VABK Virginia National Bankshares Corporation

CHARLOTTESVILLE, Va., Oct. 17, 2024 /PRNewswire/ -- Virginia National Bankshares Corporation (NASDAQ: VABK) (the "Company") today reported quarterly net income of $4.6 million, or $0.85 per diluted share, for the quarter ended September 30, 2024, compared to $4.7 million, or $0.86 per diluted share, recognized for the quarter ended September 30, 2023.  For the nine months ended September 30, 2024, the Company recognized net income of $12.4 million, or $2.30 per diluted share, compared to $16.1 million, or $2.99 per diluted share, for the nine months ended September 30, 2023. 

The decline in year-to-date 2024 net income compared to 2023 is primarily the result of 1) increased cost of funds and 2) the receipt in the prior year of bank-owned life insurance proceeds as a result of the death of a former employee, which was offset by an increase in interest income and a decline in operating expenses. 

President and Chief Executive Officer's comments:  "Our measures to reduce ongoing overhead costs are paying off for us as evidenced through reduced noninterest expenses," stated Glenn W. Rust, President and Chief Executive Officer.  "In addition, we continue to put new loans on the books, increasing loan balances 11% during 2024 and 19% year-over-year, and our credit quality metrics remain strong.  Our capital and liquidity positions continue to be solid and stable."

Key Performance Indicators
Third Quarter 2024 Compared to Second Quarter 2024

• • Return on average assets increased to 1.15% from 1.05%
  • Return on average equity increased to 11.44% from 11.07%
  • Net interest margin (FTE)¹ improved to 3.24% from 3.04%
  • Loan-to-deposit ratio increased to 88.1% from 84.3%
  • Efficiency ratio (FTE)¹ improved to 58.6% from 62.7%

September 2024 Balance Sheet Highlights

• The Company continued to experience loan growth in the third quarter of 2024. Gross loans outstanding as of September 30, 2024 totaled $1.2 billion, an increase of $122.8 million, or 11.2%, compared to December 31, 2023 and an increase of $195.0 million, or 19.1%, compared to September 30, 2023.
• As of September 30, 2024, the Company had unused borrowing facilities in place of approximately $160.4 million and held no brokered deposits.
• Securities balances declined $141.9 million from December 31, 2023 to September 30, 2024; funds from the maturities of investments were repurposed to higher yielding assets in the form of loans.
• The Company utilizes a third-party to offer multi-million-dollar FDIC insurance to customers with balances in excess of single-bank limits through Insured Cash Sweep^® (ICS) plans. Deposit balances held in ICS plans amounted to $145.6 million as of September 30, 2024, $151.5 million as of December 31, 2023 and $128.7 million as of September 30, 2023.
• Total deposits decreased $29.2 million, or 2.1% from December 31, 2023 to September 30, 2024 and increased $9.6 million, or 0.7% year-over-year.
• Outstanding borrowings declined $14.0 million, or 21.1%, from December 31, 2023 to September 30, 2024, as management made a concerted effort to stabilize overall cost of funds.

Loans and Asset Quality

• Credit performance remains strong with nonperforming assets as a percentage of total assets of 0.33% as of September 30, 2024, 0.17% as of December 31, 2023 and 0.13% as of September 30, 2023.
• Nonperforming assets amounted to $5.3 million as of September 30, 2024, compared to $2.7 million as of December 31, 2023 and $2.0 million as of September 30, 2023;
  • Ten loans to nine borrowers are in non-accrual status, totaling $2.1 million, as of September 30, 2024, compared to $1.9 million as of December 31, 2023 and $1.1 million as of September 30, 2023.
  • Loans 90 days or more past due and still accruing interest amounted to $3.2 million as of September 30, 2024, compared to $880 thousand as of December 31, 2023 and $854 thousand as of September 30, 2023. The past due balance as of September 30, 2024 is comprised of four loans totaling $3.1 million which are 100% government-guaranteed, and four student loans totaling $66 thousand.
  • The Company currently holds no other real estate owned.
• The period-end Allowance for Credit Losses ("ACL") as a percentage of total loans was 0.70% as of September 30, 2024, 0.77% as of December 31, 2023 and 0.76% as of September 30, 2023. The proportionate increase in government-guaranteed loans over the respective periods is the driver of the decrease in the ACL as a percentage of total loans. Balances in government-guaranteed loans have increased $111.1 million during the first nine months of 2024 and have increased $141.3 million since September 30, 2023. Such loans are 100% government-guaranteed and do not require an ACL.
• The fair value mark that was allocated to the acquired loans was $21.3 million as of April 1, 2021, with a remaining balance of $7.3 million as of September 30, 2024.
• For the three months ended September 30, 2024, the Company recorded a net recovery of provision for credit losses of $114 thousand, as the recovery of a previously charged-off loan nearly offset the increase in provision required for new loan balances; this balance includes a $111 thousand recovery of provision for unfunded reserves, as a result of a decline in unfunded construction commitments.

