GlobeNewswire Inc | Oct 26, 2020 04:05PM EDT

October 26, 2020

CHARLOTTESVILLE, Va., Oct. 26, 2020 (GLOBE NEWSWIRE) -- Virginia National Bankshares Corporation (OTCQX: VABK) (the Company) today reported third quarter net income of $1.87 million, or $0.69 per diluted share, a slight decrease compared to net income of $1.90 million, or $0.71 per diluted share, recognized during the third quarter of 2019. In the first nine months of 2020, net income was $5.36 million, or $1.98 per diluted share, which is a 2% increase over net income of $5.26 million, or $1.96 per diluted share, posted for the first nine months of 2019.

As we expected, we posted strong third quarter and year-to-date results, despite running through $549 thousand of merger expenses in connection with our announcement earlier this month, said Glenn W. Rust, President and Chief Executive Officer. We are honored to be entering into a partnership with The Fauquier Bank and Fauquier Bankshares, Inc., to combine the two banks and companies, joining forces to improve the experiences of clients and employees and accelerate the returns of our shareholders.

Update on Our Response to COVID-19

-- Paycheck Protection Program Through September 30, 2020, Virginia National Bank has assisted nonprofits and local businesses by funding $86.9 million of Small Business Administration Paycheck Protection Program (PPP) loans, which were designed to provide economic relief to small businesses adversely impacted by COVID-19. The loans carry a 1% annual interest rate. The Company recorded PPP loan origination fees of approximately $3.0 million and deferred $95 thousand in loan origination costs that are being recognized as an adjustment to yield over the contractual life of the underlying loans, most of which are over a 24-month period. Upon repayment or forgiveness of each loan, the remaining unamortized fees and costs allocated to that loan will be recorded as income and expensed, respectively. The PPP loans generated pre-tax income of $645 thousand, from interest income and fee amortization, net of cost accretion, in the third quarter of 2020, with an effective yield of 2.95%. -- Loan Deferments - Also to assist our customers whose businesses were impacted by COVID-19, we processed a total of $58.4 million in loan deferments since the beginning of the pandemic, of which $28.7 million, or 49.1% were principal-only deferments; $20.0 million, or 34.3%, were principal and interest deferments; $7.9 million, or 13.6%, were government-guaranteed loans; and $1.8 million, or 3.0%, were student loans. As of September 30, 2020, $48.9 million in loan balances, or 83.8% of the total loan deferments approved, have returned to normal payment schedules and are now current, leaving a remaining balance of deferments of $9.4 million. Of this remaining balance, $3.8 million, or 40.9%, are principal-only deferments; $5.0 million, or 52.9%, are government-guaranteed loans; and $581 thousand, or 6.2%, are student loans.

