Virginia National Bankshares (VABK) - 2020 Q2 - Quarterly Report

Part I. Financial Information This part presents the company's financial statements, management's analysis, and market risk disclosures Item 1. Financial Statements Presents the unaudited consolidated balance sheets, income statements, and cash flow statements as of June 30, 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $34,887 | $19,085 | | Loans, net | $627,477 | $535,324 | | Total assets | $799,584 | $702,627 | | Liabilities & Equity | | | | Total deposits | $714,201 | $621,211 | | Total liabilities | $720,492 | $626,520 | | Total shareholders' equity | $79,092 | $76,107 | | Total liabilities and shareholders' equity | $799,584 | $702,627 | Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $5,755 | $5,461 | $11,130 | $11,029 | | Provision for loan losses | $378 | $(64) | $1,143 | $620 | | Noninterest income | $1,626 | $1,700 | $3,295 | $2,759 | | Noninterest expense | $4,404 | $4,685 | $8,947 | $9,096 | | Net income | $2,088 | $2,115 | $3,492 | $3,361 | | Net income per share, diluted | $0.77 | $0.79 | $1.29 | $1.25 | Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $2,088 | $2,115 | $3,492 | $3,361 | | Total other comprehensive income | $1,454 | $486 | $1,006 | $1,240 | | Total comprehensive income | $3,542 | $2,601 | $4,498 | $4,601 | - Shareholders' equity grew to $79.1 million at June 30, 2020, up from $76.1 million at December 31, 2019[14] - Key changes in the first six months of 2020 included $3.5 million in net income, $1.0 million in other comprehensive income, and $1.6 million in cash dividends declared[14] Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,932 | $4,544 | | Net cash provided by (used in) investing activities | $(80,502) | $21,818 | | Net cash provided by (used in) financing activities | $91,372 | $(20,442) | | Net increase in cash and cash equivalents | $15,802 | $5,920 | - The company adopted interagency guidance allowing short-term loan modifications for COVID-19 affected borrowers not to be classified as Troubled Debt Restructurings (TDRs)[24] - The company is a smaller reporting company and has deferred the adoption of ASU 2016-13 (CECL) until fiscal years beginning after December 15, 2022[26] - The company has four reportable segments: Bank, Sturman Wealth Advisors, VNB Trust & Estate Services, and Masonry Capital[115][116][117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial condition and operational results, focusing on COVID-19 impacts, loan growth, and capital adequacy - The company originated 574 PPP loans totaling $86.9 million in funding during the second quarter of 2020[133] - A total of $56.8 million in loan deferments were approved for customers affected by the pandemic[46][132] - Economic qualitative factors in the Allowance for Loan Losses (ALLL) model were downgraded due to COVID-19, increasing the provision for loan losses[129] Loan Exposure to Higher-Risk Industries (as of June 30, 2020) | Industry | Exposure (millions) | % of Loans | | :--- | :--- | :--- | | Retail trade | $18.1 | 3.3% | | Hotels and motels | $14.3 | 2.6% | | Wholesale trade | $11.1 | 2.0% | | Arts, entertainment and recreation | $6.6 | 1.2% | | Caterers | $6.3 | 1.2% | | Full-service restaurants | $6.0 | 1.1% | - There have been no significant changes in the Company's application of critical accounting policies since December 31, 2019[142] - Total assets increased by $97.0 million since year-end 2019, reaching $799.6 million, primarily due to an $86.9 million origination of PPP loans[143] - Total deposits grew by $93.0 million to $714.2 million, with low-cost and no-cost deposits comprising 86.5% of total deposits[171][172] - The allowance for loan losses as a percentage of total loans was 0.78%; excluding PPP loans, the ratio was 0.90%[161][206] - The Company's capital ratios, including a Tier 1 capital ratio of 14.63% and a total capital ratio of 15.56%, remain well above 'well capitalized' levels[180] Net Income Performance (Six Months Ended June 30) | Metric | 2020 (in thousands) | 2019 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Income | $3,492 | $3,361 | +3.9% | | Diluted EPS | $1.29 | $1.25 | +3.2% | - Net interest margin (FTE) for the six months ended June 30, 2020, was 3.16%, a decrease of 56 basis points from 3.72% in the same period of 2019[189] - Provision for loan losses for the first six months of 2020 was $1.1 million, a significant increase from $620 thousand in the prior year period, primarily due to the economic impact of COVID-19[205] - Noninterest income for the first six months of 2020 increased by 19.4% to $3.3 million, driven by a $579 thousand increase in gains on sales of securities and a $587 thousand increase in loan swap fee income[210] - Noninterest expense for the first six months of 2020 decreased by 1.6% to $8.9 million, mainly because a $300 thousand settlement of claims expense from 2019 did not recur[212] Item 3. Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required for the current reporting period - Quantitative and Qualitative Disclosures About Market Risk are not required for this filing[215] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes in internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period[218] - No changes occurred in the internal control over financial reporting during the quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, these controls[218] Part II. Other Information Details legal proceedings, risk factors, equity sales, and other required disclosures for the period Item 1. Legal Proceedings The company reports no material legal proceedings during the reporting period - None[219] Item 1A. Risk Factors Disclosure of risk factors is not required for this quarterly report - Not required[219] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or related use of proceeds - None[220] Item 3. Defaults Upon Senior Securities The company reports no defaults upon its senior securities during the period - None[220] Item 4. Mine Safety Disclosures This disclosure item is not applicable to the company's operations - Not applicable[220] Item 5. Other Information The company reports no other information required for disclosure under this item - None[220] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and iXBRL data - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[221] - Financial statements and notes are provided in Inline eXtensible Business Reporting Language (iXBRL) format[221] Signatures The report is duly signed and authorized by the CEO and CFO on August 10, 2020