QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number:001-40305
VIRGINIA NATIONAL BANKSHARES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Virginia
46-2331578
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
404 People Place
Charlottesville, Virginia
22911
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (434) 817-8621
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock
VABK
The Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 11, 2026, the registrant had 5,425,282 shares of common stock, $2.50 par value per share, outstanding.
Virginia National Bankshares Corporation and its subsidiary
CRA
-
Community Reinvestment Act of 1977
CRE
-
Commercial real estate
Dodd-Frank Act
-
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Effective Date
-
April 1, 2021
EPS
-
Earnings per common share
Exchange Act
-
Securities Exchange Act of 1934, as amended
Fauquier
-
Fauquier Bankshares, Inc. and its subsidiaries
FASB
-
Financial Accounting Standards Board
FBS
-
Fauquier Bank Services, Inc
Federal Reserve
-
Board of Governors of the Federal Reserve System
Federal Reserve Act
-
Federal Reserve Act of 1913, as amended
Federal Reserve Bank or FRB
-
Federal Reserve Bank of Richmond
FHLB
-
Federal Home Loan Bank of Atlanta
FOMC
-
Federal Open Market Committee
Form 10-K
-
Annual Report on Form 10-K for the year ended December 31, 2025
FTE
-
Fully taxable equivalent
GAAP or U.S. GAAP
-
Accounting principles generally accepted in the United States
ICS®
-
Insured Cash Sweep®
MBS
-
Mortgage-Backed Securities
Merger
-
Mergers of Fauquier Bankshares, Inc. and The Fauquier Bank with and into the Company and the Bank, respectively
Nasdaq
-
The Nasdaq Stock Market, LLC
NPA
-
Nonperforming assets
OCC
-
Office of the Comptroller of the Currency
PCA
-
Prompt Corrective Action
PCD
-
Purchased loan with credit deterioration
ROAA
-
Return on Average Assets
ROAE
-
Return on Average Equity
Reorganization
-
Reorganization Agreement and Plan of Share Exchange dated March 6, 2013 between the Bank and the Company
SBA
-
Small Business Administration
SCC
-
Virginia State Corporation Commission
SEC
-
U.S. Securities and Exchange Commission
Securities Act
-
Securities Act of 1933, as amended
SOFR
-
Secured Overnight Financing Rate
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, 2026
December 31, 2025 *
ASSETS
Unaudited
Cash and due from banks
$
35,705
$
5,798
Interest-bearing deposits in other banks
9,694
10,552
Federal funds sold
31,948
54,264
Securities:
Available for sale, at fair value
234,770
247,992
Restricted securities, at cost
6,195
6,172
Total securities
240,965
254,164
Loans, net of deferred fees and costs
1,233,980
1,237,577
Allowance for credit losses
(8,124
)
(8,270
)
Loans, net
$
1,225,856
$
1,229,307
Premises and equipment, net
11,575
11,687
Bank owned life insurance
41,953
41,302
Goodwill
7,768
7,768
Core deposit intangible, net
2,199
2,682
Right-of-use asset, net
5,551
6,297
Deferred tax asset, net
12,179
12,079
Accrued interest receivable and other assets
12,803
13,842
Total assets
$
1,638,196
$
1,649,742
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest bearing
$
367,348
$
362,322
Interest bearing
279,179
308,295
Money market and savings deposit accounts
481,847
469,815
Certificates of deposit and other time deposits
280,822
291,299
Total deposits
1,409,196
1,431,731
Borrowings
20,000
20,000
Junior subordinated debt, net
3,578
3,554
Lease liability
5,474
6,192
Accrued interest payable and other liabilities
5,263
4,104
Total liabilities
1,443,511
1,465,581
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $2.50 par value
-
-
Common stock, $2.50 par value
13,416
13,327
Capital surplus
107,781
107,337
Retained earnings
104,531
94,165
Accumulated other comprehensive loss
(31,043
)
(30,668
)
Total shareholders' equity
194,685
184,161