Net Interest Income

• Net interest income for the three months ended September 30, 2024 of $12.0 million increased $924 thousand, or 8.3%, compared to the three months ended September 30, 2023, as the increase in interest income earned on assets outweighed the interest expense on deposit accounts and borrowings.
• Net interest margin (FTE), (a non-GAAP financial measure)¹, for the three months ended September 30, 2024 was 3.24%, compared to 2.89% and 3.04% for the three months ended December 31, 2023 and the three months ended September 30, 2023, respectively. The increase as compared to the third quarter of 2023 was primarily due to the increase in yield on loans, described below.
• Yield on loans was 5.85% for the three months ended September 30, 2024, compared to 5.53% for the prior year same period, and was 5.73% for the nine months ended September 30, 2024, compared to 5.81% for the prior year same period. The accretion of the credit mark related to purchased loans positively impacted interest income by 25 bps in the third quarter of 2024, compared to 27 bps in the third quarter of 2023.
• The overall cost of funds, including noninterest-bearing deposits, of 207 bps incurred in the three months ended September 30, 2024 increased 35 bps from 172 bps in the same period in the prior year. Overall, the cost of interest-bearing deposits increased period over period, from a cost of 226 bps to 271 bps. Management believes that the Bank's cost of funds stabilized during the first half of 2024, as the cost of funds and cost of interest bearing deposits is relatively unchanged during the nine months ended September 30, 2024.

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Noninterest Income
Noninterest income for the three months ended September 30, 2024 decreased $1.2 million, or 45.1%, compared to the three months ended September 30, 2023, primarily due to the recognition of bank-owned life insurance proceeds during the prior period due to the death of a former employee, as well as lower wealth management, deposit account, debit card, credit card and ATM fees.  

Noninterest Expense
Noninterest expense for the three months ended September 30, 2024 decreased $397 thousand, or 4.8%, compared to the three months ended September 30, 2023.  This decrease is primarily the result of lower compensation and occupancy costs, as a result of right-sizing the branch network from the merger, and reduced marketing, advertising and promotion expense.

Book Value
Book value per share increased to $30.89 as of September 30, 2024, compared to $25.29 as of September 30, 2023, and tangible book value per share (a non-GAAP financial measure)¹ was $28.68 as of September 30, 2024 compared to $22.83 as of September 30, 2023.  These values increased as net retained income increased and unrealized losses in the investment portfolio declined period over period.

Income Taxes
The effective tax rates amounted to 18.5% and 15.0% for the three months ended September 30, 2024 and 2023, respectively, which are lower than the statutory rate, due to the recognition of low-income housing tax credits and the effect of tax-exempt income from municipal bonds and income from bank owned life insurance policies.

Dividends
Cash dividends of $1.8 million, or $0.33 per share, were declared and paid during the third quarter of 2024.

Share Repurchase Plan
Year-to-date, the Company has repurchased 20,350 shares at an average price of $27.42 per share.  No shares were repurchased during the third quarter of 2024.

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About Virginia National Bankshares Corporation

Virginia National Bankshares Corporation, headquartered in Charlottesville, Virginia, is the bank holding company for Virginia National Bank. The Bank has nine banking offices throughout Fauquier and Prince William counties, three banking offices in Charlottesville and Albemarle County, and banking offices in Winchester and Richmond, Virginia.  The Bank offers a full range of banking and related financial services to meet the needs of individuals, businesses and charitable organizations, including the fiduciary services of VNB Trust and Estate Services. The Company's common stock trades on the Nasdaq Capital Market under the symbol "VABK."  Additional information on the Company is also available at www.vnbcorp.com.

Non-GAAP Financial Measures

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP") and prevailing practices in the banking industry. However, management uses certain non-GAAP measures to supplement the evaluation of the Company's performance. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core businesses. These non-GAAP disclosures should not be viewed as a substitute for, or more important than, operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP measures are included at the end of this release.

Forward-Looking Statements; Other Information

Certain statements in this release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, statements with respect to the Company's operations, performance, future strategy and goals, and are often characterized by use of qualified words such as "expect," "believe," "estimate," "project," "anticipate," "intend," "will," "should," or words of similar meaning or other statements concerning the opinions or judgement of the Company and its management about future events. While Company management believes such statements to be reasonable, future events and predictions are subject to circumstances that are not within the control of the Company and its management.  Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in: inflation, interest rates, market and monetary fluctuations; liquidity and capital requirements; market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts or other major events, the governmental and societal responses thereto, or the prospect of these events; changes, particularly declines, in general economic and market conditions in the local economies in which the Company operates, including the effects of declines in real estate values;  the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the impact of changes in laws, regulations and guidance related to financial services  including, but not limited to, taxes, banking, securities and insurance; changes in accounting principles, policies and guidelines; the financial condition of the Company's borrowers; the Company's ability to attract, hire, train and retain qualified employees; an increase in unemployment levels; competitive pressures on loan and deposit pricing and demand; fluctuation in asset quality; assumptions that underlie the Company's ACL; the value of securities held in the Company's investment portfolio; performance of assets under management; cybersecurity threats or attacks and the development and maintenance of reliable electronic systems; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors' products and services for the Company's products and services; the risks and uncertainties described from time to time in the Company's press releases and filings with the SEC; and the Company's performance in managing the risks involved in any of the foregoing.  Many of these factors and additional risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 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.