated probable losses inherent in the portfolio. Management believes the ACL was adequately provided for as of March 31, 2025 and acknowledges that should economic conditions worsen, we could experience further increases in our required ACL and record additional provision for credit loss exposure.
Premises and equipment
The Company’s premises and equipment, net of depreciation, as of March 31, 2025 totaled $12.5 million compared to $15.4 million as of December 31, 2024 and $15.9 million as of March 31, 2024, decreasing from prior year due to the sale of one building and normal depreciation. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed by the straight-line method based on the estimated useful lives of assets. Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon disposition, assets and related accumulated depreciation are removed from the books, and any resulting gain or loss is charged to income.
37
As of March 31, 2025, the Company occupied twelve full-service and one limited-service banking facilities throughout Albemarle, Fauquier and Prince William counties and the cities of Charlottesville, Richmond, Manassas and Winchester, Virginia. The limited-service facility is a drive-through location at 301 East Water Street, Charlottesville, Virginia.
The five-story office building at 404 People Place, Charlottesville, Virginia, located in Albemarle County, also serves as the Company’s corporate headquarters and operations center. VNB Trust & Estate Services is located at 103 Third Street, SE, Charlottesville, Virginia.
Both the Arlington Boulevard facility in Charlottesville and the People Place facility in Albemarle County also contain office space that is currently under lease to tenants.
Leases
As of March 31, 2025, the Company has recorded $5.2 million of right-of-use assets and $5.0 million of lease liabilities, in accordance with ASU 2016-02 “Leases” (Topic 842). As of December 31, 2024, $5.6 million of right-of-use assets and $5.4 million of lease liabilities were included on the balance sheet. Right-of-use assets are assets that represent the Company’s right to use, or control the use of, a specified asset for the lease term, offset by the lease liability, which is the Company’s obligation to make lease payments arising from a lease, measured on a discounted basis. During the first quarter of 2024, the Company extended one branch lease for an additional five-year period.
Deposits
Deposit accounts represent the Company’s primary source of funds and are comprised of demand deposits, interest-bearing checking, money market, and savings accounts as well as time deposits. These deposits have been provided predominantly by individuals, businesses and charitable organizations in the Commonwealth of Virginia.
Total deposits as of March 31, 2025 were $1.4 billion, an increase of $10.7 million, or 0.7%, compared to December 31, 2024, and an increase of $2.2 million, or 0.2%, compared to March 31, 2024 (dollars in thousands).
No cost and low cost deposits:
Noninterest demand deposits
26.4
26.3
382,315
26.7
Interest checking accounts
19.8
21.3
284,789
19.9
33.0
30.7
415,311
29.0
Total noninterest and low cost deposit accounts
79.2
78.3
1,082,415
75.6
Time deposit accounts:
290,994
20.3
303,564
341,542
23.8
CDARS deposits
7,504
0.5
4,879
0.3
8,015
Total certificates of deposit and other time deposits
21.7
349,557
Total deposit account balances
1,431,972
Noninterest-bearing demand deposits on March 31, 2025 were $379.1 million, representing 26.4% of total deposits. Interest-bearing transaction, money market, and savings accounts totaled $756.7 million, and represented 52.8% of total deposits at March 31, 2025. Collectively, noninterest-bearing and interest-bearing transaction, money market and savings accounts represented 79.2% of total deposit accounts at March 31, 2025. These account types are an excellent source of low-cost funding for the Company.
The Company also offers insured cash sweep deposit products. ICS® deposit balances of $30.2 million and $147.4 million are included in the interest checking accounts and in the money market and savings deposit accounts balances,
respectively, in the table above, as of March 31, 2025. As of December 31, 2024, ICS® deposit balances of $22.8 million and $105.9 million are included in the interest checking accounts and in the money market and savings deposit account balances, respectively. All ICS® accounts consist of reciprocal balances for the Company’s customers. The Company currently holds no brokered or specialty CDs.
The remaining 20.8% of total deposits consisted of certificates of deposit and other time deposit accounts totaling $298.5 million at March 31, 2025. Included in these deposit totals are CDARSTM, whereby depositors can obtain FDIC deposit insurance on account balances of up to $50 million. CDARSTM deposits totaled $7.5 million as of March 31, 2025 and $4.9 million as of December 31, 2024, all of which were reciprocal balances for the Company’s customers.
As of March 31, 2025 and December 31, 2024, the estimated amounts of uninsured deposits were $331.9 million, or 24.0% and $360.0 million, or 25.5% of total deposits, respectively.