Total liabilities and shareholders' equity
$
1,638,196
$
1,649,742
Common shares outstanding
5,424,431
5,393,140
Common shares authorized
10,000,000
10,000,000
Preferred shares outstanding
-
-
Preferred shares authorized
2,000,000
2,000,000
*Derived from audited Consolidated Financial Statements
See Notes to Consolidated Financial Statements
4
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For the three months ended
For the six months ended
June 30, 2026
June 30, 2025
June 30, 2026
June 30, 2025
Interest and dividend income:
Loans, including fees
$
17,688
$
17,330
$
34,521
$
34,363
Federal funds sold
288
64
782
248
Other interest-bearing deposits
47
45
82
87
Investment securities:
Taxable
1,066
1,265
2,169
2,574
Tax exempt
326
323
648
646
Dividends
83
109
173
224
Total interest and dividend income
19,498
19,136
38,375
38,142
Interest expense:
Demand deposits
67
67
137
136
Money market and savings deposits
2,940
2,927
5,993
5,930
Certificates and other time deposits
2,478
2,670
5,063
5,724
Borrowings
194
582
386
1,091
Federal funds purchased
-
18
-
25
Junior subordinated debt
71
76
141
146
Total interest expense
5,750
6,340
11,720
13,052
Net interest income
13,748
12,796
26,655
25,090
Provision for (recovery of) credit losses
231
3
(105
)
(157
)
Net interest income after provision for (recovery of) credit losses
13,517
12,793
26,760
25,247
Noninterest income:
Wealth management fees
214
206
434
435
Deposit account fees
359
293
725
600
Debit/credit card and ATM fees
245
355
496
725
Bank owned life insurance income
332
307
651
600
Gains on sale of assets, net
-
-
5
278
Gain on sale of limited partnership investment
4,662
-
4,662
-
Other
220
150
548
433
Total noninterest income
6,032
1,311
7,521
3,071
Noninterest expense:
Salaries and employee benefits
4,027
3,863
8,026
7,799
Net occupancy
720
889
1,499
1,905
Equipment
212
202
398
388
Bank franchise tax
468
489
936
828
Computer software
214
266
428
522
Data processing
609
732
1,159
1,467
FDIC deposit insurance assessment
187
145
362
290
Marketing, advertising and promotion
254
179
521
433
Professional fees
333
331
681
587
Core deposit intangible amortization
236
284
483
579
Other
1,009
1,301
1,975
2,707
Total noninterest expense
8,269
8,681
16,468
17,505
Income before income taxes
11,280
5,423
17,813
10,813
Provision for income taxes
2,272
1,185
3,545
2,086
Net income
$
9,008
$
4,238
$
14,268
$
8,727
Net income per common share, basic
$
1.66
$
0.79
$
2.63
$
1.62
Net income per common share, diluted
$
1.65
$
0.78
$
2.62
$
1.61
Weighted average common shares outstanding, basic
5,423,642
5,391,979
5,416,631
5,385,461
Weighted average common shares outstanding, diluted
5,455,403
5,417,900
5,449,309
5,410,430
See Notes to Consolidated Financial Statements
5
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
For the three months ended
For the six months ended
June 30, 2026
June 30, 2025
June 30, 2026
June 30, 2025
Net income
$
9,008
$
4,238
$
14,268
$
8,727
Other comprehensive income (loss), net of tax:
Securities available for sale
901
1,447
(375
)
4,968
Total comprehensive income
$
9,909
$
5,685
$
13,893
$
13,695
See Notes to Consolidated Financial Statements
6
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND 2025
(Dollars in thousands, except per share data)
(Unaudited)
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Loss
Total
Balance, December 31, 2024
$
13,263
$
106,394
$
82,507
$
(41,862
)
$
160,302
Stock option expense
-
34
-
-
34
Restricted stock grant expense
-
214
-
-
214
Vested stock grants
33
(33
)
-
-
-
Cash dividends declared ($0.33 per share)
-
-
(1,779
)
-
(1,779
)
Net income
-
-
4,489
-
4,489
Other comprehensive income
-
-
-
3,521
3,521
Balance, March 31, 2025
$
13,296
$
106,609
$
85,217
$
(38,341
)
$
166,781
Stock option expense
-
35
-
-
35
Restricted stock grant expense
