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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30,
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 CORP
ORATION
(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 August 11, 2025, the registrant had
5,391,979
shares of common stock, $2.50 par value per share, outstanding.
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. FINANCI
AL INFORMATION
ITEM 1. FINAN
CIAL STATEMENTS
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED B
ALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, 2025
December 31, 2024 *
ASSETS
Unaudited
Cash and due from banks
$
5,999
$
5,311
Interest-bearing deposits in other banks
9,840
11,792
Federal funds sold
22,683
-
Securities:
Available for sale, at fair value
254,909
263,537
Restricted securities, at cost
8,120
6,193
Total securities
263,029
269,730
Loans, net of deferred fees and costs
1,241,712
1,235,969
Allowance for credit losses
(
8,347
)
(
8,455
)
Loans, net
1,233,365
1,227,514
Premises and equipment, net
12,204
15,383
Bank owned life insurance
40,659
40,059
Goodwill
7,768
7,768
Core deposit intangible, net
3,213
3,792
Right of use asset, net
7,032
5,551
Deferred tax asset, net
14,084
15,407
Accrued interest receivable and other assets
15,046
14,519
Total assets
$
1,634,922
$
1,616,826
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest bearing
$
384,538
$
374,079
Interest bearing
266,012
303,405
Money market and savings deposit accounts
457,077
437,619
Certificates of deposit and other time deposits
281,438
308,443
Total deposits
1,389,065
1,423,546
Federal funds purchased
-
236
Borrowings
61,000
20,000
Junior subordinated debt, net
3,530
3,506
Lease liability
6,888
5,389
Accrued interest payable and other liabilities
3,667
3,847
Total liabilities
1,464,150
1,456,524
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $
2.50
par value
-
-
Common stock, $
2.50
par value
13,318
13,263
Capital surplus
106,834
106,394
Retained earnings
87,514
82,507
Accumulated other comprehensive loss
(
36,894
)
(
41,862
)
Total shareholders' equity
170,772
160,302
Total liabilities and shareholders' equity
$
1,634,922
$
1,616,826
Common shares outstanding
5,391,979
5,370,912
Common shares authorized
10,000,000
10,000,000
Preferred shares outstanding
-
-
Preferred shares authorized
2,000,000
2,000,000
*
Derived from audited Consolidated Financial Statements
See Notes to Consolidated Financial Statements
4
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STAT
EMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For the three months ended
For the six months ended
June 30, 2025
June 30, 2024
June 30, 2025
June 30, 2024
Interest and dividend income:
Loans, including fees
$
17,330
$
16,242
$
34,363
$
31,903
Federal funds sold
64
160
248
399
Other interest-bearing deposits
45
58
87
115
Investment securities:
Taxable
1,265
1,776
2,574
3,935
Tax exempt
323
327
646
653
Dividends
109
100
224
218
Total interest and dividend income
19,136
18,663
38,142
37,223
Interest expense:
Demand deposits
67
68
136
139
Money market and savings deposits
2,927
2,952
5,930
5,874
Certificates and other time deposits
2,670
3,982
5,724
8,032
Borrowings
582
388
1,091
874
Federal funds purchased
18
9
25
16
Junior subordinated debt
76
83
146
171
Total interest expense
6,340
7,482
13,052
15,106
Net interest income
12,796
11,181
25,090
22,117
Provision for (recovery of) credit losses
3
(
338
)
(
157
)
(
360
)
Net interest income after provision for (recovery of) credit losses
12,793
11,519
25,247
22,477
Noninterest income:
Wealth management fees
206
240
435
666
Deposit account fees
293
338
600
725
Debit/credit card and ATM fees
355
523
725
1,011
Bank owned life insurance income
307
289
600
564
Gains (losses) on sale of assets, net
-
(
3
)
278
36
Gain on early redemption of debt
-
-
-
379
Loss on sales of AFS, net
-
-
-
(
4
)
Other
150
304
433
492
Total noninterest income
1,311
1,691
3,071
3,869
Noninterest expense:
Salaries and employee benefits
3,863
3,850
7,799
8,002
Net occupancy
889
865
1,905
1,837
Equipment
202
167
388
338
Bank franchise tax
489
345
828
685
Computer software
266
276
522
484
Data processing
732
579
1,467
1,318
FDIC deposit insurance assessment
145
180
290
375
Marketing, advertising and promotion
179
157
433
405
Professional fees
331
190
587
442
Legal fees
225
9
461
80
Core deposit intangible amortization
284
332
579
675
Other
1,076
1,172
2,246
2,300
Total noninterest expense
8,681
8,122
17,505
16,941
Income before income taxes
5,423
5,088
10,813
9,405
Provision for income taxes
1,185
929
2,086
1,600
Net income
$
4,238
$
4,159
$
8,727
$
7,805
Net income per common share, basic
$
0.79
$
0.77
$
1.62
$
1.45
Net income per common share, diluted
$
0.78
$
0.77
$
1.61
$
1.45
Weighted average common shares outstanding, basic
5,391,979
5,377,055
5,385,461
5,371,972
Weighted average common shares outstanding, diluted
5,417,900
5,385,770
5,410,430
5,382,980
See Notes to Consolidated Financial Statements
5
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
For the three months ended
For the six months ended
June 30, 2025
June 30, 2024
June 30, 2025
June 30, 2024
Net income
$
4,238
$
4,159
$
8,727
$
7,805
Other comprehensive income (loss):
Unrealized gains (losses) on securities, net of tax of $
385
and $
1,321
for the three and six months ended June 30, 2025, respectively, and net of tax benefit of ($
116
) and ($
783
) for the three and six months ended June 30, 2024, respectively
1,447
(
436
)
4,968
(
2,947
)
Reclassification adjustment for realized losses on securities, net of tax of $
1
for the six months ended June 30, 2024
—
—
—
3
Total other comprehensive income (loss)
1,447
(
436
)
4,968
(
2,944
)
Total comprehensive income
$
5,685
$
3,723
$
13,695
$
4,861
See Notes to Consolidated Financial Statements
6
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CH
ANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024
(Dollars in thousands, except per share data)
(Unaudited)
Common Stock
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
-
-
24
Restricted stock grant expense
-
171
-
-
171
Vested stock grants
21
(
21
)
-
-
-
Shares repurchased
(
2
)
(
24
)
-
-
(
26
)
Cash dividends declared ($
0.33
per share)
-
-
(
1,770
)
-
(
1,770
)
Net income
-
-
3,646
-
3,646
Other comprehensive loss
-
-
-
(
2,508
)
(
2,508
)
Balance, March 31, 2024
$
13,277
$
106,195
$
75,657
$
(
42,552
)
$
152,577
Stock option expense
-
35
-
-
35
Restricted stock grant expense
-
217
-
-
217
Vested stock grants
28
(
28
)
-
-
-
Shares repurchased
(
49
)
(
484
)
-
-
(
533
)
Cash dividends declared ($
0.33
per share)
-
-
(
1,772
)
-
(
1,772
)
Net income
-
-
4,159
-
4,159
Adjustment for Masonry Capital distribution
-
-
(
83
)
-
(
83
)
Other comprehensive loss
-
-
-
(
436
)
(
436
)
Balance, June 30, 2024
$
13,256
$
105,935
$
77,961
$
(
42,988
)
$
154,164
Balance, December 31, 2024
$
13,263
$
106,394
$
82,507
$
(
41,862
)
$
160,302
Stock option expense
-
34
-
-
34
Restricted stock grant expense
-
214
-
-
214
Vested stock grants
33
(
33
)
-
-
-
Cash dividends declared ($
0.33
per share)
-
-
(
1,779
)
-
(
1,779
)
Net income
-
-
4,489
-
4,489
Other comprehensive income
-
-
-
3,521
3,521
Balance, March 31, 2025
$
13,296
$
106,609
$
85,217
$
(
38,341
)
$
166,781
Stock option expense
-
35
-
-
35
Restricted stock grant expense
-
212
-
-
212
Vested stock grants
22
(
22
)
-
-
-
Cash dividends declared ($
0.36
per share)
-
-
(
1,941
)
-
(
1,941
)
Net income
-
-
4,238
-
4,238
Other comprehensive income
-
-
-
1,447
1,447
Balance, June 30, 2025
$
13,318
$
106,834
$
87,514
$
(
36,894
)
$
170,772
See Notes to Consolidated Financial Statements
7
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEM
ENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the six months ended
June 30, 2025
June 30, 2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
8,727
$
7,805
Adjustments to reconcile net income to net cash provided by operating activities:
Recovery of credit losses
(
157
)
(
360
)
Net accretion of certain acquisition-related adjustments
(
1,038
)
(
1,139
)
Amortization of intangible assets
579
675
Net amortization of securities
398
120
Net losses on sale of AFS
-
4
Net gain on early redemption of debt
-
(
379
)
Net gains on sale of assets
(
278
)
(
36
)
Earnings on bank owned life insurance
(
600
)
(
564
)
Depreciation and other amortization
1,553
1,479
Stock option expense
69
59
Restricted stock expense
426
388
Net change in:
Accrued interest receivable and other assets
(
527
)
(
10,859
)
Accrued interest payable and other liabilities
(
322
)
(
443
)
Net cash provided by (used in) operating activities
8,830
(
3,250
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in restricted investments
(
1,927
)
1,718
Proceeds from maturities, calls, sales and principal payments of available for sale securities
14,519
132,041
Net change in loans
(
5,328
)
(
64,393
)
Proceeds from sale of premises and equipment
3,047
104
Purchase of bank premises and equipment
(
285
)
(
428
)
Net cash provided by investing activities
10,026
69,042
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits, money market and savings accounts
(
7,476
)
(
52,166
)
Net change in certificates of deposit and other time deposits
(
27,005
)
16,909
Net change in Federal funds purchased
(
236
)
(
1,024
)
Net change in other borrowings
41,000
(
36,500
)
Repurchase of shares of stock
-
(
559
)
Cash dividends paid
(
3,720
)
(
3,542
)
Net cash provided by (used in) financing activities
2,563
(
76,882
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$
21,419
$
(
11,090
)
CASH AND CASH EQUIVALENTS:
Beginning of period
$
17,103
$
28,390
End of period
$
38,522
$
17,300
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest
$
13,503
$
15,127
Taxes
2,090
1,530
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Unrealized gains (losses) on available for sale securities
$
6,289
$
(
3,727
)
Initial right-of-use assets obtained in exchange for new operating lease liabilities
2,338
281
See Notes to Consolidated Financial Statements
8
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
June 30, 2025
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 subsidiary Virginia National Bank, and for the first quarter of 2024 presentation, its former subsidiary Masonry Capital Management, LLC, a registered investment advisor. Effective April 1, 2024, the Company sold the membership interests in Masonry Capital 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 assets and fair value measurements. Operating results for the three and six months ended June 30, 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.
