Virginia National Bankshares (VABK) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for Virginia National Bankshares Corporation ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, along with detailed notes on accounting policies, loans, and recent mergers Consolidated Balance Sheets Presents the company's financial position at specific points in time, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheet Highlights (March 31, 2021 vs. December 31, 2020) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Total Assets | $918,403 | $848,410 | | Total Liabilities | $838,391 | $765,812 | | Total Shareholders' Equity | $80,012 | $82,598 | | Total Deposits | $804,160 | $730,764 | | Loans, net | $615,453 | $603,951 | Consolidated Statements of Income Details the company's revenues, expenses, and net income over a specific period Consolidated Statements of Income Highlights (Three months ended March 31, 2021 vs. 2020) | Metric | March 31, 2021 (in thousands) | March 31, 2020 (in thousands) | | :----------------------------------- | :------------------------------ | :------------------------------ | | Total Interest and Dividend Income | $6,667 | $6,564 | | Total Interest Expense | $693 | $1,189 | | Net Interest Income | $5,974 | $5,375 | | Provision for Loan Losses | $351 | $765 | | Total Noninterest Income | $1,039 | $1,669 | | Total Noninterest Expense | $4,781 | $4,543 | | Net Income | $1,505 | $1,404 | | Net Income per Common Share, Basic | $0.55 | $0.52 | Consolidated Statements of Comprehensive Income (Loss) Reports changes in equity during a period from non-owner sources, including net income and other comprehensive income items Consolidated Statements of Changes in Shareholders' Equity Outlines the changes in the company's equity accounts over a period, reflecting transactions with owners and comprehensive income Consolidated Statements of Cash Flows Provides information on cash inflows and outflows from operating, investing, and financing activities over a period Notes to Consolidated Financial Statements Provides detailed explanations and additional information regarding the figures presented in the primary financial statements - The Company completed its merger with Fauquier Bankshares, Inc. on April 1, 2021, with Fauquier shareholders receiving 0.675 shares of the Company's common stock for each Fauquier share, and Fauquier's financials are not included in the first quarter results, but it had total assets of $911.3 million, net loans of $616.4 million, and total deposits of $817.5 million at March 31, 2021[23][24][25] - The Company is currently assessing the impact of ASU 2016-13 (Credit Losses) and ASU 2020-04 (LIBOR Reform) on its consolidated financial statements[27][29] Note 1. Significant Accounting Policies Describes the key accounting principles and methods used in preparing the financial statements Note 2. Securities Details the company's investment in debt and equity securities, including classification and fair value Note 3. Loans Provides a breakdown of the loan portfolio by type and discusses related credit quality aspects Loan Portfolio Composition (March 31, 2021 vs. December 31, 2020, in thousands) | Loan Type | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :------------- | :---------------- | | Commercial and industrial | $130,388 | $118,688 | | Real estate construction and land | $26,254 | $22,509 | | Real estate mortgages | $409,436 | $410,075 | | Consumer | $54,990 | $58,134 | | Total loans | $621,068 | $609,406 | - The Company funded an additional $36.2 million in PPP loans during the three months ended March 31, 2021, with 43% of the total dollars of PPP loans forgiven by the SBA, leaving $70.2 million outstanding as of March 31, 2021[44][138] Note 4. Allowance for Loan Losses Explains the methodology and changes in the allowance for credit losses on the loan portfolio Allowance for Loan Losses (ALLL) and Provision | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | March 31, 2020 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | ALLL Balance | $5,615 | $5,455 | $4,704 | | Provision for Loan Losses (Q1) | $351 | N/A | $765 | Impaired Loans and Troubled Debt Restructurings (TDRs) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Total Impaired Loans | $1,164 | $1,273 | | Total TDRs | $1,164 | $1,273 | | Performing TDRs | $1,159 | $1,265 | | Nonperforming TDRs | $5 | $8 | Note 5. Net Income Per Share Presents the calculation of basic and diluted net income per common share Note 6. Stock Incentive Plans Describes the company's stock-based compensation arrangements for employees and directors Note 7. Fair Value Measurements Details the fair value hierarchy and valuation techniques used for financial instruments Note 8. Other Comprehensive Income Reports items of comprehensive income that are not included in net income, such as unrealized gains/losses on securities Note 9. Segment Reporting Provides financial information about the company's operating segments Segment Net Income (Three months ended March 31, 2021 vs. 2020, in thousands) | Segment | March 31, 2021 | March 31, 2020 | | :------------------------ | :------------- | :------------- | | Bank | $1,506 | $1,440 | | Sturman Wealth Advisors | $24 | $3 | | VNB Trust & Estate Services | $(4) | $16 | | Masonry Capital | $(21) | $(55) | | Consolidated | $1,505 | $1,404 | Note 10. Leases Discloses information about the company's lease arrangements, including right-of-use assets and lease liabilities Note 11. Mergers and Acquisitions Details significant business combinations and acquisitions undertaken by the company ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the financial condition and operating results, including the impact of the Fauquier merger, COVID-19, critical accounting policies, and analysis of key financial components - The merger with Fauquier Bankshares, Inc. was completed on April 1, 2021, with Fauquier shareholders receiving 0.675 shares of the Company's common stock per share, and Fauquier had $911.3 million in total assets, $616.4 million in net loans, and $817.5 million in total deposits at March 31, 2021, not included in the Q1 2021 report[130][131][132] - The Company downgraded economic qualitative factors in its ALLL model in Q1 and Q2 2020 due to COVID-19, with no further downgrades in subsequent quarters, and loan deferments totaling $59.0 million were approved, with 97.4% ($57.5 million) having returned to normal payment schedules by March 31, 2021[135][137] - The Company closed 924 PPP loans totaling $123.1 million, with 43% ($53.0 million) forgiven by March 31, 2021, leaving $70.2 million outstanding[138] - Total assets increased by $70.0 million (8.2%) to $918.4 million at March 