-
212
-
-
212
Vested stock grants
22
(22
)
-
-
-
Cash dividends declared ($0.36 per share)
-
-
(1,941
)
-
(1,941
)
Net income
-
-
4,238
-
4,238
Other comprehensive income
-
-
-
1,447
1,447
Balance, June 30, 2025
$
13,318
$
106,834
$
87,514
$
(36,894
)
$
170,772
Balance, December 31, 2025
$
13,327
$
107,337
$
94,165
$
(30,668
)
$
184,161
Shares surrendered in connection with stock option exercise
(42
)
(630
)
-
-
(672
)
Stock options exercised
63
609
-
-
672
Stock option expense
-
4
-
-
4
Restricted stock grant expense
-
298
-
-
298
Vested stock grants
45
(45
)
-
-
-
Cash dividends declared ($0.36 per share)
-
-
(1,949
)
-
(1,949
)
Net income
-
-
5,259
-
5,259
Other comprehensive loss
-
-
-
(1,276
)
(1,276
)
Balance, March 31, 2026
$
13,393
$
107,573
$
97,475
$
(31,944
)
$
186,497
Shares surrendered in connection with stock option exercise
(27
)
(552
)
-
-
(579
)
Stock options exercised
32
547
-
-
579
Stock option expense
-
23
-
-
23
Restricted stock grant expense
-
208
-
-
208
Vested stock grants
18
(18
)
-
-
-
Cash dividends declared ($0.36 per share)
-
-
(1,952
)
-
(1,952
)
Net income
-
-
9,008
-
9,008
Other comprehensive income
-
-
-
901
901
Balance, June 30, 2026
$
13,416
$
107,781
$
104,531
$
(31,043
)
$
194,685
See Notes to Consolidated Financial Statements
7
VIRGINIA NATIONAL BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the six months ended
June 30, 2026
June 30, 2025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
14,268
$
8,727
Adjustments to reconcile net income to net cash provided by operating activities:
Recovery of credit losses
(105
)
(157
)
Net accretion of certain acquisition-related adjustments
(819
)
(1,038
)
Amortization of intangible assets
483
579
Net amortization of securities
374
398
Net gains on sale of assets
(5
)
(278
)
Net gain on sale of other assets
(81
)
-
Gain on sale of limited partnership investment
(4,662
)
-
Earnings on bank owned life insurance
(651
)
(600
)
Depreciation and other amortization
1,097
1,553
Stock option expense
27
69
Restricted stock expense
506
426
Net change in:
Accrued interest receivable and other assets
(124
)
(527
)
Accrued interest payable and other liabilities
440
(322
)
Net cash provided by operating activities
10,748
8,830
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in restricted investments
(23
)
(1,927
)
Proceeds from maturities, calls, sales and principal payments of available for sale securities
11,873
14,519
Proceeds from sale of limited partnership investment
6,325
-
Proceeds from sale of other asset
81
-
Net change in loans
4,399
(5,328
)
Proceeds from sale of premises and equipment
64
3,047
Purchase of bank premises and equipment
(298
)
(285
)
Net cash provided by investing activities
22,421
10,026
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits, money market and savings accounts
(12,058
)
(7,476
)
Net change in certificates of deposit and other time deposits
(10,477
)
(27,005
)
Net change in Federal funds purchased
-
(236
)
Net change in other borrowings
-
41,000
Cash dividends paid
(3,901
)
(3,720
)
Net cash (used in) provided by financing activities
(26,436
)
2,563
NET INCREASE IN CASH AND CASH EQUIVALENTS
$
6,733
$
21,419
CASH AND CASH EQUIVALENTS:
Beginning of period
$
70,614
$
17,103
End of period
$
77,347
$
38,522
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest
$
11,816
$
13,503
Taxes
2,440
2,090
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized (losses) gains on available for sale securities
$
(475
)
$
6,289
Initial right-of-use assets obtained in exchange for new operating lease liabilities
-
2,338
See Notes to Consolidated Financial Statements
8
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2026
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation: The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2025.