Expense Disaggregation Disclosures -
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.
SEC Related Disclosure Improvements -
In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.
9
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 3. Securities
The amortized cost and fair values of securities available for sale as of
June 30, 2025 and December 31, 2024 were as follows (dollars in thousands):
June 30, 2025
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
(Losses)
Value
U.S. Government agencies
34,753
-
(
4,092
)
30,661
Mortgage-backed/CMOs
150,228
17
(
20,911
)
129,334
Corporate bonds
13,832
-
(
52
)
13,780
Municipal bonds
102,797
2
(
21,665
)
81,134
Total Securities Available for Sale
$
301,610
$
19
$
(
46,720
)
$
254,909
December 31, 2024
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
(Losses)
Value
U.S. Government treasuries
$
1,500
$
-
$
(
7
)
$
1,493
U.S. Government agencies
34,998
-
(
5,363
)
29,635
Mortgage-backed/CMOs
158,554
14
(
25,757
)
132,811
Corporate bonds
17,782
-
(
191
)
17,591
Municipal bonds
103,693
-
(
21,686
)
82,007
Total Securities Available for Sale
$
316,527
$
14
$
(
53,004
)
$
263,537
As of June 30, 2025, there were
$
250.8
million
or
265
issues of individual securities, held in an unrealized loss position. These securities have an unrealized loss of
$
46.7
million
and consist of
115
mortgage-backed/collateralized mortgage obligations,
124
municipal bonds,
19
agency bonds, and
7
corporate bonds.
Accrued interest receivable on AFS securities as of June 30, 2025 and December 31, 2024
amounted to $
1.4
and $
1.5
million, 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
June 30, 2025, and December 31, 2024 (dollars in thousands):
Less than 12 Months
12 Months or More
Total
June 30, 2025
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
U.S. Government agencies
-
-
30,604
(
4,092
)
30,604
(
4,092
)
Mortgage-backed/CMOs
-
-
127,281
(
20,911
)
127,281
(
20,911
)
Corporate bonds
-
-
13,780
(
52
)
13,780
(
52
)
Municipal bonds
1,328
(
15
)
77,767
(
21,650
)
79,095
(
21,665
)
$
1,328
$
(
15
)
$
249,432
$
(
46,705
)
$
250,760
$
(
46,720
)
10
Less than 12 Months
12 Months or More
Total
December 31, 2024
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
U.S. Government treasuries
$
-
$
-
$
1,493
$
(
7
)
$
1,493
$
(
7
)
U.S. Government agencies
-
-
29,551
(
5,363
)
$
29,551
$
(
5,363
)
Mortgage-backed/CMOs
-
-
130,128
(
25,757
)
$
130,128
$
(
25,757
)
Corporate bonds
-
-
17,591
(
191
)
$
17,591
$
(
191
)
Municipal bonds
2,284
(
19
)
78,648
(
21,667
)
$
80,932
$
(
21,686
)
$
2,284
$
(
19
)
$
257,411
$
(
52,985
)
$
259,695
$
(
53,004
)
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 June 30, 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 $
22.7
million and $
21.9
million at
June 30, 2025 and December 31, 2024, respectively.
There were
no
sales of AFS securities during the
six months ended June 30, 2025. During the six months ended June 30, 2024
, the Company sold AFS securities with a total book value of $
39.6
million, incurring a pre-tax loss of $
4
thousand. These 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
$
8.1
million
and
$
6.2
million
as of June 30, 2025 and December 31, 2024, respectively, are carried at cost.
11
The amortized cost and fair value of AFS debt securities at
June 30, 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
U.S. Government agencies
After one year to five years
$
12,194
$
11,206
After five years to ten years
20,559
17,920
Ten years or more
2,000
1,535
$
34,753
$
30,661
Mortgage-backed/CMOs
One year or less
$
1,456
$
1,441
After one year to five years
3,485
3,333
After five years to ten years
5,044
4,832
Ten years or more
140,243
119,728
$
150,228
$
129,334
Corporate bonds
One year or less
$
7,997
$
7,974
After one year to five years
5,835
5,806
$
13,832
$
13,780
Municipal bonds
After one year to five years
$
7,151
$
6,975
After five years to ten years
22,275
20,298
Ten years or more
73,371
53,861
$
102,797
$
81,134
Total Debt Securities Available for Sale
$
301,610
$
254,909
12
Note 4. Loans
The composition of the loan portfolio by major loan classifications at
June 30, 2025 and December 31, 2024
, stated at their face amount, net of deferred fees and costs and discounts, including fair value marks, appears below (dollars in thousands). The Company has elected to exclude accrued interest receivable, totaling $
4.8
million and $
4.9
million as of
June 30, 2025 and December 31, 2024, respectively, from the amortized cost basis of loans.
June 30,
December 31,
2025
2024
Commercial
$
261,841
$
257,671
Real estate construction and land
25,465
36,977
1-4 family residential mortgages
306,564
313,610
Commercial mortgages
616,336
593,496
Consumer
31,506
34,215
Total loans
1,241,712
1,235,969
Less: Allowance for credit losses
(
8,347
)
(
8,455
)
Net loans
$
1,233,365
$
1,227,514
The balances in the table above include unamortized premiums and net deferred loan costs and fees. As of June 30, 2025 and December 31, 2024, unamortized premiums from purchases of loans (excluding loans acquired during the Merger) were
$
10.8
million
, and $
10.3
million, respectively, due primarily to purchases of government-guaranteed loans. Net deferred loan costs and fees totaled
$
3.0
million
as of June 30, 2025
and $
3.1
million as of
December 31, 2024, respectively.
Consumer loans include $
60
thousand and $
36
thousand of demand deposit overdrafts as of
June 30, 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 w
as $
23.1
million. The table above includes a remaining net fair value mark of
$
5.7
million
as of June 30, 2025 on the Acquired Loans.
The following table shows the aging of the Company's loan portfolio, by class, at
June 30, 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
Commercial
$
1,983
$
4,727
$
5,147
$
-
$
249,984
$
261,841
Real estate construction and land
-
-
-
-
25,465
25,465
1-4 family residential mortgages
921
369
-
2,614
302,660
306,564
Commercial mortgages
118
-
-
-
616,218
616,336
Consumer loans
52
68
31
-
31,355
31,506
Total Loans
$
3,074
$
5,164
$
5,178
$
2,614
$
1,225,682
$
1,241,712
13
The following table shows the aging of the Company's loan portfolio, by class, at December 31, 2024 (dollars in thousands):
30-59 Days
60-89 Days
90 Days or More
Nonaccrual Loans
Current Loans
Total Loans
Commercial
$
9,173
$
354
$
705
$
-
$
247,439
$
257,671
Real estate construction and land
-
-
-
-
36,977
36,977
1-4 family residential mortgages
1,131
317
-
2,267
309,895
313,610
Commercial mortgages
-
-
-
-
593,496
593,496
Consumer loans
66
90
49
-
34,010
34,215
Total Loans
$
10,370
$
761
$
754
$
2,267
$
1,221,817
$
1,235,969
The following table shows the Company's amortized cost basis of loans on nonaccrual status as of
June 30, 2025
(dollars in thousands).
All nonaccrual loans are evaluated for an ACL on an individual basis. As of
June 30, 2025
, only
one
nonaccrual loan required an ACL, in the amount of $
4
thousand, due to collateral value shortfall, and as of December 31, 2024, only
one
nonaccrual loan required an ACL, in the amount
of $
28
thousand, also due
to collateral value shortfall.
June 30, 2025
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
Commercial
$
-
$
-
$
-
Real estate construction and land
-
-
-
1-4 family residential mortgages
2,430
184
2,614
Commercial mortgages
-
-
-
Consumer
-
-
-
Total Nonaccrual Loans
$
2,430
$
184
$
2,614
The following table shows the Company's amortized cost basis of loans on nonaccrual status as of December 31, 2024 (dollars in thousands).
December 31, 2024
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
Commercial
$
-
$
-
$
-
Real estate construction and land
-
-
-
1-4 family residential mortgages
1,887
380
2,267
Commercial mortgages
-
-
-
Consumer
-
-
-
Total Nonaccrual Loans
$
1,887
$
380
$
2,267
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 June 30, 2025 and 2024 and the six months ended June 30, 2025
,
no
loans were modified to borrowers who were experiencing financial difficulty. During the first quarter of 2024,
one
1-4 family residential mortgage loan was modified for a borrower experiencing financial difficulties, in the amount of $
703
thousand and representing
0.002
% of this loan segment, 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
loan that has been modified by the Bank is in payment default as of
June 30, 2025 as the loan is greater than 90 days past due.