Borrowings, consisting primarily of FHLB advances, are additional sources of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company's ability to earn a favorable spread on the funds obtained. During the first three months of 2025, the Company took down and repaid $52.6 million in advances, leaving the outstanding borrowings at $20.0 million; advance activity is a component in the ongoing strategy to enhance the margin and meet funding opportunities as available.
As of March 31, 2025, based on the FHLB’s evaluation, the Company has an available credit position of $403 million, for which access can be negotiated based on multiple factors. The Company currently has a collateral dependent line of credit with the FHLB for $110.6 million, secured by commercial mortgages, with borrowings of $20.0 million as of March 31, 2025. As of December 31, 2024, there were $20.0 million in outstanding borrowings with the FHLB.
Additional borrowing arrangements maintained by the Company include formal unsecured federal funds lines with five major regional correspondent banks for a total of $119.0 million and a secured line with the Federal Reserve discount window in the amount of $4.0 million, based on the market value of the collateral. See above for outstanding balances in Federal funds purchased as of the dates presented.
Junior Subordinated Debt
In 2006, a subsidiary of Fauquier, Fauquier Statutory Trust II, privately issued $4.0 million face amount of the trust’s Floating Rate Capital Securities in a pooled capital securities offering. Simultaneously, the trust used the proceeds of that sale to purchase $4.0 million principal amount of the Fauquier’s Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of March 31, 2025 and December 31, 2024, total capital securities were $3.5 million, as adjusted to fair value as of the date of the Merger. Historically, the interest rate on the capital security reset every three months at 1.70% above the then current three-month LIBOR and was paid quarterly. With the cessation of LIBOR, on September 13, 2023, the rate converted to a spread adjustment of 0.03% plus a margin of 1.70% above the three-month CME Term SOFR.
The Trust II issuance of capital securities and the respective subordinated debentures are callable at any time. The subordinated debentures are an unsecured obligation of the Company and are junior in right of payment to all present and future senior indebtedness of the Company. The capital securities are guaranteed by the Company on a subordinated basis.
Shareholders' equity and regulatory capital ratios
The following table displays the changes in shareholders' equity for the Company from December 31, 2024 to March 31, 2025 (dollars in thousands):
Equity, December 31, 2024
Cash dividends declared
Equity increase due to expensing of stock options
Equity increase due to expensing of restricted stock
Equity, March 31, 2025
The Basel III capital rules require banks and bank holding companies to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%); and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).
The Company’s Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 18.12%, 18.12%, 18.92% and 11.83%, respectively, as of March 31, 2025, thus exceeding the minimum requirements. The Bank’s Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 17.95%, 17.95%, 18.76% and 11.71%, respectively, as of March 31, 2025, also exceeding the minimum requirements.
As of March 31, 2025, the Bank exceeded all of the following minimum capital ratios in order to be considered “well capitalized” under the PCA regulations, as revised: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage ratio of at least 5.0%.
RESULTS OF OPERATIONS
Non-GAAP presentations
The accounting and reporting policies of the Company conform to GAAP and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance. These include tangible book value per share, tangible equity and the following fully-taxable equivalent measures: net interest income-FTE, efficiency ratio-FTE and net interest margin-FTE. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented.
Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of (1) items that do not reflect ongoing operating performance, (2) balances of intangible assets, including goodwill, that vary significantly between institutions, and (3) tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered, or more important than, an alternative to GAAP-basis financial statements, and other banks and bank holding companies may define or calculate these or similar measures differently. Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.”
A reconcilement of the non-GAAP financial measures used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures is presented below (dollars in thousands, except for the per share data):
As of or for the Three Months Ended
March 31,2025
March 31,2024
Fully tax-equivalent measures
Net interest income (GAAP)
12,295
Fully tax-equivalent adjustment
85
87
Net interest income (FTE) (non-GAAP)
12,380
11,023
Efficiency ratio (GAAP)
62.8
67.2
-0.4
Efficiency ratio (FTE) (non-GAAP)
62.4
66.8
Net interest margin (GAAP)
3.26
2.91
0.02
Net interest margin (FTE) (non-GAAP)
3.28
2.93
Other financial measures
Book value per share (GAAP)
30.93
28.31
Impact of intangible assets
(2.09
(2.32
Tangible book value per share (non-GAAP)
28.84
25.99
Total equity (GAAP)
(11,265
(12,518
Tangible equity (non-GAAP)
155,516
140,059
Net income for the three months ended March 31, 2025 was $4.5 million, a $843 thousand increase compared to $3.6 million reported for the three months ended March 31, 2024. Net income per diluted share was $0.83 for the three months ended March 31, 2025 compared to $0.68 per diluted share for the same period in the prior year.