Nature of Operations: The accompanying unaudited consolidated financial statements include the accounts of the Company, and its subsidiary Virginia National Bank. 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, a division of the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation: The preparation of financial statements in conformity with GAAP and the reporting guidelines prescribed by regulatory authorities requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses. Operating results for the three and six months ended June 30, 2026, are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
The Company's significant accounting policies followed in the preparation of unaudited consolidated financial statements are disclosed in Note 1 of the audited financial statements and notes for the year ended December 31, 2025, and are contained in the Company's 2025 Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2025.
Reclassifications: If needed, certain previously reported amounts have been reclassified to conform to current period presentation. The results of reclassifications are not considered material to shareholders' equity and net income.
In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
In December 2025, the Financial Accounting Standards Board issued ASU 2025-12, “Codification Improvements.” The amendments in this ASU update the FASB Accounting Standards Codification for a broad range of Topics arising from technical corrections, unintended application of the Codification, clarifications, and other minor improvements. The amendments in this ASU are effective for annual periods beginning after December 15, 2026, and interim periods within those annual periods. Early adoption is permitted in both interim and annual periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this ASU in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. An entity may elect to early adopt the amendments on an issue-by-issue basis. The Company does not expect the adoption of ASU 2025-12 to have a material impact on its consolidated financial statements.
9
Note 3. Securities
The amortized cost and fair values of available for sale securities as of June 30, 2026, and December 31, 2025, were as follows (dollars in thousands):
June 30, 2026
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. Government agencies
$
34,496
$
-
$
(3,639
)
$
30,857
Mortgage-backed/CMOs
132,428
2
(18,698
)
113,732
Corporate bonds
5,906
52
-
5,958
Municipal bonds
101,235
1
(17,013
)
84,223
Total
$
274,065
$
55
$
(39,350
)
$
234,770
December 31, 2025
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. Government agencies
$
34,707
$
-
$
(3,444
)
$
31,263
Mortgage-backed/CMOs
141,731
11
(18,237
)
123,505
Corporate bonds
7,868
32
(1
)
7,899
Municipal bonds
102,506
19
(17,200
)
85,325
Total
$
286,812
$
62
$
(38,882
)
$
247,992
As of June 30, 2026, there were $226.4 million or 255 issues of individual securities, held in an unrealized loss position. These securities have an unrealized loss of $39.4 million and consist of 113 mortgage-backed/collateralized mortgage obligations, 123 municipal bonds and 19 agency bonds.
Accrued interest receivable on AFS securities was $1.3 million as of June 30, 2026, and December 31, 2025. The Company has elected to exclude accrued interest receivable from the amortized cost basis.
The following tables summarize all securities with unrealized losses, segregated by length of time in a continuous unrealized loss position, for which no allowance for credit losses was recorded, at June 30, 2026 and December 31, 2025 (dollars in thousands):
Less than 12 Months
12 Months or More
Total
June 30, 2026
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
U.S. Government agencies
$
-
$
-
$
30,827
$
(3,639
)
$
30,827
$
(3,639
)
Mortgage-backed/CMOs
3,441
(75
)
109,397
(18,623
)
112,838
(18,698
)
Municipal bonds
5,001
(27
)
77,711
(16,986
)
82,712
(17,013
)
Total
$
8,442
$
(102
)
$
217,935
$
(39,248
)
$
226,377
$
(39,350
)
Less than 12 Months
12 Months or More
Total
December 31, 2025
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
U.S. Government agencies
$
-
$
-
$
31,220
$
(3,444
)
$
31,220
$
(3,444
)
Mortgage-backed/CMOs
-
-
122,085
(18,237
)
122,085
(18,237
)
Corporate bonds
-
-
1,996
(1
)
1,996
(1
)
Municipal bonds
-
-
81,422
(17,200
)
81,422
(17,200
)
Total
$
-
$
-
$
236,723
$
(38,882
)
$
236,723
$
(38,882
)
The Company’s securities portfolio is primarily made up of fixed-rate instruments, the prices of which move inversely with interest rates. Any unrealized losses are considered by management to be driven by increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the instruments approach their maturity date or repricing date or if market yields for such investments decline. At the end of any accounting period, the portfolio may have both unrealized gains and losses.
