Virginia National Bankshares Corp

Total assets

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):

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):

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.

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):

March 31, 2025

December 31, 2024

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.

Allowance for Credit Losses

The relationship of the ACL to total loans and nonaccrual loans appears below (dollars in thousands):

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):

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.

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).

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

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):

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%.