The increase in net income for the period noted above is primarily the result of increased net interest income, as discussed in more detail below.
Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets for the period. The level of interest rates, together with the volume and mix of earning assets and interest-bearing liabilities, impact net interest income (FTE) and net interest margin (FTE).
Net interest income (FTE) for the three months ended March 31, 2025 was $12.4 million, a $1.4 million increase compared to net interest income (FTE) of $11.0 million for the three months ended March 31, 2024. The net interest margin (FTE) of 3.28% for the three months ended March 31, 2025 was 35 bps higher than the 2.93% realized during the three months ended March 31, 2024. The main driver of this increase was increased volume of loans; the increase in average loan balances, from $1.1 billion for the three months ended March 31, 2024 to $1.2 billion for the three months ended March 31, 2025, positively impacted interest income by $1.5 million. This increase was partially offset by the decrease in the average balances of securities, decreasing from $370.3 million in the three months ended March 31, 2024 to $271.5 in the three months ended March 31, 2025, negatively impacting interest income (FTE) by $694 thousand period over period. Interest expense decreased $912 thousand, positively impacting net interest income (FTE) and net interest margin (FTE), compared
to the same period in the prior year. Overall, the cost of interest-bearing deposits decreased 30 bps period over period, from 273 bps to 243 bps.
Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP presentations section for a reconcilement of GAAP to non-GAAP net interest margin.
The following tables detail the average balance sheet, including an analysis of net interest income (FTE) for earning assets and interest-bearing liabilities, for the three months ended March 31, 2025 and 2024. These tables also include rate/volume analyses for these same periods (dollars in thousands).
Consolidated Average Balance Sheet and Analysis of Net Interest Income
For the Three Months Ended
Change in Interest Income/ Expense
Average
Change Due to : 4
Income/
Yield/Cost
Volume
Rate
Increase/
Expense
(Decrease)
Interest Earning Assets:
Taxable Securities
$205,705
$1,424
2.77%
$303,736
$2,277
3.00%
$(689)
$(164)
$(853)
Tax Exempt Securities 1
65,780
409
2.49%
66,589
413
2.48%
(5)
(4)
Total Securities 1
271,485
1,833
2.70%
370,325
2,690
2.91%
(694)
(163)
(857)
Loans:
Real Estate
946,762
13,386
5.73%
905,485
12,543
5.57%
580
263
843
253,559
3,091
4.94%
174,377
2,424
5.59%
994
(327)
667
33,199
556
6.79%
37,708
694
7.40%
(79)
(59)
(138)
1,233,520
5.60%
1,117,570
5.64%
1,495
(123)
1,372
16,876
4.42%
17,624
5.45%
(10)
(45)
(55)
7,694
2.21%
8,405
2.73%
(15)
Total Earning Assets
1,529,575
19,092
5.06%
1,513,924
18,647
4.95%
786
(341)
445
Less: Allowance for Credit Losses
(8,494)
(8,413)
Total Non-Earning Assets
108,278
109,862
Total Assets
$1,629,359
$1,615,373
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking
$274,777
$69
0.10%
$282,825
$71
$(2)
$0
Money Market and Savings Deposits
464,405
2.62%
411,973
2.85%
(271)
81
Time Deposits
306,331
4.04%
341,083
4.78%
(387)
(609)
(996)
Total Interest-Bearing Deposits
1,045,513
6,126
2.38%
1,035,881
7,043
(37)
(880)
(917)
558
5.09%
495
5.69%
(1)
42,765
4.83%
42,154
4.64%
8.09%
3,465
10.21%
(21)
(18)
Total Interest-Bearing Liabilities
1,092,347
1,081,995
2.83%
(26)
(886)
(912)
Non-Interest-Bearing Liabilities:
362,354
368,535
Other liabilities
9,872
11,537
Total Liabilities
1,464,573
1,462,067
Shareholders' Equity
164,786
153,306
Total Liabilities & Shareholders' Equity
Net Interest Income (FTE)
$12,380
$11,023
$812
$545
$1,357
Interest Rate Spread 2
2.57%
2.12%
Cost of Funds
1.87%
2.11%
Interest Expense as a Percentage of Average Earning Assets
1.78%
2.03%
Net Interest Margin (FTE) 3
3.28%
2.93%
Provision for credit losses
A recovery of provision for credit losses of $160 thousand was recognized during the three months ended March 31, 2025 compared to a recovery of $22 thousand recognized during the three months ended March 31, 2024. The first quarter 2025 recovery of provision for credit losses was comprised of $105 thousand of recovery of provision for loan losses and $55 thousand of recovery of provision for losses on unfunded commitments, primarily attributed to declines in balances within loan pools that had higher loss rates and a decline in unfunded construction commitments, respectively.