Third Quarter 2020 Select Financial Highlights

-- Gross loans outstanding at September 30, 2020 totaled $636.9 million, an increase of $97.4 million, or 18.1% compared to December 31, 2019, and an increase of $114.8 million, or 22.0%, compared to September 30, 2019. The increases are largely due to the origination of $86.9 million in PPP loans as noted above, as well as $10.5 million in net non-PPP loan growth in the first nine months of 2020 and the purchase of a $17.4 million 1-4 family residential mortgage package in the fourth quarter of 2019. -- The balance of loans in non-accrual status decreased to $9 thousand as of September 30, 2020, from $299 thousand as of December 31, 2019 and $337 thousand at September 30, 2019. Loans 90 days or more past due and still accruing interest amounted to $61 thousand as of September 30, 2020, $771 thousand as of December 31, 2019, and $199 thousand as of September 30, 2019. -- A provision for loan losses of $224 thousand was recognized during the third quarter of 2020, compared to a recovery of $120 thousand during the third quarter of 2019. For the first nine months of 2020, a provision for loan losses of $1.4 million was recognized, compared to $500 thousand for the first nine months of the prior year. The primary reason for the increase is an escalation in economic qualitative factors in the allowance for loan losses incurred loss model as a result of the economic impact of COVID-19. -- The period-end allowance for loan losses as a percentage of total loans was 0.84% as of September 30, 2020, 0.78% as of December 31, 2019, and 0.76% as of September 30, 2019. Note that the allowance for loan losses as a percentage of total loans, excluding PPP loans, would have been 0.97% as of September 30, 2020. -- Annualized return on average assets for the third quarter of 2020 was 0.89% compared to 1.07% realized in the second quarter of 2020 and 1.15% realized in the third quarter of 2019. -- Third quarter 2020 net interest income increased $573 thousand, or 10.5%, compared to the amount recognized in the third quarter of 2019. Net interest income for the first nine months of 2020 increased $674 thousand, or 4.1% over the same period in the prior year. These increases were primarily the result of lower cost of funds period-over-period. -- The cost of funds incurred in the third quarter of 2020 was 38 basis points, an improvement over the 76 basis points incurred during the third quarter of 2019, primarily due to the decline in interest paid on deposits. Low-cost deposits, which include noninterest checking accounts and interest-bearing checking, savings, and money market accounts, remained in excess of 78% of total deposits at the end of the third quarters of 2020 and 2019, as well as the end of the year in 2019. -- Net interest margin on a fully tax equivalent basis (FTE) (a non-GAAP financial measure) for the third quarter of 2020 declined 26 basis points to 3.05% from 3.12% for the second quarter of 2020 and declined 49 basis points from 3.54% for the third quarter of 2019. Net interest margin (FTE) would have been 3.09% for the third quarter of 2020, without the interest and fees associated with the PPP loans, which had an average balance of $86.9 million during the quarter. -- Noninterest income for the third quarter of 2020 increased $98 thousand, or 7.4%, to $1.4 million, compared to $1.3 million for the third quarter of 2019, due to fluctuations in several categories. Loan swap fee income increased $228 thousand, however wealth management fees declined $114 thousand. Noninterest income for the first nine months of 2020 increased $634 thousand, or 15.5%, to $4.7 million, compared to $4.1 million in the first nine months of 2019, primarily due to the increase in loan swap fee income of $826 thousand and the increase in gain on sale of securities of $663 thousand, offset by declines in bank owned life insurance income of $360 thousand and wealth management fees of $325 thousand. The Company anticipates receiving approximately $800 thousand from the return of unearned insurance premiums related to the student loan portfolio, although the timing of the payment remains uncertain at this time. -- Noninterest expense for the third quarter of 2020 increased $374 thousand, or 8.2%, compared to the third quarter of 2019 due largely to $549 thousand in due diligence and other expenses in connection with the pending merger with Fauquier Bankshares, Inc., offset by a decline of $160 thousand of settlement of claims incurred in the third quarter of 2019. Noninterest expense for the first nine months of 2020 increased $225 thousand, or 1.7%, as compared to the same period in the prior year, also a result of merger expenses noted above, coupled with a $204 thousand increase in personnel expense, primarily for Richmond lenders salaries and incentive compensation, offset by a decline of $460 thousand of settlement of claims incurred in the first nine months of 2019.

Third Quarter 2020 Select Financial Highlights, continued

-- The efficiency ratio (FTE) (a non-GAAP financial measure) was 65.7% for the third quarter of 2020, compared to 61.2% for the fourth quarter of 2019 and 66.9% for the third quarter of 2019. (See footnote 3 on the Financial Highlights page for an explanation of the efficiency ratio (FTE) calculation.) The efficiency ratio (FTE) is elevated due to merger-related expenses, as noted above. -- The loan-to-deposit ratio was 91.7% at September 30, 2020, compared to 86.9% at December 31, 2019 and 90.1% at September 30, 2019. -- Tangible book value per share as of September 30, 2020 was $29.37, compared to $27.98 as of December 31, 2019 and $27.77 as of September 30, 2019. -- Capital ratios continue to be well in excess of regulatory requirements for well-capitalized banks. -- Cash dividends of $814 thousand were declared during the third quarter of 2020, while the remaining net income of $1.1 million, or 56.5%, was retained.

About Virginia National Bankshares Corporation

Virginia National Bankshares Corporation, headquartered in Charlottesville, Virginia, is the bank holding company for Virginia National Bank (the Bank). The Bank has four banking offices in Charlottesville and one in Winchester, and offers loan, deposit and treasury management services in Mechanicsville and Richmond, Virginia. 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. The Bank offers investment advisory services under the name of Sturman Wealth Advisors. Investment management services are offered through Masonry Capital Management, LLC, a registered investment adviser and wholly-owned subsidiary of the Company.