14
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.
•
Discounted Cash Flow
o
DCF models, being periodic in nature, allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner.
o
The analysis aligns well with other calculations/actions outside the ACL estimation, which will mitigate model risk in other areas and allow for symmetrical application. For example, fair value (exit price notion), profitability analysis, IRR calculations, ALM, stress testing, and other forms of cash flow analysis.
o
Peer data is available for certain inputs (Probability of Default, Loss Given Default) if first-party data is not available or meaningful. This is made possible by the periodic nature of the model.
o
The DCF methodology is utilized on the following pools: 1) Commercial & Industrial; 2) Construction; 3) Consumer; 4) CRE NonOwner Occupied; 5) CRE Owner Occupied; 6) HELOC & Junior Lien; 7) Residential 1st Lien; and 8) Multifamily.
•
Remaining Life
o
This methodology leverages a quarterly loss rate as well as future expectations of portfolio balances to calculate a reserve.
o
There are two main strengths of this methodology. First, it is fairly easy to execute and does not rely on large quantities of historical loan-level data. Second, it can satisfy the need to incorporate a reasonable and supportable forecast in a straightforward manner by either applying a forecast policy of “applicable history” or leveraging an actual econometric model for the analysis.
o
The remaining life methodology is utilized on the following pools: 1) Minute Lender; and 2) Student Loans.
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:
•
The economic forecast reflects the worst economic environment observed for each economic factor. This is done by quantifying a rolling 1-year average for each economic factor. Then, the most pessimistic 1-year average observations are captured and utilized as economic forecast inputs within the application.
•
The economic forecast assumed is a ‘worst-case’ economic environment with inputs reflective of the great recession.
•
The economic forecast is used to quantify credit risk in the form of Loss Rate. The resulting periodic default and loss rates are applied to the prepayment adjusted amortization schedules for each segment.
•
The resulting ACL, which represents a lifetime reserve (symmetrical to the base model), is input into the qualitative framework’s maximum loss rate field. The difference between the expected model and the maximum model results are then allocated based on weight and risk assignment.
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 June 30, 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 primary driver in the change in reserves from December 31, 2024 to June 30, 2025
was the decline in the balances and the loss rates associated with student loans. The ACL associated with student loans declined from $
650
thousand to $
527
thousand period over period, due to declining balances within the portfolio and improvement in loss rate from
4.03
% as of
December 31, 2024
to
3.64
% as of
June 30, 2025.
The following table shows the ACL activity by loan portfolio for the
six months ended June 30, 2025 (dollars in thousands):
Commercial
Loans
Real Estate
Construction
and Land
1-4 Family Residential Mortgages
Commercial Mortgages
Consumer
Loans
Total
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
4
-
1
1
42
48
Provision for (recovery of) credit losses
(
66
)
(
12
)
(
36
)
39
(
30
)
(
105
)
Balance as of March 31, 2025
$
692
$
725
$
2,516
$
3,573
$
822
$
8,328
Charge-offs
(
9
)
-
-
-
(
102
)
(
111
)
Recoveries
5
-
-
1
34
40
Provision for (recovery of) credit losses
155
(
269
)
(
101
)
297
8
90
Balance as of June 30, 2025
$
843
$
456
$
2,415
$
3,871
$
762
$
8,347
16
The following table shows the ACL activity by loan portfolio at December 31, 2024 (dollars in thousands):
Commercial
Loans
Real Estate
Construction
and Land
1-4 Family Residential Mortgages
Commercial
Mortgages
Consumer
Loans
Total
Allowance for Credit Losses:
Balance as of beginning of year
$
193
$
462
$
1,492
$
5,261
$
987
$
8,395
Charge-offs
(
288
)
-
-
-
(
471
)
(
759
)
Recoveries
723
-
11
573
230
1,537
Provision for (recovery of) credit losses
132
275
1,048
(
2,301
)
128
(
718
)
Ending Balance, December 31, 2024
$
760
$
737
$
2,551
$
3,533
$
874
$
8,455
The following table presents a breakdown of the provision for (recovery of) credit losses for the periods indicated (dollars in thousands):
Three Months Ended
Six Months Ended
June 30, 2025
June 30, 2024
June 30, 2025
June 30, 2024
Recovery of credit losses:
Provision for (recovery of) loan losses
$
90
$
(
519
)
$
(
15
)
$
(
508
)
Provision for (recovery of) unfunded commitments
(
87
)
181
(
142
)
148
Total
$
3
$
(
338
)
$
(
157
)
$
(
360
)
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):
June 30, 2025
December 31, 2024
Real Estate Secured Loans
Allowance for Credit Losses - Loans
Real Estate Secured Loans
Allowance for Credit Losses - Loans
1-4 family residential mortgages
2,614
4
2,267
28
Total
$
2,614
$
4
$
2,267
$
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
June 30, 2025 (dollars in thousands). Current period gross write-off amounts represent write-offs for the six months ended June 30, 2025 (dollars in thousands):
June 30, 2025
Term Loans Amortized Cost Basis by Origination Year
2025
2024
2023
2022
2021
Prior
Revolving Loans
Loans Converted to Term
Total
Commercial
Pass
21,258
97,594
90,992
10,810
$
1,578
$
23,478
$
14,971
$
-
$
260,681
Watch
61
-
-
-
-
-
-
-
61
Special Mention
-
-
-
576
-
212
1
-
789
Substandard
-
39
67
133
27
44
-
-
310
Total commercial
$
21,319
$
97,633
$
91,059
$
11,519
$
1,605
$
23,734
$
14,972
$
-
$
261,841
Current period gross write-off
$
-
$
-
$
1
$
-
$
-
$
9
$
5
$
-
$
15
.
Real estate construction and land
Pass
$
2,666
$
2,141
$
7,615
$
378
$
2,283
$
2,346
$
-
$
-
$
17,429
Watch
-
-
-
-
-
215
-
-
215
Special Mention
-
-
-
6,121
-
504
-
-
6,625
Substandard
-
-
1,040
-
156
-
-
-
1,196
Total real estate construction and land
$
2,666
$
2,141
$
8,655
$
6,499
$
2,439
$
3,065
$
-
$
-
$
25,465
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
.
1-4 family residential mortgages
Pass
$
3,857
$
22,916
$
17,311
$
10,164
$
47,663
$
160,872
$
15,885
$
164
$
278,832
Watch
-
198
-
1,141
2,320
5,407
-
-
9,066
Special Mention
-
206
990
270
164
3,825
399
113
5,967
Substandard
-
322
4,742
1,757
3,218
1,722
938
-
12,699
Total 1-4 family residential mortgage
$
3,857
$
23,642
$
23,043
$
13,332
$
53,365
$
171,826
$
17,222
$
277
$
306,564
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
.
Commercial mortgages
Pass
$
31,070
$
105,432
$
113,544
$
38,297
$
38,595
$
263,731
$
1,175
$
-
$
591,844
Watch
109
79
1,758
-
1,382
10,946
-
-
14,274
Special Mention
-
799
-
-
1,354
1,030
-
-
3,183
Substandard
-
-
992
-
-
6,043
-
-
7,035
Total commercial mortgages
$
31,179
$
106,310
$
116,294
$
38,297
$
41,331
$
281,750
$
1,175
$
-
$
616,336
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
Pass
$
286
$
627
$
1,083
$
46
$
192
$
15,932
$
13,169
$
-
$
31,335
Watch
-
-
-
-
-
48
-
-
48
Special Mention
-
2
1
-
-
63
3
-
69
Substandard
-
-
-
-
22
31
1
-
54
Total consumer
$
286
$
629
$
1,084
$
46
$
214
$
16,074
$
13,173
$
-
$
31,506
Current period gross write-off
$
-
$
-
$
-
$
-
$
2
$
164
$
-
$
-
$
166
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 year ended December 31, 2024 (dollars in thousands):
December 31, 2024
Term Loans Amortized Cost Basis by Origination Year
2024
2023
2022
2021
2020
Prior
Revolving Loans
Loans Converted to Term
Total
Commercial
Pass
$
102,378
$
99,341
$
11,116
$
1,770
$
2,818
$
23,171
$
15,821
$
3
$
256,418
Watch
41
74
154
57
104
28
-
-
458
Special Mention
-
-
-
-
-
-
-
6
6
Substandard
-
5
294
-
20
132
7
331
789
Total commercial
$
102,419
$
99,420
$
11,564
$
1,827
$
2,942
$
23,331
$
15,828
$
340
$
257,671
Current period gross write-off
$
-
$
14
$
38
$
-
$
103
$
133
$
-
$
-
$
288
Real estate construction and land
Pass
$
6,613
$
14,844
$
2,445
$
2,364
$
1,615
$
1,476
$
-
$
-
$
29,357
Watch
-
1,057
-
159
-
-
-
-
1,216
Special Mention
-
-
-
-
-
243
-
-
243
Substandard
-
-
6,121
-
-
40
-
-
6,161
Total real estate construction and land
$
6,613
$
15,901
$
8,566
$
2,523
$
1,615
$
1,759
$
-
$
-
$
36,977
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
1-4 family residential mortgages
Pass
$
21,285
$
16,942
$
11,889
$
51,277
$
71,422
$
97,356
$
17,555
$
563
$
288,289
Watch
-
4,787
501
2,417
247
1,706
767
654
11,079
Special Mention
199
1,000
1,057
918
-
5,291
92
-
8,557
Substandard
-
-
1,434
54
1,292
2,293
397
215
5,685
Total 1-4 family residential mortgage
$
21,484
$
22,729
$
14,881
$
54,666
$
72,961
$
106,646
$
18,811
$
1,432
$
313,610
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial mortgages
Pass
$
98,264
$
106,442
$
37,153
$
39,435
$
80,542
$
197,875
$
1,215
$
572
$
561,498
Watch
-
1,776
-
-
11,385
4,594
-
-
17,755
Special Mention
82
-
1,511
1,406
1,506
7,701
-
-
12,206
Substandard
-
-
-
1,750
287
-
-
-
2,037
Total commercial mortgages
$
98,346
$
108,218
$
38,664
$
42,591
$
93,720
$
210,170
$
1,215
$
572
$
593,496
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
Pass
$
698
$
1,104
$
67
$
243
$
134
$
16,603
$
15,135
$
3
$
33,987
Watch
-
-
-
23
-
59
-
-
82
Special Mention
-
-
-
-
-
89
-
-
89
Substandard
7
1
-
-
-
49
-
-
57
Total consumer
$
705
$
1,105
$
67
$
266
$
134
$
16,800
$
15,135
$
3
$
34,215
Current period gross write-off
$
-
$
-
$
-
$
-
$
4
$
466
$
1
$
-
$
471
20
Note 6. Goodwill and Other Intangible Assets
The carrying amount of goodwill was
$
7.8
million
at June 30, 2025, December 31, 2024 and June 30, 2024, resulting from the Merger.
