Virginia National Bankshares Corporation (NASDAQ:VABK) is a regional bank holding company that has been serving the financial needs of communities in Virginia, Maryland, and West Virginia for over a century. With a rich history dating back to 1902, the company has evolved from a small community bank to a diversified financial institution offering a comprehensive range of banking, wealth management, and investment services.
History and Evolution
The company's origins can be traced back to 1902 when it was founded as the Bank of Charlottesville. However, the modern incarnation of Virginia National Bankshares Corporation was established in 1991 when a group of local business leaders recognized the need for a community-focused bank in the Charlottesville area. They obtained a state charter and opened the first Virginia National Bank branch in 1992, offering a range of personal and commercial banking services. Over the next decade, the bank expanded its footprint, opening additional branches in Charlottesville and the surrounding region.
In 2005, the company established VNB Trust and Estate Services, which offers corporate trustee services, trust and estate administration, IRA administration, and custody services. This move allowed the company to diversify its revenue streams and better serve its growing customer base. The company faced a major challenge in 2020 when the COVID-19 pandemic disrupted operations and the broader economy. Virginia National Bankshares worked closely with its customers to provide loan payment deferrals and other forms of assistance during this difficult time. Despite the challenges, the company remained profitable and continued to serve the community.
Strategic Growth and Expansion
Over the decades, the bank expanded its footprint and capabilities through strategic mergers and acquisitions, most notably the 2021 merger with Fauquier Bankshares, Inc. and The Fauquier Bank. This transformative event not only increased the company's asset size and geographic reach, but also bolstered its product offerings and expertise in areas such as trust and estate services. The integration of the two organizations was successfully executed, and the company continued to maintain a strong financial position throughout the process.
Current Operations
Today, Virginia National Bankshares operates a network of 13 full-service banking facilities throughout Albemarle, Fauquier, and Prince William counties, as well as the cities of Charlottesville, Richmond, Manassas, and Winchester, Virginia. The company's corporate headquarters and operations center are located in Charlottesville, Virginia. In addition to traditional banking services, the company's VNB Trust and Estate Services division provides corporate trustee services, trust and estate administration, IRA administration, and custody services.
Financials
The company's financial performance has been relatively stable, with net income of $19.26 million in the fiscal year 2023, down from $23.44 million in the previous year. Revenue for the same period totaled $58.07 million, a decrease from the $66.80 million reported in 2022. The company's operating cash flow in 2023 was $13.90 million, while free cash flow amounted to $12.73 million.
For the most recent quarter ending September 30, 2024, Virginia National Bankshares reported revenue of $19.41 million and net income of $4.60 million. Operating cash flow for the quarter was $15.18 million, with free cash flow reaching $15.61 million. The increase in revenue, net income, operating cash flow, and free cash flow from the prior year quarter was primarily driven by growth in the loan portfolio, particularly in commercial loans, as well as higher yields on interest-earning assets. The provision for credit losses was a recovery in both periods, contributing to the improved profitability.
Virginia National Bankshares operates primarily within the state of Virginia, with some limited presence in neighboring states such as Maryland and West Virginia. As a small regional bank, the majority of its business is concentrated within its core Virginia markets.
Liquidity
Virginia National Bankshares' balance sheet remains strong, with total assets of $1.65 billion as of December 31, 2023, down slightly from $1.62 billion a year earlier. The company's loan portfolio, which comprises 75.3% of total assets, grew to $1.09 billion as of the end of 2023, up from $1.02 billion in the prior year. The bank's deposit base also expanded, reaching $1.41 billion at the end of 2023, compared to $1.37 billion in 2022.
The company's debt-to-equity ratio stands at 0.33, indicating a relatively low level of leverage. As of September 30, 2024, Virginia National Bankshares had $52.50 million in borrowings from the Federal Home Loan Bank (FHLB) out of a total available credit line of $403.00 million. The bank also maintains formal unsecured federal funds lines with five major regional correspondent banks totaling $119.00 million and a secured line with the Federal Reserve discount window of $4.00 million. These available credit lines provide the company with significant financial flexibility.
The current ratio and quick ratio both stand at 0.031, reflecting the nature of the banking business where most assets are tied up in loans and investments rather than cash or easily liquidated assets.