The Companys stock trades on the OTC Markets Groups OTCQX Market under the symbol VABK. Additional information on the Company is also available at www.vnbcorp.com.

Non-GAAPFinancial Measures

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and prevailing practices in the banking industry. However, management uses certainnon-GAAPmeasures to supplement the evaluation of the Companys performance. Management believes presentations of thesenon-GAAPfinancial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Companys core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable tonon-GAAPperformance measures that may be presented by other companies. Reconciliations of GAAP tonon-GAAPmeasures are included at the end of this release.

Forward-Looking Statements; Other Information

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 Companys 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 judgement 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: general economic and market conditions, including the effects of declines in real estate values, an increase in unemployment levels and general economic contraction as a result of COVID-19 or other pandemics; fluctuations in interest rates, deposits, loan demand, and asset quality; assumptions that underlie the Companys allowance for loan losses; the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (e.g., COVID-19 or other pandemics), and of governmental and societal responses thereto; the performance of vendors or other parties with which the Company does business; competition; technology; laws, regulations and guidance; accounting principles or guidelines; performance of assets under management; expenses related to the Companys proposed merger with Fauquier Bankshares, Inc., unexpected delays related to the merger, or the inability to obtain regulatory and shareholder approvals or satisfy other closing conditions required to complete the merger; and other factors impacting financial services businesses. Many of these factors and additional risks and uncertainties are described in the Companys Annual Report on Form 10-K for the year ended December 31, 2019 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.

INVESTOR RELATIONS CONTACT:Tara Y. Harrison (434) 817-8587

VIRGINIA NATIONAL BANKSHARES CORPORATIONCONSOLIDATED BALANCE SHEETS(dollars in thousands, except per share data)

September30, December31, September30, 2020 2019* 2019 (Unaudited) (Unaudited) ASSETS Cash and due from $ 11,399 $ 14,908 $ 13,870 banksFederal funds sold 273 4,177 13,985 Securities: Available for sale, 141,245 114,041 77,930 at fair valueRestricted 3,436 1,683 1,684 securities, at costTotal securities 144,681 115,724 79,614 Loans 636,935 539,533 522,104 Allowance for loan (5,334 ) (4,209 ) (3,983 )lossesLoans, net 631,601 535,324 518,121 Premises and 5,444 6,145 6,354 equipment, netBank owned life 16,739 16,412 16,301 insuranceGoodwill 372 372 372 Other intangible 357 408 424 assets, netAccrued interestreceivable and 10,092 9,157 11,749 other assetsTotal assets $ 820,958 $ 702,627 $ 660,790 LIABILITIES ANDSHAREHOLDERS' EQUITYLiabilities: Demand deposits: Noninterest-bearing $ 190,204 $ 166,975 $ 155,134 Interest-bearing 135,569 122,994 110,152 Money market andsavings deposit 270,653 221,964 190,568 accountsCertificates ofdeposit and other 98,095 109,278 123,592 time depositsTotal deposits 694,521 621,211 579,446 Advances from the 40,000 - - FHLBAccrued interestpayable and other 5,980 5,309 5,790 liabilitiesTotal liabilities 740,501 626,520 585,236 Commitments andcontingent liabilitiesShareholders' equity:Preferred stock,$2.50 par value,2,000,000 shares - - - authorized,no sharesoutstandingCommon stock, $2.50par value,10,000,000 sharesauthorized;2,714,273(including 25,268nonvested) sharesissuedand outstanding as 6,722 6,720 6,720 of September 30,2020 and 2,692,005(including 4,000nonvested) sharesissued andoutstandingas of December 31,2019 and September30, 2019Capital surplus 32,377 32,195 32,160 Retained earnings 40,158 37,235 36,611 Accumulated othercomprehensive 1,200 (43 ) 63 income (loss)Total shareholders' 80,457 76,107 75,554 equityTotal liabilitiesand shareholders' $ 820,958 $ 702,627 $ 660,790 equity

*Derived from audited consolidated financial statements

VIRGINIA NATIONAL BANKSHARES CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(dollars in thousands, except per share data)(Unaudited)