The decrease in unfunded commitment reserve from the prior quarter, and therefore the recovery of provision related thereto, was almost entirely due to the decrease in the balances of unfunded construction loans, declining from $21.1 million as of December 31, 2024 to $16.4 million as of March 31, 2025.
Further discussion of management’s assessment of the ACL is provided earlier in the report and in Note 5 – Allowance for Credit Losses, found in the Notes to the Consolidated Financial Statements. In management’s opinion, the ACL was adequately provided for at March 31, 2025. The ACL calculation, provision for credit losses, asset quality and collateral values may be significantly impacted by deterioration in economic conditions. Should economic conditions worsen, we could experience further increases in our required ACL and record additional provision for credit loss exposure.
Noninterest income
The components of noninterest income for the three months ended March 31, 2025 and 2024 are shown below (dollars in thousands):
Variance
(197
-46.2
(80
-20.7
(118
-24.2
6.5
612.8
-100.0
95
50.5
(418
-19.2
Noninterest income for the three months ended March 31, 2025 of $1.8 million was $418 thousand or 19.2% less than the amount recorded for the three months ended March 31, 2024, as a gain on early redemption of debt of $379 thousand and Masonry wealth management fees of $190 thousand were recognized in the prior year first quarter and not repeated in 2025. The declines were partially offset by a gain on the sale of a branch building of $278 thousand in the current year first quarter.
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Noninterest expense
The components of noninterest expense for the three months ended March 31, 2025 and 2024 are shown below (dollars in thousands):
(216
-5.2
4.5
8.8
-0.3
23.1
-0.5
(50
-25.6
2.4
1.6
232.4
(48
-14.0
3.7
0.1
Noninterest expense for the quarter ended March 31, 2025 of $8.8 million remained flat, increasing a mere $5 thousand, or 0.1%, compared to the quarter ended March 31, 2024. Decreased compensation expense of $216 thousand due to lower headcount was partially offset by increased legal fees of $165 thousand related to special projects and general inflationary increases in the costs of other services.
Provision for Income Taxes
For the three months ended March 31, 2025 and 2024, the Company provided $901 thousand and $671 thousand for Federal income taxes, respectively, resulting in effective income tax rates of 16.7% and 15.5%, respectively. For each period, the effective income tax rate differed from the U.S. statutory rate of 21% 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. The effective tax rate for the prior year period was lower than the current year due to the application of prior period tax adjustments.
OTHER SIGNIFICANT EVENTS
None
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level. There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of its operations, the Company and/or its subsidiaries are parties to various legal proceedings from time to time. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome of such proceedings, in the aggregate, will not have a material adverse effect on the business or financial condition of the Company and its subsidiaries.
ITEM 1A. RISK FACTORS.
During the quarter ended March 31, 2025, there have been no material changes from the risk factors described in the Company’s Form 10-K for the year ended December 31, 2024. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered not to be material also may materially adversely affect our business, financial condition and/or operating results.
45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) Sales of Unregistered Securities - None
(b) Use of Proceeds - Not Applicable
(c) Issuer Purchases of Securities
Stock Repurchase Program; Other Repurchases
On June 28, 2023, the Company's Board of Directors approved a share repurchase plan of up to 5% of outstanding common stock. The program was announced in a Current Report on Form 8-K on July 17, 2023. The first repurchases of stock under this plan occurred in February 2024. There were no shares of our common stock repurchased during the three months ended March 31, 2025.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable
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ITEM 6. EXHIBITS.
Exhibit
Number
Description of Exhibit
302 Certification of Principal Executive Officer
31.2
302 Certification of Principal Financial Officer
32.1
906 Certification
101
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline eXtensible Business Reporting Language, pursuant to Rule 405 of Regulation S-T (1): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Shareholders' Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited), tagged as blocks of text and including detailed tags
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101.0)
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
/s/ Glenn W. Rust
Glenn W. Rust
President and Chief Executive Officer
(principal executive officer)
Date:
May 9, 2025
/s/ Tara Y. Harrison
Tara Y. Harrison
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)