Asset Quality and Capital Position
The company's asset quality has remained stable, with nonperforming assets (NPAs) totaling $1.85 million, or 0.17% of total loans, as of December 31, 2023. The allowance for credit losses stood at $8.39 million, or 0.77% of total loans, at the end of the fiscal year.
Virginia National Bankshares' capital position is also strong, with a total risk-based capital ratio of 18.88% and a Tier 1 leverage ratio of 11.81% as of December 31, 2023. These ratios comfortably exceed the regulatory requirements for well-capitalized institutions, providing the company with ample financial flexibility to support its growth and operational initiatives.
Recent Performance
The company's performance in 2024 has been mixed, with net income for the first nine months of the year totaling $12.40 million, down from $16.09 million in the same period of 2023. Revenue for the first nine months of 2024 was $56.89 million, compared to $52.18 million in the prior-year period. The company's operating cash flow and free cash flow for the first nine months of 2024 were $11.93 million and $28.26 million, respectively.
In the third quarter of 2024, the company reported net income of $4.60 million, or $0.85 per diluted share, compared to $4.65 million, or $0.86 per diluted share, in the same period of 2023. The company's net interest margin (NIM) for the third quarter of 2024 was 3.24%, up from 3.04% in the prior-year quarter, reflecting the impact of rising interest rates and the company's efforts to optimize its balance sheet.
Key financial metrics for the three months ended September 30, 2024, include a return on average assets (ROAA) of 1.15%, a return on average equity (ROAE) of 11.82%, and net income per diluted share of $0.85. On a year-to-date basis for the nine months ended September 30, 2024, ROAA was 1.04%, ROAE was 10.70%, and net income per diluted share was $2.30.
Business Segments
Virginia National Bankshares operates through three main reportable segments: Bank, VNB Trust & Estate Services, and Masonry Capital.
The Bank segment, which is the core commercial banking business, involves making loans and generating deposits from individuals, businesses, and charitable organizations. This segment generates revenue from loan fees, service charges on deposit accounts, and other non-interest fees such as those for debit cards, ATM usage, and treasury management services. For the three months ended September 30, 2024, the Bank segment contributed the majority of the company's net income at $4.70 million.
The VNB Trust & Estate Services segment offers corporate trustee services, trust and estate administration, IRA administration, and custody services. Revenue for this segment comes from administration, service, custody, and management fees derived from Assets Under Management. Investment management services are offered through in-house and third-party managers. This segment contributed $97,000 to net income for the three months ended September 30, 2024.
The Masonry Capital segment previously provided investment management services for separately managed accounts and a private investment fund, employing a value-based, catalyst-driven investment strategy. Effective April 1, 2024, the company sold the Masonry Capital business to an officer of the company. Going forward, Virginia National Bankshares will receive an annual revenue-share amount from Masonry Capital for six years, but will not incur any related expenses. For the three months ended September 30, 2024, this segment recorded a net income of $97,000.
On a year-to-date basis for the nine months ended September 30, 2024, the Bank segment generated $12.60 million in net income, VNB Trust & Estate Services contributed $187,000, and Masonry Capital recorded $3,000 in net income.
Challenges and Outlook
Virginia National Bankshares has faced some challenges in recent years, including the ongoing effects of the COVID-19 pandemic and the uncertain economic environment. The company has navigated these headwinds by focusing on its core strengths, including its strong customer relationships, diversified product offerings, and disciplined risk management practices.
Looking ahead, the company remains committed to its strategic priorities, which include continued organic growth, selective acquisitions, and further expansion of its wealth management and investment services. The company's management team has a proven track record of navigating complex market conditions and delivering value for shareholders.
Overall, Virginia National Bankshares' long history, strong balance sheet, and diversified business model position the company well to continue serving the financial needs of its local communities. As the company navigates the evolving economic landscape, investors will be closely watching its ability to maintain its financial performance and execute on its strategic initiatives.
It is worth noting that there have been no notable scandals, short seller reports, or CEO departures during the periods covered. The company has maintained a stable management team and continues to focus on its core community banking business within its Virginia market footprint.