The Company had
$
3.2
million
,
$
3.8
million
and
$
4.4
million
of other intangible assets as of June 30, 2025, December 31, 2024 and June 30, 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):
June 30, 2025
December 31, 2024
June 30, 2024
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Amortized intangible assets:
Core deposit intangible
$
9,660
$
(
6,447
)
$
9,660
$
(
5,868
)
$
9,660
$
(
5,242
)
Amortization expense was
$
284
thousand
and
$
332
thousand
for the three months ended June 30, 2025 and 2024, respectively, and
$
579
thousand
and $
675
thousand for the
six months ended June 30, 2025 and 2024, respectively.
Estimated future amortization expense as of
June 30, 2025 is as follows (dollars in thousands):
Core
Deposit
Intangible
For the six months ending December 31, 2025
$
531
For the year ending December 31, 2026
918
For the year ending December 31, 2027
726
For the year ending December 31, 2028
535
For the year ending December 31, 2029
343
Thereafter
160
Total
$
3,213
21
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):
June 30, 2025
December 31, 2024
Lease liability
$
6,888
$
5,389
Right-of-use asset
$
7,032
$
5,551
Weighted average remaining lease term
5.27
years
5.14
years
Weighted average discount rate
3.47
%
3.02
%
Three Months Ended June 30,
Six Months Ended June 30,
Lease Expense:
2025
2024
2025
2024
Operating lease cost
$
424
$
412
$
850
$
841
Short-term lease expense
11
18
22
30
Total lease expense
$
435
$
430
$
872
$
871
Cash paid for amounts included in
lease liabilities
$
404
$
395
$
807
$
783
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
June 30, 2025
Six months ending December 31, 2025
$
809
Twelve months ending December 31, 2026
1,642
Twelve months ending December 31, 2027
1,556
Twelve months ending December 31, 2028
1,444
Twelve months ending December 31, 2029
1,054
Thereafter
1,089
Total undiscounted cash flows
$
7,594
Less: Discount
(
706
)
Lease liability
$
6,888
22
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 and six months ended June 30, 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 June 30, 2025 and June 30, 2024 is included in the calculation of basic and diluted net income per share (dollars below reported in thousands except per share data).
Three Months Ended
June 30, 2025
June 30, 2024
Net
Income
Weighted
Average
Shares
Per
Share
Amount
Net
Income
Weighted
Average
Shares
Per
Share
Amount
Basic net income per share
$
4,238
5,391,979
$
0.79
$
4,159
5,377,055
$
0.77
Effect of dilutive stock options
-
25,921
(
0.01
)
-
8,715
-
Diluted net income per share
$
4,238
5,417,900
$
0.78
$
4,159
5,385,770
$
0.77
Six Months Ended
June 30, 2025
June 30, 2024
Net
Income
Weighted
Average
Shares
Per
Share
Amount
Net
Income
Weighted
Average
Shares
Per
Share
Amount
Basic net income per share
$
8,727
5,385,461
$
1.62
$
7,805
5,371,972
$
1.45
Effect of dilutive stock options
-
24,969
(
0.01
)
-
11,008
-
Diluted net income per share
$
8,727
$
5,410,430
$
1.61
$
7,805
5,382,980
$
1.45
For the three and six months ended June 30, 2025
, there were
101,864
and
119,464
option shares, respectively, considered anti-dilutive and excluded from this calculation. For the three and six months ended June 30, 2024, there were
149,001
o
ption 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 or the 2005 Stock Incentive Plan as those plans have expired. At the Annual Meeting of Shareholders on July 24, 2025, an amendment to the 2022 Plan to increase the shares available for issuance under the plan by
150,000
shares was approved.
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 and the 2005 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.
23
A summary of the shares issued and available under each of the Plans is shown below as of
June 30, 2025
. Share data and exercise price range per share have been adjusted to reflect prior issued stock dividends. Although the 2014 Plan and the 2005 Plan have expired and
no
new grants will be issued under those plans, there were options issued before the plans expired that are still outstanding as shown below.
2022 Plan
2014 Plan
Aggregate shares issuable
150,000
275,625
Options issued, net of forfeited and expired
options
(
47,683
)
(
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
37,037
-
Restricted stock grants issued and outstanding:
Total vested and unvested shares
65,280
95,888
Fully vested shares
15,786
80,490
Stock option grants issued and outstanding:
Total vested and unvested shares
61,900
164,084
Fully vested shares
10,425
146,643
Exercise price range
$
25.10
to $
39.01
$
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):
June 30, 2025
Number of Options
Weighted
Average
Exercise Price
Aggregate
Intrinsic Value
Outstanding at January 1, 2025
223,001
$
33.22
$
-
Issued
8,200
35.03
-
Exercised
-
-
-
Forfeited
(
5,217
)
(
40.78
)
-
Expired
-
-
-
Outstanding at June 30, 2025
225,984
$
33.11
$
1,223
Options exercisable at June 30, 2025
157,068
$
33.97
$
800
For both the three months ended June 30, 2025 and 2024
, the Company recognized $
35
thousand in compensation expense for stock options. For the
six months ended June 30, 2025 and 2024
, the Company recognized $
69
thousand and $
59
thousand, respectively, in compensation expense for stock options.
As of June 30, 2025, there wa
s $
378
thousand in unr
e
cognized 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 stock options grants of
2,600
issued during the
three months ended June 30, 2025
, and
32,900
issued in the second quarter of 2024. During the
six months ended June 30, 2025 and 2024
, there were stock option grants of
8,200
shares and
41,300
shares granted, respectively.
24
Summary information pertaining to options outstanding at
June 30, 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 of
Options
Outstanding
Weighted-
Average
Remaining
Contractual Life
Weighted-
Average
Exercise
Price
Number of
Options
Exercisable
Weighted-
Average
Exercise
Price
$
23.75
to $
30.00
101,300
6.4
Years
$
25.85
65,745
$
25.21
$
30.01
to $
40.00
71,140
6.7
Years
36.29
37,780
36.97
$
40.01
to $
42.62
53,544
2.9
Years
42.62
53,543
42.62
Total
225,984
5.7
Years
$
33.11
157,068
$
33.97
Stock Grants
Restricted stock grants –
21,068
restricted shares were granted to employees and non-employee directors, vesting over a
four-year
period, during the
six months ended June 30, 2025. For the three and six months ended June 30, 2025
, $
212
thousand and $
426
thousand, respectively, were expensed as a result of restricted stock grants. As of
June 30, 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
six months ended June 30, 2025 are summarized below (dollars in thousands except per share data):
June 30, 2025
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic Value
Nonvested as of January 1, 2025
65,889
$
31.96
$
2,438
Issued
21,068
36.09
779
Vested
(
22,065
)
(
31.94
)
(
816
)
Forfeited
-
-
-
Nonvested at June 30, 2025
64,892
$
33.31
$
2,401
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
June 30, 2025 and December 31, 2024 (dollars in thousands):
Fair Value Measurements at June 30, 2025 Using:
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
U.S. Government agencies
$
30,661
$
-
$
30,661
$
-
Mortgage-backed/CMOs
129,334
-
129,334
-
Corporate bonds
13,780
-
13,780
-
Municipal bonds
81,134
-
81,134
-
Total securities available for sale
$
254,909
$
-
$
254,909
$
-
Fair Value Measurements at December 31, 2024 Using:
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
U.S. Government treasuries
$
1,493
$
-
$
1,493
$
-
U.S. Government agencies
29,635
-
29,635
-
Mortgage-backed/CMOs
132,811
-
132,811
-
Corporate bonds
17,591
-
17,591
Municipal bonds
82,007
-
82,007
-
Total securities available for sale
$
263,537
$
-
$
263,537
$
-
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
June 30, 2025 and December 31, 2024:
Fair Value Measurements at June 30, 2025 Using:
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
Individually evaluated loans
$
180
$
-
$
-
$
180
Description
Fair Value
Valuation Technique
Unobservable Inputs
Discount Rate
Assets:
Individually evaluated loans
$
180
Market comparables
Discount applied to recent appraisa
l
20.0
%
Fair Value Measurements at December 31, 2024 Using:
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
Individually evaluated loans
$
352
$
-
$
-
$
352
Description
Fair Value
Valuation Technique
Unobservable Inputs
Discount Rate
Assets:
Individually evaluated loans
$
352
Market comparables
Discount applied to recent appraisal
20.0
%
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.
