Virginia National Bankshares Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The 2021 comparison includes Fauquier Bankshares only from its April 1, 2021 merger date, limiting year-over-year comparability.
Business context
The Company is a Virginia-based bank holding company operating Virginia National Bank, alongside trust and investment-management businesses. It serves communities in and around Charlottesville, Winchester, Manassas and Richmond. In December 2022, it sold the Sturman Wealth Advisors business line.
Financial performance and condition
| Metric | FY2022 / year-end | FY2021 / year-end |
|---|---|---|
| Net income | $23.4 million; diluted EPS $4.38 | $10.1 million; diluted EPS $2.14 |
| Net interest income, GAAP | $53.5 million | $45.0 million |
| Net interest income, FTE | $53.9 million; net interest margin FTE 3.21% | $45.3 million; margin FTE 2.94% |
| Noninterest income | $13.7 million | $10.5 million |
| Noninterest expense | $38.6 million | $42.5 million |
| Provision for loan losses | $106 thousand | $1.0 million |
| Return on average assets / equity | 1.30% / 16.61% | 0.61% / 7.17% |
| Total assets | $1.623 billion | $1.972 billion |
| Total deposits | $1.478 billion | $1.796 billion |
| Loans / net loans | $936.4 million / $930.9 million | $1.061 billion / $1.055 billion |
| Cash and cash equivalents | $40.1 million | $508.8 million |
- Net income rose 132.7%. Management attributed the increase mainly to higher net interest income, higher noninterest income, lower loan-loss provision and lower expenses. The FTE efficiency ratio improved to 57.1% from 76.3%.
- Noninterest income included a one-time $2.4 million commercial-dispute resolution, a $1.0 million gain on property sales and a $404 thousand gain on the Sturman Wealth sale. No merger-related expenses were recorded in 2022, compared with $7.4 million in 2021.
- Operating cash flow was $22.7 million. Cash and cash equivalents declined $468.7 million during the year, reflecting, among other items, deposit outflows and purchases of available-for-sale securities. The Company bought $316.4 million of securities and reported a $270.9 million net decrease in demand, NOW and money-market deposits.
- Available-for-sale securities had a fair value of $538.2 million and gross unrealized losses of $62.1 million at year-end, primarily attributed by management to higher market interest rates. Accumulated other comprehensive loss was $48.6 million, versus $2.2 million at year-end 2021.
- The allowance for loan losses was $5.6 million, or 0.59% of loans; net charge-offs were $538 thousand, or 0.05% of average loans. Nonaccrual loans were $673 thousand (0.07% of loans). Real-estate-secured loans represented approximately 83.5% of the portfolio; commercial real estate loans were approximately $459.1 million.
- The Company had $3.4 million of junior subordinated debt and no outstanding FHLB advances or federal funds purchased at year-end. Available borrowing lines totaled approximately $156.1 million. The Bank’s total risk-based capital ratio was 17.38%, and its leverage ratio was 9.62%; it exceeded regulatory “well-capitalized” thresholds.
Changes, outlook and risks
- Loans declined 11.8%, primarily from acquired-loan workouts and paydowns, paydowns of legacy loans and forgiveness of PPP loans. Deposits fell 17.7%; estimated uninsured deposits were $459.4 million, down from $585.6 million.
- The Federal Reserve’s rate increases benefited asset yields and helped raise the FTE net interest margin in 2022. Management cautioned that deposit competition, a flat or inverted yield curve, and faster increases in funding costs could pressure future net interest income. The filing provides no specific earnings or growth guidance.
- Interest-rate simulations estimated net interest income would increase 5.35% under an immediate +100-basis-point shock and decrease 2.85% under a -100-basis-point shock. These are model estimates based on assumptions, not forecasts.
- The Company adopted CECL on January 1, 2023; it estimated an initial retained-earnings reduction of $2.0 million to $2.6 million, including the reserve for unfunded commitments. Actual adoption impact and subsequent credit-loss estimates may differ.
- Principal risks include credit and commercial-real-estate concentration, interest-rate and securities-value exposure, deposit and liquidity pressure, inflation and economic weakness, cybersecurity and third-party operational risks, and regulatory change. Management reported ordinary-course legal proceedings were not expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements; the filing did not include an auditor attestation on internal controls, and management concluded controls were effective.
Important facts for investors to verify
- How much of 2022 earnings growth came from recurring net interest income versus the one-time dispute settlement and asset-sale gains, and whether the lower expense base is sustainable.
- Deposit trends, funding costs and the concentration and stability of uninsured deposits, particularly as rates and competition change.
- Credit performance in commercial real estate and acquired loans, collateral values, and the adequacy of the allowance after CECL adoption.
- The duration and rate sensitivity of the securities portfolio, the scale and potential capital effects of unrealized losses, and the liquidity available without realizing losses.
- The CECL transition adjustment, subsequent allowance methodology and any resulting effect on earnings, capital or dividends.
- The filing’s reported figures and definitions when comparing periods: 2021 reflects the merger partway through the year, and certain FTE and other performance measures are non-GAAP.