Virginia National Bankshares (VABK) - 2023 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements The unaudited statements present the company's financial position, operations, and cash flows, reflecting the adoption of the CECL accounting standard - The company adopted the new CECL accounting standard (ASC 326) on January 1, 2023, replacing the incurred loss methodology with an expected loss model[30] - The adoption of CECL increased the Allowance for Credit Losses (ACL) by $2.5 million and resulted in a net decrease to opening retained earnings of $1.9 million[32] Consolidated Balance Sheets Total assets decreased to $1.58 billion as of June 30, 2023, driven by a reduction in deposits, while net loans and shareholders' equity increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,584,088 | $1,623,359 | | Loans, net | $965,485 | $930,863 | | Securities Available for Sale | $473,868 | $538,186 | | Total Liabilities | $1,441,649 | $1,489,943 | | Total Deposits | $1,348,076 | $1,478,338 | | Short-term borrowings | $59,666 | $0 | | Total Shareholders' Equity | $142,439 | $133,416 | Consolidated Statements of Income Net income for Q2 2023 remained stable at $5.7 million, as higher net interest income was offset by lower noninterest income Quarterly Income Statement Highlights (in thousands) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Interest Income | $13,703 | $12,461 | | Provision for Credit Losses | $261 | ($217) | | Noninterest Income | $2,045 | $3,646 | | Noninterest Expense | $8,564 | $9,442 | | Net Income | $5,651 | $5,685 | | Diluted EPS | $1.05 | $1.06 | Six-Month Income Statement Highlights (in thousands) | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net Interest Income | $27,116 | $23,886 | | Provision for Credit Losses | $13 | ($69) | | Noninterest Income | $4,321 | $8,433 | | Noninterest Expense | $17,425 | $19,537 | | Net Income | $11,442 | $10,609 | | Diluted EPS | $2.13 | $1.98 | Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $10.2 million in H1 2023, as cash used in financing outpaced cash provided by operations and investments Six-Month Cash Flow Summary (in thousands) | Activity | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $10,117 | $9,666 | | Net Cash from Investing Activities | $32,808 | ($102,406) | | Net Cash from Financing Activities | ($53,122) | ($200,433) | | Net Decrease in Cash | ($10,197) | ($293,173) | Notes to Consolidated Financial Statements The notes detail the adoption of CECL, the composition of the securities and loan portfolios, and confirm the Bank segment as the primary profit driver - The company's reportable segments are Bank, VNB Trust & Estate Services, and Masonry Capital, with the Bank segment being the primary source of income[131] - The fair value of the Available-for-Sale securities portfolio was $473.9 million, with gross unrealized losses of $58.2 million deemed temporary and not credit-related[49][53] - Total loans stood at $973.3 million with strong credit quality, as nonaccrual loans were $1.2 million, or 0.12% of total loans[61][63][156] Management's Discussion and Analysis of Financial Condition and Results of Operations Total assets declined to $1.6 billion due to a strategic deposit decrease, while the loan portfolio grew, net interest margin expanded, and expenses fell Key Performance Ratios | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | ROAA | 1.46% | 1.27% | | ROAE | 15.98% | 16.20% | | Net Income per Diluted Share | $1.05 | $1.06 | - Total assets decreased by 2.4% from year-end 2022, a result of an expected decline in deposit balances following a strategic decision on deposit rates[144] - The company's capital ratios as of June 30, 2023, significantly exceed "well capitalized" minimums, with a Common Equity Tier 1 ratio of 17.97% and a Total Capital ratio of 18.80%[185] Financial Condition Assets stood at $1.6 billion, down 2.4% from year-end due to deposit outflows, which were used to fund loan growth while maintaining strong asset quality - Total loans increased by $36.9 million (3.9%) since December 31, 2022, reaching $973.3 million[153] - Total deposits decreased by $130.3 million to $1.3 billion, an expected result of a strategic decision to lag increases in deposit rates[171] - As of June 30, 2023, estimated uninsured deposits were $311.6 million, representing 23.1% of total deposits[175] Allowance for Credit Losses (ACL) Ratios | Ratio | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | ACL to total loans | 0.81% | 0.59% | | Nonaccrual loans to total loans | 0.12% | 0.07% | | ACL to nonaccrual loans | 663.54% | 824.96% | Results of Operations Q2 2023 net income was stable at $5.7 million, as a significant expansion in net interest margin was offset by lower noninterest income Net Interest Margin (FTE) Analysis | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Interest Income (FTE) | $13,789 | $12,543 | | Average Earning Assets | $1,443,048 | $1,668,471 | | Net Interest Margin (FTE) | 3.83% | 3.02% | - Noninterest income for Q2 2023 was $2.0 million, a 43.9% decrease from Q2 2022, primarily due to prior-year gains on property sales[209] - Noninterest expense for Q2 2023 decreased by 9.3% to $8.6 million compared to Q2 2022, mainly due to efficiencies gained from the prior merger[211] - The efficiency ratio (FTE) improved to 54.1% for Q2 2023 from 58.3% in Q2 2022, reflecting higher net interest income and lower noninterest expenses[214] Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not required for this filing - Disclosure for this item is not required[217] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[219] - No changes occurred in the company's internal control over financial reporting during the second quarter of 2023 that have materially affected these controls[219] Part II. Other Information Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report[221] Risk Factors No material changes were reported to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes have occurred in the risk factors described in the Company's Form 10-K for the year ended December 31, 2022[221] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities and use of proceeds to report[222] Other Information The company reported no other significant information required to be disclosed under this item - There were no disclosures required under Item 5 for the period[223] Exhibits The report lists filed exhibits, including CEO/CFO certifications and financial statements formatted in Inline XBRL - Filed exhibits include Section 302 and 906 certifications by the Principal Executive Officer and Principal Financial Officer[224][225] - Financial statements and notes are provided in Inline eXtensible Business Reporting Language (iXBRL) format as Exhibit 101[226]