28
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
June 30, 2025 and December 31, 2024 are as follows (dollars in thousands):
Fair Value Measurements at June 30, 2025 Using:
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Fair Value
Assets
Cash and cash equivalent
$
38,522
$
38,522
$
-
$
-
$
38,522
Available for sale securities
254,909
-
254,909
-
254,909
Restricted securities
8,120
-
8,120
-
8,120
Loans, net
1,233,365
-
-
1,185,883
1,185,883
Bank owned life insurance
40,659
-
40,659
-
40,659
Accrued interest receivable
6,270
-
1,418
4,852
6,270
Liabilities
Demand deposits and interest-bearing transaction and money market accounts
$
1,107,627
$
-
$
1,107,627
$
-
$
1,107,627
Certificates of deposit
281,438
-
281,426
-
281,426
Borrowings
61,000
-
60,978
-
60,978
Junior subordinated debt, net
3,530
-
3,530
-
3,530
Accrued interest payable
1,386
-
1,386
-
1,386
Fair Value Measurements at December 31, 2024 Using:
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Fair Value
Assets
Cash and cash equivalent
$
17,103
$
17,103
$
-
$
-
$
17,103
Available for sale securities
263,537
-
263,537
-
263,537
Restricted securities
6,193
-
6,193
-
6,193
Loans, net
1,227,514
-
-
1,183,182
1,183,182
Bank owned life insurance
40,059
-
40,059
-
40,059
Accrued interest receivable
6,426
-
1,509
4,917
6,426
Liabilities
Demand deposits and interest-bearing transaction and money market accounts
$
1,115,103
$
-
$
1,115,103
$
-
$
1,115,103
Certificates of deposit
308,443
-
308,856
-
308,856
Federal funds purchased
236
236
-
-
236
Borrowings
20,000
-
20,000
-
20,000
Junior subordinated debt, net
3,506
-
3,506
-
3,506
Accrued interest payable
1,837
-
1,837
-
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) as of
June 30, 2025 and June 30, 2024 (dollars in thousands).
AFS Securities
Accumulated other comprehensive loss at December 31, 2024
$
(
41,862
)
Other comprehensive gain arising during the period
6,289
Related income tax effects
(
1,321
)
4,968
Accumulated other comprehensive loss at June 30, 2025
$
(
36,894
)
AFS Securities
Accumulated other comprehensive loss at December 31, 2023
$
(
40,044
)
Other comprehensive loss arising during the period
(
3,730
)
Related income tax effects
783
(
2,947
)
Reclassification into net income
4
Related income tax effects
(
1
)
3
Accumulated other comprehensive loss at June 30, 2024
$
(
42,988
)
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:
•
Bank -
The commercial banking segment involves making loans and generating deposits from individuals, businesses and charitable organizations. Loan fee income, service charges from deposit accounts, and other non-interest-related fees, such as fees for debit cards and ATM usage and fees for treasury management services, generate additional income for the Bank segment.
•
VNB Trust & Estate Services –
VNB Trust & Estate Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as management fees that are derived from Assets Under Management. Investment management services currently are offered through in-house and third-party managers.
•
Masonry Capital -
Masonry Capital offers investment management services for separately managed accounts and a private investment fund employing a value-based, catalyst-driven investment strategy. Revenue for this segment is generated from management fees that are derived from Assets Under Management and incentive income that is based on the investment returns generated on performance-based Assets Under Management.
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.
30
Segment information for the
three and six months ended June 30, 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 June 30, 2025
Bank
VNB Trust &
Estate
Services
Consolidated
Net interest income
$
12,796
$
-
$
12,796
Provision for credit losses
3
-
3
Net interest income after provision for credit losses
$
12,793
$
-
$
12,793
Noninterest income:
Wealth management fees
$
-
$
206
$
206
Deposit account fees
293
-
293
Debit/credit card and ATM fees
355
-
355
Bank owned life insurance income
307
-
307
Other
150
-
150
Total noninterest income
$
1,105
$
206
$
1,311
Noninterest expense:
Salaries and employee benefits
$
3,612
$
251
$
3,863
Net occupancy
856
33
889
Equipment
198
4
202
Bank franchise tax
489
-
489
Computer software
266
-
266
Data processing
693
39
732
FDIC deposit insurance assessment
145
-
145
Marketing, advertising and promotion
179
-
179
Professional fees
297
34
331
Legal fees
225
-
225
Core deposit intangible amortization
284
-
284
Other
1,068
8
1,076
Total noninterest expense
$
8,312
$
369
$
8,681
Income before income taxes
$
5,586
$
(
163
)
$
5,423
Provision for (benefit of) income taxes
1,219
(
34
)
1,185
Net income (loss)
$
4,367
$
(
129
)
$
4,238
31
For the six months ended June 30, 2025
Bank
VNB Trust &
Estate
Services
Consolidated
Net interest income
$
25,090
$
-
$
25,090
Recovery of credit losses
(
157
)
-
(
157
)
Net interest income after recovery of credit losses
$
25,247
$
-
$
25,247
Noninterest income:
Wealth management fees
$
-
$
435
$
435
Deposit account fees
600
-
600
Debit/credit card and ATM fees
725
-
725
Bank owned life insurance income
600
-
600
Gains on sale of assets, net
278
-
278
Other
433
-
433
Total noninterest income
$
2,636
$
435
$
3,071
Noninterest expense:
Salaries and employee benefits
$
7,309
$
490
$
7,799
Net occupancy
1,840
65
1,905
Equipment
381
7
388
Bank franchise tax
828
-
828
Computer software
522
-
522
Data processing
1,388
79
1,467
FDIC deposit insurance assessment
290
-
290
Marketing, advertising and promotion
433
-
433
Professional fees
517
70
587
Legal fees
461
-
461
Core deposit intangible amortization
579
-
579
Other
2,232
14
2,246
Total noninterest expense
$
16,780
$
725
$
17,505
Income before income taxes
$
11,103
$
(
290
)
$
10,813
Provision for (benefit of) income taxes
2,146
(
60
)
2,086
Net income (loss)
$
8,957
$
(
230
)
$
8,727
32
Three months ended June 30,2024
Bank
VNB Trust &
Estate
Services
Consolidated
Net interest income
$
11,181
$
-
$
11,181
Recovery of credit losses
(
338
)
-
(
338
)
Net interest income after recovery of credit losses
$
11,519
$
-
$
11,519
Noninterest income:
Wealth management fees
$
1
$
239
$
240
Deposit account fees
338
-
338
Debit/credit card and ATM fees
523
-
523
Bank owned life insurance income
289
-
289
Gains on sale of assets, net
(
3
)
-
(
3
)
Other
304
-
304
Total noninterest income
$
1,452
$
239
$
1,691
Noninterest expense:
Salaries and employee benefits
$
3,609
$
241
$
3,850
Net occupancy
833
32
865
Equipment
163
4
167
Bank franchise tax
345
-
345
Computer software
276
-
276
Data processing
570
9
579
FDIC deposit insurance assessment
180
-
180
Marketing, advertising and promotion
157
-
157
Professional fees
178
12
190
Legal fees
9
-
9
Core deposit intangible amortization
332
-
332
Other
1,162
10
1,172
Total noninterest expense
$
7,814
$
308
$
8,122
Income before income taxes
$
5,157
$
(
69
)
$
5,088
Provision for (benefit of) income taxes
943
(
14
)
929
Net income (loss)
$
4,214
$
(
55
)
$
4,159
33
For the six months ended June 30,2024
Bank
VNB Trust &
Estate
Services
Masonry
Capital
Consolidated
Net interest income
$
22,117
$
-
$
-
$
22,117
Recovery of credit losses
(
360
)
-
-
(
360
)
Net interest income after recovery of credit losses
$
22,477
$
-
$
-
$
22,477
Noninterest income:
Wealth management fees
$
1
$
475
$
190
$
666
Deposit account fees
725
-
-
725
Debit/credit card and ATM fees
1,011
-
-
1,011
Bank owned life insurance income
564
-
-
564
Gains on sale of assets, net
36
-
-
36
Gain termination of interest rate swap
379
-
-
379
Losses on sales of AFS, net
(
4
)
-
-
(
4
)
Other
424
68
-
492
Total noninterest income
$
3,136
$
543
$
190
$
3,869
Noninterest expense:
Salaries and employee benefits
$
7,384
$
480
$
138
$
8,002
Net occupancy
1,765
65
7
1,837
Equipment
323
9
6
338
Bank franchise tax
685
-
-
685
Computer software
484
-
-
484
Data processing
1,283
35
-
1,318
FDIC deposit insurance assessment
375
-
-
375
Marketing, advertising and promotion
404
1
-
405
Professional fees
362
53
27
442
Legal fees
80
-
-
80
Core deposit intangible amortization
675
-
-
675
Other
2,264
14
22
2,300
Total noninterest expense
$
16,084
$
657
$
200
$
16,941
Income before income taxes
$
9,529
$
(
114
)
$
(
10
)
$
9,405
Provision for (benefit of) income taxes
1,626
(
24
)
(
2
)
1,600
Net income (loss)
$
7,903
$
(
90
)
$
(
8
)
$
7,805
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.
Since the approval of the plan, through June 30, 2025
, a total of
20,350
shares have been repurchased at an average price of $
27.42
.
No
shares were repurchased during the
three and six months ended June 30, 2025 and 2024
.
34
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 and six months ended June 30, 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.
