VIRGINIA NATIONAL BANKSHARES CORPORATION ANNOUNCES 2023 FOURTH QUARTER AND FULL YEAR EARNINGS

CHARLOTTESVILLE, Va., Jan. 26, 2024

2023 Fourth Quarter and Full Year Highlights

• The Company continued to experience loan growth in the fourth quarter of 2023, resulting in a 7.1% increase from the prior quarter and 16.7% over the prior year-end.
• Yield on loans elevated to 5.47% for the three months ended December 31, 2023, from 5.00% for the prior year same period and increased to 5.72% for the year ended December 31, 2023, from 4.52% for the year ended December 31, 2022.
• Credit performance remains strong with nonperforming assets as a percentage of total assets of 0.17% as of December 31, 2023, and 0.08% as of December 31, 2022.
• Noninterest expense for the three months ended December 31, 2023 decreased $977 thousand, or 10.5%, compared to the three months ended December 31, 2022. For the year ended December 31, 2023, noninterest expense decreased $4.5 million, or 11.7%. Such decreases are the result of continued efficiencies gained from the merger, including: reduced headcount resulting in lower salaries and employee benefit costs; lower occupancy costs from right-sizing our branch network; and reduced professional fees.
• The Company utilizes a third-party to offer multi-million-dollar FDIC insurance to customers with balances in excess of single-bank limits through Insured Cash Sweep^® (ICS) plans. Deposit balances held in ICS plans amounted to $151.6 million as of December 31, 2023 and $134.6 million as of December 31, 2022.
• Total deposits declined $69.2 million, or 4.7% from December 31, 2022 to December 31, 2023, as many customers moved funds outside of the Bank to earn higher yields while the Bank's strategy was to keep cost of funds low during the first quarter of 2023. Deposit balances increased $38.8 million, or 2.8%, from September 30, 2023 to December 31, 2023, as the Bank's strategy shifted to meet customer rate demands.
• Correlated with the year-over-year deposit decline noted above, borrowings increased from December 31, 2022 to December 31, 2023 by $66.5 million. As of December 31, 2023, the Company had unused borrowing facilities in place of approximately $119.5 million. Management closely monitors its liquidity position.

Loans and Asset Quality

• Gross loans outstanding as of December 31, 2023 totaled $1.1 billion, an increase of $156.3 million, or 16.7%, compared to December 31, 2022. 
• Nonperforming assets amounted to $2.7 million as of December 31, 2023, compared to $1.4 million as of December 31, 2022; the Company currently holds no other real estate owned.
  • Eight loans to seven borrowers are in non-accrual status, totaling $1.9 million, as of December 31, 2023, compared to $673 thousand as of December 31, 2022.  The adoption of CECL altered the manner in which purchased loans that were in non-accrual status are presented, and as a result, two such loans totaling $470 thousand are now included in this figure.
  • Loans 90 days or more past due and still accruing interest amounted to $880 thousand as of December 31, 2023, compared to $705 thousand as of December 31, 2022.  The past due balance as of December 31, 2023 is comprised of two loans totaling $783 thousand which are 100% government-guaranteed, and five student loans totaling $97 thousand. 
• The period-end Allowance for Credit Losses ("ACL") as a percentage of total loans was 0.77% as of December 31, 2023 and 0.59% as of December 31, 2022.  The fair value mark that was allocated to the acquired loans was $21.3 million as of April 1, 2021, with a remaining balance of $9.4 million as of December 31, 2023.
• For the three months ended December 31, 2023, the Company recorded a provision for credit losses of $794 thousand, which includes an $81 thousand provision for unfunded commitments.  The increase in provision over the prior year is primarily the result of the increase in originated loan balances.

Net Interest Income

• Net interest income for the three months ended December 31, 2023 of $10.8 million decreased $4.6 million, or 30.1%, compared to the three months ended December 31, 2022, as the increase in interest expense on deposit accounts and borrowings outweighed the increase in interest income earned on assets. Net interest income for 2023 of $49.0 million decreased $4.6 million, or 8.6%, compared to 2022.
• Net interest margin (FTE), (a non-GAAP financial measure)¹, for the three months ended December 31, 2023 declined to 2.89%, compared to 3.91% for the three months ended December 31, 2022. However, net interest margin (FTE), (a non-GAAP financial measure)¹, for 2023 increased to 3.37% compared to 3.21% for 2022.
• The overall cost of funds, including noninterest-bearing deposits, of 201 bps incurred in the three months ended December 31, 2023 increased 178 bps from 23 bps in the same period in the prior year. Overall, the cost of interest-bearing deposits increased period over period, from a cost of 32 bps to 258 bps. The overall cost of funds, including noninterest-bearing deposits, of 148 bps incurred for the full year of 2023 increased 129 bps from 19 bps in 2022. Overall, the cost of interest-bearing deposits increased year-over-year, from a cost of 27 bps to 194 bps.

Noninterest Income

• Noninterest income for the three months ended December 31, 2023 decreased $550 thousand, or 20.5%, compared to the three months ended December 31, 2022. In the fourth quarter of 2022, the Company received a $267 thousand recovery of unearned premiums related to the loss of insurance on the student loan portfolio. Also, $131 thousand of income was recognized in the fourth quarter of 2022 related to advisory and brokerage income; this business line was sold in the fourth quarter of 2022, eliminating future income and expense related thereto.
• Noninterest income for 2023 decreased $4.6 million, or 33.4%, compared to 2022. During the prior year, the Company received and recognized a $2.4 million one-time payment to resolve a commercial dispute and a $1.0 million gain was recognized in connection with the sale of two buildings. Also during 2022, a $404 thousand gain was recognized in connection with the sale of Sturman Wealth Advisors; as noted above, as a result of the sale of the business line, future income and expense is eliminated related thereto.

Book Value

Book value per share was $28.52 as of December 31, 2023 and $25.00 as of December 31, 2022, and tangible book value per share (a non-GAAP financial measure)¹ was $26.12 as of December 31, 2023 compared to $22.31 as of December 31, 2022.  These values increased as net retained income increased and unrealized losses in the investment portfolio decreased period over period.