For the three months ended For the nine months ended September30, September30, September30, September30, 2020 2019 2020 2019Interest anddividend income:Loans,including $ 6,175 $ 6,021 $ 18,202 $ 18,223 feesFederal 3 174 98 267 funds soldInvestment securities:Taxable 412 291 1,150 789 Tax exempt 159 64 326 221 Dividends 22 29 70 86 Totalinterest and 6,771 6,579 19,846 19,586 dividendincome Interest expense:Demand andsavings 383 531 1,468 1,375 depositsCertificatesand other 306 574 1,166 1,619 timedepositsRepurchaseagreements 35 - 35 89 and otherborrowingsTotalinterest 724 1,105 2,669 3,083 expenseNet interest 6,047 5,474 17,177 16,503 incomeProvisionfor(recovery 224 (120 ) 1,367 500 of) loanlossesNet interestincome afterprovisionfor 5,823 5,594 15,810 16,003 (recoveryof) loanlosses Noninterest income:Wealthmanagement 263 377 801 1,126 feesAdvisory andbrokerage 175 159 516 451 incomeRoyalty 16 5 87 13 incomeDeposit 162 192 484 565 account feesDebit/creditcard and ATM 144 191 435 537 feesEarnings/increase invalue of 111 111 327 687 bank ownedlifeinsuranceFees onmortgage - 43 77 129 salesGains onsales of 91 7 734 71 securitiesLoan swap 344 116 977 151 fee incomeOther 119 126 282 356 Totalnoninterest 1,425 1,327 4,720 4,086 income Noninterest expense:Salaries andemployee 2,322 2,268 7,004 6,800 benefitsNet 501 450 1,405 1,373 occupancyEquipment 134 85 401 316 Data 302 341 968 987 processingMerger 549 - 549 - expensesSettlement - 160 - 460 of claimsOther 1,127 1,257 3,555 3,721 Totalnoninterest 4,935 4,561 13,882 13,657 expense Incomebefore 2,313 2,360 6,648 6,432 income taxesProvisionfor income 443 463 1,286 1,174 taxesNet income $ 1,870 $ 1,897 $ 5,362 $ 5,258 Net incomeper common $ 0.69 $ 0.71 $ 1.98 $ 1.96 share, basicNet incomeper common $ 0.69 $ 0.71 $ 1.98 $ 1.96 share,dilutedWeightedaveragecommon 2,714,273 2,689,092 2,705,730 2,685,134 sharesoutstanding,basicWeightedaveragecommon 2,716,710 2,690,142 2,707,104 2,688,813 sharesoutstanding,diluted

VIRGINIA NATIONAL BANKSHARES CORPORATIONFINANCIAL HIGHLIGHTS(dollars in thousands, except per share data)(Unaudited)