•
ROAA for the three months ended June 30, 2025 remained consistent when compared to the three months ended June 30, 2024, at 1.05%. ROAA for the six months ended June 30, 2025 was 1.08% compared to 0.98% realized in the same period in the prior year, as net income was higher in the current period as compared to the same period in the prior year.
•
ROAE for the three months ended June 30, 2025 was 10.05% compared to 11.07% realized in same period in the prior year. ROAE for the six months ended June 30, 2025 was 10.54% compared to 10.31% realized in the same period in the prior year.
•
Net income per diluted share was $0.78 for the three months ended June 30, 2025, compared to $0.77 for the same period in the prior year. Net income per diluted share was $1.61 for the six months ended June 30, 2025, compared to $1.45 for the same period in the prior year. The period over period increases were due to the rise in net income, as described below.
35
•
Tangible book value per share increased to $29.63 as of June 30, 2025, compared to $26.44 as of June 30, 2024. The increase is the result of total equity increasing period over period, coupled with the offsetting impact of intangible assets declining over the same period.
We manage our capital levels through growth, quarterly cash dividends, 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 have been repurchased. No shares have been repurchased in 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 ACCO
UNTING 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
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
36
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):
June 30, 2025
December 31, 2024
June 30, 2024
% of
% of
% of
Balance
Total
Balance
Total
Balance
Total
U.S. Government treasuries
$
—
—
$
1,493
0.6
%
$
11,433
4.0
%
U.S. Government agencies
30,661
12.0
%
29,635
11.2
%
26,537
9.3
%
Mortgage-backed/CMOs
129,334
50.7
%
132,811
50.4
%
146,085
51.3
%
Corporate bonds
13,780
5.4
%
17,591
6.7
%
18,244
6.4
%
Municipal bonds
81,134
31.9
%
82,007
31.1
%
82,399
29.0
%
Total available for sale securities
$
254,909
100.0
%
$
263,537
100.0
%
$
284,698
100.0
%
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):
June 30, 2025
December 31, 2024
June 30, 2024
Balance
% of
Total
Balance
% of
Total
Balance
% of
Total
Commercial loans
$
261,841
21.1
%
$
257,671
20.8
%
$
222,677
19.2
%
Real estate mortgage:
Construction and land
25,465
2.1
%
36,977
3.0
%
36,908
3.2
%
1-4 family residential mortgages
306,564
24.7
%
313,610
25.4
%
307,055
26.5
%
Commercial mortgages
616,336
49.6
%
593,496
48.1
%
553,455
47.8
%
Total real estate mortgage
948,365
76.4
%
944,083
76.5
%
897,418
77.5
%
Consumer
31,506
2.5
%
34,215
2.7
%
38,119
3.3
%
Total loans
$
1,241,712
100.0
%
$
1,235,969
100.0
%
$
1,158,214
100.0
%
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.
37
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):
Loan Type
Balance
% of Total CRE
Average Loan Size
Special Mention
Sub-
standard
Nonaccrual
Hotels
$
43,528
13.73
%
$
6,218
0.00
%
0.00
%
0.00
%
Office Building
67,071
21.16
%
$
789
0.00
%
0.00
%
0.00
%
Warehouses/Industrial
58,482
18.45
%
$
2,089
1.01
%
0.00
%
0.00
%
Retail
124,730
39.35
%
$
1,890
0.01
%
0.83
%
0.00
%
Day Cares / Schools
11,911
3.76
%
$
1,489
0.00
%
0.00
%
0.00
%
All Other Commercial Buildings
11,269
3.55
%
$
939
0.00
%
0.00
%
0.00
%
Total Non-Owner Occupied CRE
$
316,991
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 Type
Balance
% of Total CRE
Average Loan Size
Special Mention
Sub-
standard
Nonaccrual
Hotels
$
45,840
14.80
%
$
5,730
0.00
%
0.00
%
0.00
%
Office Building
61,893
19.98
%
$
764
0.00
%
0.00
%
0.00
%
Warehouses/Industrial
61,243
19.77
%
$
2,112
1.04
%
0.00
%
0.00
%
Retail
120,655
38.95
%
$
1,856
0.89
%
0.00
%
0.00
%
Day Cares / Schools
10,606
3.42
%
$
1,178
14.25
%
0.00
%
0.00
%
All Other Commercial Buildings
9,520
3.07
%
$
865
0.00
%
0.00
%
0.00
%
Total Non-Owner Occupied CRE
$
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, 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.
38
Allowance for Credit Losses
The relationship of the ACL to total loans and nonaccrual loans appears below (dollars in thousands):
June 30, 2025
December 31, 2024
June 30, 2024
Total loans
$
1,241,712
$
1,235,969
$
1,158,214
Nonaccrual loans
$
2,614
$
2,267
$
2,365
Allowance for credit losses
$
8,347
$
8,455
$
8,028
Nonaccrual loans to total loans
0.21
%
0.18
%
0.20
%
ACL to total loans
0.67
%
0.68
%
0.69
%
ACL to nonaccrual loans
319.32
%
372.96
%
339.45
%
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):
2025
2024
Allowance for credit losses, December 31 of prior year
$
8,455
$
8,395
Charge-offs
(181
)
(359
)
Recoveries
88
500
Recovery of credit losses
(15
)
(508
)
Allowance for credit losses, June 30
$
8,347
$
8,028
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.
39
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).
June 30, 2025
December 31, 2024
June 30, 2024
% of
% of
% of
Balance
Total
Balance
Total
Balance
Total
No cost and low cost deposits:
Noninterest demand deposits
$
384,538
27.7
%
$
374,079
26.3
%
$
357,931
26.1
%
Interest checking accounts
266,012
19.2
%
303,405
21.3
%
257,365
18.7
%
Money market and savings deposit accounts
457,077
32.9
%
437,619
30.7
%
423,055
30.8
%
Total noninterest and low cost deposit accounts
1,107,627
79.8
%
1,115,103
78.3
%
1,038,351
75.6
%
Time deposit accounts:
Certificates of deposit
273,883
19.7
%
303,564
21.3
%
328,661
23.9
%
CDARS deposits
7,555
0.5
%
4,879
0.3
%
6,829
0.5
%
Total certificates of deposit and other time deposits
281,438
20.2
%
308,443
21.7
%
335,490
24.4
%
Total deposit account balances
$
1,389,065
100.0
%
$
1,423,546
100.0
%
$
1,373,841
100.0
%
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.
40
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 CDARS
TM
, whereby depositors can obtain FDIC deposit insurance on account balances of up to $50 million. CDARS
TM
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.
41
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):
Equity, December 31, 2024
$
160,302
Net income
8,727
Other comprehensive income
4,968
Cash dividends declared
(3,720
)
Equity increase due to expensing of stock options
69
Equity increase due to expensing of restricted stock
426
Equity, June 30, 2025
$
170,772
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%.
RESULTS OF
OPERATIONS
Industry events and economic environment
Management of the Company continually monitors the impact of various global and national events on the Company's results of operations and financial condition, including inflation and economic recessionary conditions, changes in interest rates, the political environment, geopolitical conflicts, competition, liquidity matters, changes in legislative or regulatory requirements and changes in government policy, such as the imposition of tariffs and potential trade barriers. The timing and impact of inflation, fluctuations in and volatility of interest rates, and the competitive landscape of loans and deposits on our business and results of operations will depend on future developments, which are uncertain and unpredictable. In July 2025, the One Big Beautiful Bill Act was signed into law, which includes a wide variety of tax reform provisions affecting individuals as well as businesses, including extending and modifying certain key provisions from the Tax Cuts and Jobs Act of 2017 and expanding certain incentives from the Inflation Reduction Act of 2022 while accelerating the phase-out of others.
Inflation has eased in the first half of 2025, but it was estimated at 2.7% as of June 2025, which is still over the FOMC’s 2.0% target. In late 2024, the Federal Reserve shifted its interest rate policy as inflationary pressure began to ease and economic growth moderated, lowering rates 75 bps between September and December in 2024, which resulted in the current Federal Funds target rate range of 4.25% to 4.50%. The FOMC has maintained the Federal Funds target rate range at 4.25% to 4.50% so far in 2025, and it is difficult to predict how the Federal Reserve will balance possible inflationary pressure with the potential of slower economic growth and whether they will respond accordingly.
Management will continue to deploy solid asset liability management strategies to manage our risk related to interest rate fluctuations and monitor balance sheet trends, deposit flows, and liquidity needs to enable us to meet the needs of our customers and maintain financial flexibility.
42
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 an alternative to, or more important than, 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
For the Six Months Ended
June 30,
2025
June 30,
2024
June 30,
2025
June 30,
2024
Fully tax-equivalent measures
Net interest income (GAAP)
$
12,796
$
11,181
$
25,090
$
22,117
Fully tax-equivalent adjustment
85
87
172
174
Net interest income (FTE) (non-GAAP)
$
12,881
$
11,268
$
25,262
$
22,291
Efficiency ratio (GAAP)
61.5
%
63.1
%
62.2
%
65.1
%
Fully tax-equivalent adjustment
-0.3
%
-0.4
%
-0.4
%
-0.3
%
Efficiency ratio (FTE) (non-GAAP)
61.2
%
62.7
%
61.8
%
64.8
%
Net interest margin (GAAP)
3.37
%
3.01
%
3.32
%
2.96
%
Fully tax-equivalent adjustment
0.02
%
0.02
%
0.02
%
0.02
%
Net interest margin (FTE) (non-GAAP)
3.40
%
3.04
%
3.34
%
2.98
%
Other financial measures
Book value per share (GAAP)
$
31.67
$
28.70
Impact of intangible assets
(2.04
)
(2.27
)
Tangible book value per share (non-GAAP)
$
29.63
$
26.44
Total equity (GAAP)
$
170,772
$
154,164
Impact of intangible assets
(10,981
)
(12,186
)
Tangible equity (non-GAAP)
$
159,791
$
141,978
43
Net income
Net income for the three months ended June 30, 2025 was $4.2 million, a $79.0 thousand increase compared to $4.2 million reported for the three months ended June 30, 2024. Net income per diluted share was $0.78 for the three months ended June 30, 2025 compared to $0.77 per diluted share for the same period in the prior year.