31, 2021, from $848.4 million at December 31, 2020[148] - Total loans increased by $11.7 million (1.9%) to $621.1 million at March 31, 2021, from $609.4 million at December 31, 2020, primarily driven by PPP loan originations[157] - The Allowance for Loan Losses (ALLL) as a percentage of loans was 0.90% at March 31, 2021 and December 31, 2020, and 1.02% at March 31, 2021, excluding PPP loans[166] - Total deposits increased by $73.4 million to $804.2 million at March 31, 2021, from $730.8 million at December 31, 2020, mainly due to increased PPP customer accounts[175] - Net income increased by $101 thousand (7.2%) to $1.5 million for Q1 2021, compared to $1.4 million for Q1 2020, with diluted EPS at $0.55 for Q1 2021 versus $0.52 for Q1 2020[190] - Net interest income (FTE) increased by $626 thousand (11.6%) to $6.0 million for Q1 2021, driven by lower cost of funds and increased loan/securities volume, despite lower yields[191][192] - Net interest margin (FTE) decreased by 37 basis points to 2.83% for Q1 2021, from 3.20% for Q1 2020[193] - Noninterest income decreased by $630 thousand (37.7%) to $1.0 million for Q1 2021, primarily due to a $494 thousand decline in loan swap fee income and no gains on sales of securities or fees on mortgage sales[204] - Noninterest expense increased by $238 thousand (5.2%) to $4.8 million for Q1 2021, mainly due to $278 thousand in merger-related expenses and $63 thousand in FDIC deposit insurance assessment[206] - The efficiency ratio (FTE) increased to 67.7% for Q1 2021, from 64.3% for Q1 2020, primarily due to the decrease in noninterest income[207] - As of March 31, 2021, the Company's Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 14.49%, 14.49%, 15.49%, and 9.02%, respectively, all exceeding minimum regulatory requirements[185] FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS Discusses potential future events and uncertainties that could impact the company's financial performance MERGER WITH FAUQUIER BANKSHARES, INC., AND THE FAUQUIER BANK Provides details regarding the recently completed merger transaction and its implications IMPACT OF COVID-19 Analyzes the effects of the COVID-19 pandemic on the company's operations and financial performance APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES Explains the significant accounting policies and estimates that require management's judgment FINANCIAL CONDITION Reviews the company's balance sheet components, including assets, liabilities, and equity Total assets Discusses the overall value of the company's assets and changes over time Federal funds sold Details the company's short-term lending of excess reserves to other financial institutions Securities Analyzes the company's investment portfolio, including types and performance of securities Loan portfolio Provides an overview of the composition and trends within the company's loan portfolio Loan quality Assesses the credit risk and performance of the loan portfolio, including non-performing assets Allowance for loan losses Discusses the adequacy and changes in the reserve set aside for potential loan defaults Premises and equipment Details the company's investment in property, plant, and equipment Leases Explains the company's lease obligations and related accounting treatment Deposits Analyzes the sources and trends of customer deposits, a primary funding source Borrowings Discusses the company's various debt instruments and funding strategies Shareholders' equity and regulatory capital ratios Reviews the company's equity structure and compliance with capital adequacy requirements RESULTS OF OPERATIONS Analyzes the company's financial performance, including revenue, expenses, and profitability Non-GAAP presentations Explains the use and reconciliation of financial measures not prepared in accordance with GAAP Net income Discusses the company's overall profitability and factors influencing net income Net interest income Analyzes the difference between interest earned on assets and interest paid on liabilities Provision for loan losses Details the expense recognized for potential future loan defaults Noninterest income Reviews income generated from sources other than interest, such as fees and service charges Noninterest expense Discusses operating expenses not directly related to interest-bearing activities Provision for Income Taxes Details the expense related to federal and state income taxes OTHER SIGNIFICANT EVENTS Reports on any other material events or transactions impacting the company's financial position or operations ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that no quantitative and qualitative disclosures about market risk are required for this interim report - No disclosures about market risk are required for this interim period[209] ITEM 4. CONTROLS AND PROCEDURES Confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Company's CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021[212] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021[212] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS This section states that there are no legal proceedings to report - No legal proceedings are reported[213] ITEM 1A. RISK FACTORS Reports no material changes to risk factors from the prior Form 10-K, while acknowledging potential for new or immaterial risks - No material changes from the risk factors described in the 2020 Form 10-K[213] - Acknowledges potential for additional unknown or currently immaterial risks that could adversely affect the business, financial condition, and/or operating results[213] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds[214] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities to report - No defaults upon senior securities[214] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[214] ITEM 5. OTHER INFORMATION Reports no required 8-K disclosures or changes in director nomination procedures by security holders - No required 8-K disclosures[214] - No changes in procedures for director nominations by security holders[214] ITEM 6. EXHIBITS Lists exhibits filed with the Form 10-Q, including officer certifications and iXBRL formatted financial statements - Exhibits include 302 Certifications (31.1, 31.2), 906 Certification (32.1), and iXBRL formatted financial statements (101, 104)[217] SIGNATURES Contains the certifications and signatures of the company's President, CEO, Executive Vice President, and CFO Signatures Presents the official signatures of the President, CEO, Executive Vice President, and CFO, certifying the report - The report was signed by Glenn W. Rust (President and Chief Executive Officer) and Tara Y. Harrison (Executive Vice President and Chief Financial Officer) on May 10, 2021[219]