At or For the Three Months Ended September June 30, March 31, December 31, September 30, 2020 2020 2019 30, 2020 2019Common Share Data:Net income perweighted $ 0.69 $ 0.77 $ 0.52 $ 0.53 $ 0.71 average share,basicNet income perweighted $ 0.69 $ 0.77 $ 0.52 $ 0.53 $ 0.71 average share,dilutedWeightedaverage shares 2,714,273 2,710,019 2,692,803 2,692,005 2,689,092 outstanding,basicWeightedaverage shares 2,716,710 2,711,017 2,694,090 2,693,437 2,690,142 outstanding,dilutedActual shares 2,714,273 2,714,273 2,702,373 2,692,005 2,692,005 outstandingTangible bookvalue per share $ 29.37 $ 28.86 $ 27.95 $ 27.98 $ 27.77 at period end Key Ratios: Return onaverage assets 0.89 % 1.07 % 0.78 % 0.81 % 1.15 %^1Return onaverage equity 9.18 % 10.64 % 7.28 % 7.43 % 9.96 %^1Net interest 3.05 % 3.12 % 3.20 % 3.31 % 3.54 %margin (FTE) ^2Efficiency 65.7 % 59.5 % 64.3 % 61.2 % 66.9 %ratio (FTE) ^3Loan-to-deposit 91.7 % 88.5 % 87.2 % 86.9 % 90.1 %ratio Net Interest Income:Net interest $ 6,047 $ 5,755 $ 5,375 $ 5,421 $ 5,474 incomeNet interestincome (FTE) ^2 $ 6,089 $ 5,780 $ 5,395 $ 5,440 $ 5,491 ^,^3 Capital Ratios: Tier 1 leverage 9.41 % 9.84 % 10.59 % 10.81 % 11.42 %ratioTotalrisk-based 15.41 % 15.56 % 14.04 % 15.08 % 15.55 %capital ratio Assets and Asset Quality:Average Earning $ 793,712 $ 744,760 $ 678,941 $ 653,195 $ 616,306 AssetsAverage Gross $ 630,704 $ 618,096 $ 535,824 $ 526,249 $ 516,637 LoansPaycheckProtection $ 86,883 $ 86,859 $ - $ - $ - Program LoansLoan Deferrals,Pandemic $ 9,439 $ 39,800 $ - $ - $ - RelatedAllowance for loan losses:Beginning of $ 4,917 $ 4,704 $ 4,209 $ 3,983 $ 4,817 periodProvision for(recovery of) 224 378 765 875 (120 )loan lossesCharge-offs (62 ) (193 ) (388 ) (689 ) (747 )Recoveries 255 28 118 40 33 Net recoveries 193 (165 ) (270 ) (649 ) (714 )(charge-offs)End of period $ 5,334 $ 4,917 $ 4,704 $ 4,209 $ 3,983 Non-accrual $ 9 $ 11 $ 273 $ 299 $ 337 loansLoans 90 daysor more past 61 1,076 733 771 199 due and stillaccruingOREO - - - - - Totalnonperforming $ 70 $ 1,087 $ 1,006 $ 1,070 $ 536 assets (NPA) NPA as a % of 0.01 % 0.14 % 0.14 % 0.15 % 0.08 %total assetsNPA as a % oftotal loans 0.01 % 0.17 % 0.18 % 0.20 % 0.10 %plus OREOAllowance forloan losses to 0.84 % 0.78 % 0.85 % 0.78 % 0.76 %total loansNon-accruingloans to total 0.00 % 0.00 % 0.05 % 0.06 % 0.06 %loansNet charge-offs(recoveries) to -0.12 % 0.11 % 0.20 % 0.49 % 0.55 %average loans ^1

1Ratio is computed on an annualized basis.2The net interest margin and net interest income are reported on a FTE basis, using a Federal income tax rate of 21%.3The efficiency ratio (FTE) is computed as a percentage of noninterest expense divided by the sum of net interest income (FTE) and noninterest income. This is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information should not be viewed as a substitute for GAAP. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate them differently. Refer to the Reconciliation of Certain Non-GAAP Financial (FTE) Measures on the following page.

VIRGINIA NATIONAL BANKSHARES CORPORATIONRECONCILIATION OF CERTAIN NON-GAAP FINANCIAL (FTE) MEASURES(dollars in thousands)(Unaudited)

Three Months Ended September30, June 30, March December September30, 2020 2020 31, 31, 2019 2020 2019Net interest $ 6,047 $ 5,755 $ 5,375 $ 5,421 $ 5,474 incomeFullytax-equivalent 42 25 20 19 17 adjustmentNet interestincome (FTE) ^ $ 6,089 $ 5,780 $ 5,395 $ 5,440 $ 5,491 1 Efficiency 66.0 % 59.7 % 64.5 % 61.4 % 67.1 %ratio ^2Fullytax-equivalent -0.3 % -0.2 % -0.2 % -0.2 % -0.2 %adjustmentEfficiency 65.7 % 59.5 % 64.3 % 61.2 % 66.9 %ratio (FTE) ^3 Net interest 3.03 % 3.11 % 3.18 % 3.30 % 3.52 %marginFullytax-equivalent 0.02 % 0.01 % 0.02 % 0.01 % 0.02 %adjustmentNet interestmargin (FTE) ^ 3.05 % 3.12 % 3.20 % 3.31 % 3.54 %1

1FTE calculations use a Federal income tax rate of 21%.2The efficiency ratio, GAAP basis, is computed by dividing nonterest expense by the sum of net interest income and noninterest income. 3 The efficiency ratio, FTE or non-GAAP basis, is computed by dividing noninterest expense by the sum of net interest income (FTE) and noninterest income.