Net income for the six months ended June 30, 2025 was $8.7 million, compared to $7.8 million for the six months ended June 30, 2024. Net income per diluted share was $1.61 for the six months ended June 30, 2025, compared to $1.45 for the six months ended June 30, 2024.
The increase in net income for each of the periods noted above is primarily the result of decreased cost of funds, as discussed in more detail below.
Net interest income
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).
Quarterly overview -
Net interest income (FTE) for the three months ended June 30, 2025 was $12.9 million, a $1.6 million increase compared to net interest income (FTE) of $11.3 million for the three months ended June 30, 2024. The net interest margin (FTE) of 3.40% for the three months ended June 30, 2025 was 36 bps higher than the 3.04% realized during the three months ended June 30, 2024. Interest expense decreased by $1.1 million, 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 51 bps period over period, from 274 bps to 223 bps. A $52.1 million decrease in average balances of time deposit products contributed to the reduced interest expense during the second quarter of 2025.
The increase in average loan balances, from $1.1 billion for the three months ended June 30, 2024 to $1.2 billion for the three months ended June 30, 2025, positively impacted interest income by $1.3 million.
This metric was however negatively impacted by the decrease in the average balances of securities, decreasing from $327.7 million in the three months ended June 30, 2024 to $266.9 in the three months ended June 30, 2025, negatively impacting interest income (FTE) by $418 thousand period over period.
Year-to-date overview -
Net interest income (FTE) for the six months ended June 30, 2025 was $25.3 million, a $3.0 million increase compared to net interest income (FTE) for the six months ended June 30, 2024. The net interest margin (FTE) of 3.34% for the six months ended June 30, 2025 was 36 bps higher than the 2.98% realized during the six months ended June 30, 2024. Interest expense decreased $2.1 million, 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 44 bps period over period, from 274 bps to 230 bps. A $43.5 million decrease in average balances of time deposit products contributed to the lower interest expense during the first half of 2025. The increase in average loan balances, from $1.1 billion for the six months ended June 30, 2024 to $1.2 billion for the six months ended June 30, 2025, positively impacted interest income by $2.8 million. This metric was however negatively impacted by the decrease in the average balances of securities, decreasing from $349.0 million in the six months ended June 30, 2024 to $269.2 in the six months ended June 30, 2025, negatively impacting interest income (FTE) by $1.1 million period over period.
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.
44
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 and six months ended June 30, 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
June 30, 2025
June 30, 2024
Change in Interest Income/ Expense
Average
Interest
Average
Average
Interest
Average
Change Due to :
4
Total
Balance
Income/
Yield/Cost
Balance
Income/
Yield/Cost
Volume
Rate
Increase/
Expense
Expense
(Decrease)
ASSETS
Interest Earning Assets:
Securities:
Taxable Securities
$201,507
$1,374
2.73%
$261,250
$1,876
2.87%
$(411)
$(91)
$(502)
Tax Exempt Securities
1
65,347
408
2.50%
66,463
414
2.49%
(7)
1
(6)
Total Securities
1
266,854
1,782
2.67%
327,713
2,290
2.80%
(418)
(90)
(508)
Loans:
Real Estate
953,504
13,773
5.79%
900,581
12,483
5.57%
752
538
1,290
Commercial
255,629
3,012
4.73%
206,125
3,080
6.01%
657
(725)
(68)
Consumer
31,430
545
6.96%
37,644
679
7.25%
(109)
(25)
(134)
Total Loans
1,240,563
17,330
5.60%
1,144,350
16,242
5.71%
1,300
(212)
1,088
Federal funds sold
5,698
64
4.51%
11,840
160
5.44%
(72)
(24)
(96)
Other interest-bearing deposits
8,230
45
2.19%
7,918
58
2.95%
2
(15)
(13)
Total Earning Assets
1,521,345
19,221
5.07%
1,491,821
18,750
5.06%
812
(341)
471
Less: Allowance for Credit Losses
(8,338)
(8,299)
Total Non-Earning Assets
102,550
112,246
Total Assets
$1,615,557
$1,595,768
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking
$268,728
$67
0.10%
$268,621
$68
0.10%
$0
$(1)
$(1)
Money Market and Savings Deposits
464,058
2,927
2.53%
421,700
2,952
2.82%
282
(307)
(25)
Time Deposits
286,555
2,670
3.74%
338,648
3,982
4.73%
(558)
(754)
(1,312)
Total Interest-Bearing Deposits
1,019,341
5,664
2.23%
1,028,969
7,002
2.74%
(276)
(1,062)
(1,338)
Federal funds purchased
1,472
18
4.90%
561
9
6.45%
12
(3)
9
Borrowings
49,275
582
4.74%
30,407
388
5.13%
225
(31)
194
Junior subordinated debt
3,523
76
8.65%
3,476
83
9.60%
1
(8)
(7)
Total Interest-Bearing Liabilities
1,073,611
6,340
2.37%
1,063,413
7,482
2.83%
(38)
(1,104)
(1,142)
Non-Interest-Bearing Liabilities:
Demand deposits
364,033
370,640
Other liabilities
8,790
10,545
Total Liabilities
1,446,434
1,444,598
Shareholders' Equity
169,123
151,170
Total Liabilities & Shareholders' Equity
$1,615,557
$1,595,768
Net Interest Income (FTE)
$12,881
$11,268
$850
$763
$1,613
Interest Rate Spread
2
2.70%
2.23%
Cost of Funds
1.77%
2.10%
Interest Expense as a Percentage of Average Earning Assets
1.67%
2.02%
Net Interest Margin (FTE)
3
3.40%
3.04%
(1)
Tax-exempt income for investment securities has been adjusted to a fully tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations earlier in this section.
(2)
Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.
(3)
Net interest margin (FTE) is net interest income expressed as a percentage of average earning assets.
(4)
The impact on the net interest income (FTE) resulting from changes in average balances and average rates is shown for the period indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
45
Consolidated Average Balance Sheet and Analysis of Net Interest Income
For the Six Months Ended
June 30, 2025
June 30, 2024
Change in Interest Income/ Expense
Average
Interest
Average
Average
Interest
Average
Change Due to :
4
Total
Balance
Income/
Yield/Cost
Balance
Income/
Yield/Cost
Volume
Rate
Increase/
Expense
Expense
(Decrease)
ASSETS
Interest Earning Assets:
Securities:
Taxable Securities
$203,584
$2,798
2.75%
$282,493
$4,153
2.94%
$(1,099)
$(256)
$(1,355)
Tax Exempt Securities
1
65,572
818
2.49%
66,526
827
2.49%
(12)
3
(9)
Total Securities
1
269,156
3,616
2.69%
349,019
4,980
2.85%
(1,111)
(253)
(1,364)
Loans:
Real Estate
950,191
27,160
5.76%
903,033
25,026
5.57%
1,333
801
2,134
Commercial
254,560
6,102
4.83%
190,251
5,505
5.82%
1,649
(1,052)
597
Consumer
32,310
1,101
6.87%
37,676
1,372
7.32%
(187)
(84)
(271)
Total Loans
1,237,061
34,363
5.60%
1,130,960
31,903
5.67%
2,795
(335)
2,460
Federal funds sold
11,256
248
4.44%
14,732
399
5.45%
(84)
(67)
(151)
Other interest-bearing deposits
8,041
87
2.18%
8,171
115
2.83%
(2)
(26)
(28)
Total Earning Assets
1,525,514
38,314
5.06%
1,502,882
37,397
5.00%
1,598
(681)
917
Less: Allowance for Credit Losses
(8,416)
(8,356)
Total Non-Earning Assets
105,321
111,045
Total Assets
$1,622,419
$1,605,571
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking
$271,736
$136
0.10%
$275,723
$139
0.10%
$(2)
$(1)
$(3)
Money Market and Savings Deposits
464,231
5,930
2.58%
416,837
5,874
2.83%
634
(578)
56
Time Deposits
296,388
5,724
3.89%
339,866
8,032
4.75%
(950)
(1,358)
(2,308)
Total Interest-Bearing Deposits
1,032,355
11,790
2.30%
1,032,426
14,045
2.74%
(318)
(1,937)
(2,255)
Federal funds purchased
1,017
25
4.96%
528
16
6.09%
12
(3)
9
Borrowings
46,038
1,091
4.78%
36,280
874
4.84%
231
(14)
217
Junior subordinated debt
3,517
146
8.37%
3,470
171
9.91%
2
(27)
(25)
Total Interest-Bearing Liabilities
1,082,927
13,052
2.43%
1,072,704
15,106
2.83%
(73)
(1,981)
(2,054)
Non-Interest-Bearing Liabilities:
Demand deposits
363,198
369,588
Other liabilities
9,328
11,041
Total Liabilities
1,455,453
1,453,333
Shareholders' Equity
166,966
152,238
Total Liabilities & Shareholders' Equity
$1,622,419
$1,605,571
Net Interest Income (FTE)
$25,262
$22,291
$1,671
$1,300
$2,971
Interest Rate Spread
2
2.63%
2.17%
Cost of Funds
1.82%
2.11%
Interest Expense as a Percentage of Average Earning Assets
1.73%
2.02%
Net Interest Margin (FTE)
3
3.34%
2.98%
(1)
Tax-exempt income for investment securities has been adjusted to a fully tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations earlier in this section.
