Virginia National Bankshares Corp

Total assets

The total assets of the Company as of June 30, 2025 were $1.6 billion. This is an $18.1 million, or 1.1%, increase from total assets reported at December 31, 2024 and a $61.1 million, or 3.9%, increase from total assets reported at June 30, 2024. Maturities and paydowns within the securities portfolio are being held in overnight investments to fund loan growth as demands arise. In addition, increases of $41.0 million in borrowings since December 31, 2024 have offset deposit contraction as management has continued intentional positioning to curb interest rates.

Securities

The Company’s investment securities portfolio as of June 30, 2025 totaled $263.0 million, a decrease of $6.7 million compared with the $269.7 million reported at December 31, 2024 and a $28.3 million decrease from the $291.4 million reported at June 30, 2024. The decrease from year-end and the prior year was part of a strategic decision to reinvest proceeds into higher yielding assets. At June 30, 2025 and December 31, 2024, the investment securities holdings represented 16.1% and 16.7% of the Company’s total assets, respectively.

The Company’s investment securities portfolio included restricted securities totaling $8.1 million as of June 30, 2025, compared to $6.2 million as of December 31, 2024 and $6.7 million as of June 30, 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 June 30, 2025, the unrestricted securities portfolio totaled $254.9 million. The following table summarizes the Company's AFS securities by type as of June 30, 2025, December 31, 2024, and June 30, 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 June 30, 2025, December 31, 2024, and June 30, 2024. Loans as a percentage of total assets at June 30, 2025 were 75.9%, compared to 73.6% as of June 30, 2024. Loans as a percentage of deposits at June 30, 2025 were 89.4%, compared to 84.3% as of June 30, 2024.

The following table summarizes the Company's loan portfolio by type of loan as of June 30, 2025, December 31, 2024, and June 30, 2024 (dollars in thousands):

Loan balances increased by $5.7 million or 0.5% from December 31, 2024 to June 30, 2025. During the first half of 2025, the Company funded $40.7 million in organic loan production and purchased $17.2 million in government guaranteed loans. Paydowns and normal amortization of $52.2 million offset the loans funded during the first half of the current year.

The following table details the Company's levels of non-owner occupied commercial real estate as of June 30, 2025, along with the average loan size and % of risk ratings for each category (dollars in thousands):

The following table details the Company's levels of non-owner occupied commercial real estate as of December 31, 2024, along with the average loan size and % of risk ratings for each category (dollars in thousands):

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, higher interest rates, and other signs of recession materialize, which could increase NPAs in future periods.

Nonaccruals -Nonaccrual loans, comprised of fourteen loans to thirteen borrowers, totaled $2.6 million at June 30, 2025, compared to balances of $2.3 million and $2.4 million reported at December 31, 2024 and June 30, 2024, respectively.

Past Due Loans -The Company had loans in its portfolio totaling $5.2 million, $754 thousand and $1.6 million, as of June 30, 2025, December 31, 2024 and June 30, 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 June 30, 2025 is comprised of six loans totaling $5.1 million which are 100% government-guaranteed, and four student loans totaling $31 thousand.

Troubled Loan Modifications -No loans were modified during the three months ended June 30, 2025. During the first quarter of 2024, one loan was modified for a borrower experiencing financial difficulties, totaling $703 thousand. As of June 30, 2025, the Company had TLMs totaling $1.2 million.

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 June 30, 2025, 0.68% as of December 31, 2024, and 0.69% as of June 30, 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 $5.7 million as of June 30, 2025.

Recoveries of credit losses totaling $15 thousand and $508 thousand were recorded in the six months ended June 30, 2025 and 2024, respectively. The following is a summary of the changes in the ACL for the six months ended June 30, 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-classified 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 June 30, 2025 and acknowledges that the ACL may increase throughout the year as economic conditions may continue to deteriorate for the foreseeable future.

Premises and equipment

The Company’s premises and equipment, net of depreciation, as of June 30, 2025 totaled $12.2 million compared to $15.4 million as of December 31, 2024 and $15.8 million as of June 30, 2024, decreasing from prior year due to the sale of a branch facility in the first quarter of 2025. 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 June 30, 2025, the Company occupied thirteen full-service banking facilities throughout Albemarle, Fauquier and Prince William counties and the cities of Charlottesville, Richmond, Manassas and Winchester, Virginia. The Company also operates 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 June 30, 2025, the Company has recorded $7.0 million of right-of-use assets and $6.9 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 second quarter of 2025, the Company extended the ground lease associated with the Pantops headquarters for an additional five-year period. 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 June 30, 2025 were $1.4 billion, a decrease of $34.5 million, or 2.4%, compared to December 31, 2024, yet an increase of $15.2 million, or 1.1%, compared to June 30, 2024 (dollars in thousands).

Noninterest-bearing demand deposits on June 30, 2025 were $384.5 million, representing 27.7% of total deposits. Interest-bearing transaction, money market, and savings accounts totaled $723.1 million, and represented 52.1% of total deposits at June 30, 2025. Collectively, noninterest-bearing and interest-bearing transaction, money market and savings accounts represented 79.8% of total deposit accounts at June 30, 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 $26.5 million and $133.1 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 June 30, 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 20.2% of total deposits consisted of certificates of deposit and other time deposit accounts totaling $281.4 million at June 30, 2025, decreasing from the balances as of December 31, 2024 as a result of the discontinuance of several interest rate promotions that the Bank ran in 2024. 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 $7.6 million as of June 30, 2025 and $4.9 million as of December 31, 2024, all of which were reciprocal balances for the Company’s customers.

As of June 30, 2025 and December 31, 2024, the estimated amounts of uninsured deposits were $371.5 million, or 26.7% and $389.6 million, or 27.3% of total deposits, respectively.

Federal funds purchased

The Company did not purchase federal funds at June 30, 2025, compared to $236 thousand at December 31, 2024 and $2.4 million at June 30, 2024. Any excess funds are sold on a daily basis in the federal funds market and Federal funds are purchased as needed to meet liquidity needs.

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. The Company borrowed an additional $41.0 million in FHLB advances during the first six months of 2025, primarily utilizing proceeds from the borrowings to fund demands on deposits.

As of June 30, 2025, based on the FHLB’s evaluation, the Company has an available credit position of $408 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 $61.0 million as of June 30, 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 $3.2 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 June 30, 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 June 30, 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 18.65%, 18.65%, 19.46% and 12.12%, respectively, as of June 30, 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 18.65%, 18.65%, 19.46% and 12.12%, respectively, as of June 30, 2025, also exceeding the minimum requirements.

As of June 30, 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%.