(2)
Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.
(3)
Net interest margin (FTE) is net interest income expressed as a percentage of average earning assets.
(4)
The impact on the net interest income (FTE) resulting from changes in average balances and average rates is shown for the period indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
46
Provision for credit losses
An expense to the provision for credit losses of $3 thousand was recognized during the three months ended June 30, 2025 compared to a provision release of $338 thousand recognized during the three months ended June 30, 2024. The second quarter 2025 provision was comprised of $90 thousand provision for loan losses, due primarily to declining balances in pools with higher loss rates offsetting reserves required by changes in environmental factors, and a recovery of $87 thousand for unfunded commitments, as a result of a decline in unfunded construction commitments. The second quarter 2024 recovery of provision for credit losses was comprised of $519 thousand of recovery of provision for loan losses and $181 thousand of provision for losses on unfunded commitments.
A recovery of provision for credit losses of $157 thousand was recognized during the six months ended June 30, 2025 compared to a recovery of provision for loan losses of $360 thousand recognized during the six months ended June 30, 2024. The first half 2025 recovery or provision for credit losses was comprised of a recovery of provision for credit losses of $15 thousand and a recovery of provision for losses on unfunded commitments of $142 thousand. The first half 2024 recovery of provision for credit losses was comprised of $508 thousand of recovery of provision for loan losses and $148 thousand of provision for losses on unfunded commitments.
An update to the peer data used in the Company's CECL model was performed during the three months ended June 30, 2024. This included a new group of peer banks, an adjustment to the k-factors used in the DCF models, and the election to mirror CRE non-owner occupied data for the multifamily pool based on the more appropriate and reasonable data fit. In addition, during the second quarter of 2024, a reallocation of qualitative factor weightings for each pool was performed based on assessment of applicability and significance in terms of anticipated effect of each factor on loss rates for each pool. An update to the prepayment and curtailment rates used in the Company's CECL model was performed during the three months ended September 30, 2024. No changes to the model have been made during the first six months of 2025.
The decrease in unfunded commitment reserve was almost entirely due to the reserve associated with the construction portfolio. In the second quarter of 2025, the construction pool was assigned a loss rate of 1.77%, compared to 2.04% in the first quarter of 2025. This decrease was due to a 26% decrease in the portfolio balance as several projects funded during the second quarter.
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 June 30, 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 June 30, 2025 and 2024 are shown below (dollars in thousands):
For the Three Months Ended
Variance
June 30,
2025
June 30,
2024
$
%
Noninterest income:
Wealth management fees
$
206
$
240
$
(34
)
-14.2
%
Deposit account fees
293
338
(45
)
-13.3
%
Debit/credit card and ATM fees
355
523
(168
)
-32.1
%
Bank owned life insurance income
307
289
18
6.2
%
Losses on sale of assets, net
-
(3
)
3
-100.0
%
Other
150
304
(154
)
-50.7
%
Total noninterest income
$
1,311
$
1,691
$
(380
)
-22.5
%
Noninterest income for the three months ended June 30, 2025 of $1.3 million was $380 thousand or 22.5% less than the amount recorded for the three months ended June 30, 2024, due primarily to a reduction in debit/credit card and ATM fees, as a result of a reduction in number of accounts.
47
The components of noninterest income for the six months ended June 30, 2025 and 2024 are shown below (dollars in thousands):
For the Six Months Ended
Variance
June 30,
2025
June 30,
2024
$
%
Noninterest income:
Wealth management fees
$
435
$
666
$
(231
)
-34.7
%
Deposit account fees
600
725
(125
)
-17.2
%
Debit/credit card and ATM fees
725
1,011
(286
)
-28.3
%
Bank owned life insurance income
600
564
36
6.4
%
Gains on sale of assets
278
36
242
672.2
%
Gain on early redemption of debt
-
379
(379
)
-100.0
%
Loss on sales of AFS, net
-
(4
)
4
-100.0
%
Other
433
492
(59
)
-12.0
%
Total noninterest income
$
3,071
$
3,869
$
(798
)
-20.6
%
Noninterest income for the six months ended June 30, 2025 of $3.1 million was $798 thousand or 20.6% less than the amount recorded for the six months ended June 30, 2024, due primarily to the fact that a gain of $379 thousand on the early termination of debt was recorded in the first quarter of 2024, coupled with the reduction in wealth management and debit/credit card and ATM fees. The reduction in wealth management fees is primarily attributable to the sale of Masonry Capital effective April 1, 2024, as fees earned in the first quarter of 2024 by such segment contributed $190 thousand to the Company; the decline in wealth management fees associated with Masonry Capital was offset by a reduction in Masonry Capital-related expenses of $200 thousand. The increase year-over-year in gains on sale of assets resulted from the sale of a branch which closed in the first quarter of 2025.
Noninterest expense
The components of noninterest expense for the three months ended June 30, 2025 and 2024 are shown below (dollars in thousands):
For the Three Months Ended
Variance
June 30,
2025
June 30,
2024
$
%
Noninterest expense:
Salaries and employee benefits
$
3,863
$
3,850
$
13
0.3
%
Net occupancy
889
865
24
2.8
%
Equipment
202
167
35
21.0
%
Bank franchise tax
489
345
144
41.7
%
Computer software
266
276
(10
)
-3.6
%
Data processing
732
579
153
26.4
%
FDIC deposit insurance assessment
145
180
(35
)
-19.4
%
Marketing, advertising and promotion
179
157
22
14.0
%
Professional fees
331
190
141
74.2
%
Legal fees
225
9
216
2400.0
%
Core deposit intangible amortization
284
332
(48
)
-14.5
%
Other
1,076
1,172
(96
)
-8.2
%
Total noninterest expense
$
8,681
$
8,122
$
559
6.9
%
Noninterest expense for the quarter ended June 30, 2025 of $8.7 million was $559 thousand or 6.9% more than the quarter ended June 30, 2024. This increase is primarily due to increases in bank franchise tax and data processing expenses, as well as professional fees and legal expenses related to special projects, partially offset by continued reductions in compensation expense and right-sizing the branch network from the Merger.
48
The components of noninterest expense for the six months ended June 30, 2025 and 2024 are shown below (dollars in thousands):
For the Six Months Ended
Variance
June 30,
2025
June 30,
2024
$
%
Noninterest expense:
Salaries and employee benefits
$
7,799
$
8,002
$
(203
)
-2.5
%
Net occupancy
1,905
1,837
68
3.7
%
Equipment
388
338
50
14.8
%
Bank franchise tax
828
685
143
20.9
%
Computer software
522
484
38
7.9
%
Data processing
1,467
1,318
149
11.3
%
FDIC deposit insurance assessment
290
375
(85
)
-22.7
%
Marketing, advertising and promotion
433
405
28
6.9
%
Professional fees
587
442
145
32.8
%
Legal fees
461
80
381
476.3
%
Core deposit intangible amortization
579
675
(96
)
-14.2
%
Other
2,246
2,300
(54
)
-2.3
%
Total noninterest expense
$
17,505
$
16,941
$
564
3.3
%
Noninterest expense for the six months ended June 30, 2025 of $17.5 million was $564 thousand or 3.3% higher than the six months ended June 30, 2024. Increases were due primarily to expenses associated with special projects but were partially offset by reductions in compensation expense as the Bank continues to recognize operational efficiencies.
The efficiency ratio (FTE) was 61.2% for the three months ended June 30, 2025 compared to 62.7% for the same quarter of 2024, due predominantly to the increase in net interest income (FTE), as described above. The efficiency ratio of 61.8% for the six months ended June 30, 2025 improved from the 64.8% realized in the six months ended June 30, 2024 for the same reason. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP presentations section for a reconcilement of GAAP to non-GAAP efficiency ratio.
Provision for Income Taxes
For the three months ended June 30, 2025 and 2024, the Company provided $1.2 million and $929 thousand for Federal income taxes, respectively, resulting in effective income tax rates of 21.9% and 18.3%, respectively, increasing primarily due to adoption of the proportional amortization method for low income housing tax credits. For the six months ended June 30, 2025 and 2024, the Company provided $2.1 million and $1.6 million for Federal income taxes, respectively, resulting in effective income tax rates of 19.3% and 17.0%, respectively. For each period, the effective income tax rate differed from the U.S. statutory rate of 21% due to the accounting change associated with the recognition of low-income housing tax credits and the effect of tax-exempt income from municipal bonds and bank owned life insurance policies.
49
OTHER SIGNIFICANT EVENTS
None
ITEM 3. QUANTITATIVE AND QUALITAT
IVE 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 June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHE
R 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. RI
SK FACTORS.
During the quarter ended June 30, 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.
50
ITEM 2. UNREGISTERED SALES OF EQUI
TY 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 repurchases of our common stock during the first six months of 2025.
ITEM 3. DEFAULTS UPO
N SENIOR SECURITIES.
None
ITEM 4. MINE SAF
ETY DISCLOSURES.
Not applicable
ITEM 5. OTHER
INFORMATION.
Trading Arrangements -
During the three months ended June 30, 2025
,
no
ne of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
(a)
Required 8-K disclosures.
None
(b)
Changes in procedures for director nominations by security holders.
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 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
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101.0)
52
SIGNAT
URES
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.
VIRGINIA NATIONAL BANKSHARES CORPORATION
(Registrant)
/s/ Glenn W. Rust
Glenn W. Rust
President and Chief Executive Officer
(principal executive officer)
Date:
August 12, 2025
/s/ Tara Y. Harrison
Tara Y. Harrison
Executive Vice President and Chief Financial Officer
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