10
Impairment of debt securities occurs when the fair value of a security is less than its amortized cost. For debt securities AFS, impairment is recognized in its entirety in net income if either, (i) we intend to sell the security; or, (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell the security before recovery, the Company evaluates unrealized losses to determine whether a decline in fair value below amortized cost basis is a result of a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security, or other factors such as changes in market interest rates. If a credit loss exists, an ACL is recorded that reflects the amount of impairment related to credit losses, limited by the amount by which the security’s amortized cost basis exceeds its fair value. Changes in the ACL are recorded in net income in the period of change and are included in the provision for credit losses. Changes in the fair value of debt securities AFS not resulting from credit losses are recorded in other comprehensive income (loss). The Company regularly reviews unrealized losses in its investments in securities and cash flows expected to be collected from impaired securities based on criteria including the extent to which market value is below amortized cost, the financial health of and specific prospects for the issuer, the Company’s intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.
Management does not believe any of the securities in an unrealized loss position are impaired due to credit quality. In addition, issuers have continued to make timely payments of principal and interest. Accordingly, as of June 30, 2026, management believes the impairments detailed in the table above are temporary, and no credit loss has been realized in the Company’s consolidated statements of income. Additionally, management has the intent and ability to hold any security with an unrealized loss until maturity or until such time as the value of the security has recovered from its unrealized loss position.
Securities pledged as collateral to secure public deposits and to facilitate borrowing from the FRB had carrying values of $23.2 million and $23.3 million at June 30, 2026 and December 31, 2025, respectively.
There were no sales of AFS securities during the six months ended June 30, 2026 and 2025.
Restricted securities are securities with limited marketability and consist of stock in the FRB, the Federal Home Loan Bank of Atlanta, CBB Financial Corporation (the holding company for Community Bankers' Bank) and an investment in an SBA loan fund. These restricted securities, totaling $6.2 million as of June 30, 2026 and December 31, 2025, are carried at cost. The Company did not consider its investment in restricted stock to be impaired at June 30, 2026 or December 31, 2025 and no impairment has been recognized.
The amortized cost and fair value of AFS debt securities at June 30, 2026 are presented below based upon contractual maturities, by major investment categories (dollars in thousands). Expected maturities may differ from contractual maturities because issuers have the right to call or prepay obligations.
Amortized Cost
Fair Value
U.S. Government agencies
One year or less
$
649
$
630
After one year to five years
25,467
23,155
After five years to ten years
8,380
7,072
$
34,496
$
30,857
Mortgage-backed/CMOs
One year or less
$
1,496
$
1,482
After one year to five years
1,529
1,458
After five years to ten years
12,629
11,504
Ten years or more
116,774
99,288
$
132,428
$
113,732
Corporate bonds
After one year to five years
$
5,906
$
5,958
$
5,906
$
5,958
Municipal bonds
One year or less
$
805
$
802
After one year to five years
9,316
9,049
After five years to ten years
24,974
22,873
Ten years or more
66,140
51,499
$
101,235
$
84,223
Total AFS Debt Securities
$
274,065
$
234,770
11
Note 4. Loans
The composition of the loan portfolio by major loan classifications at June 30, 2026 and December 31, 2025, stated at their face amount, net of deferred fees and costs and discounts, including fair value marks, appears below (dollars in thousands). The Company has elected to exclude accrued interest receivable, totaling $4.7 million and $4.8 million as of June 30, 2026 and December 31, 2025, respectively, from the amortized cost basis of loans.
June 30,
December 31,
2026
2025
Commercial loans
$
258,975
$
265,393
Real estate construction and land
33,111
35,000
1-4 family residential mortgages
300,768
297,589
Commercial mortgages
616,641
613,443
Consumer loans
24,485
26,152
Total loans
1,233,980
1,237,577
Less: Allowance for credit losses
(8,124
)
(8,270
)
Net loans
$
1,225,856
$
1,229,307
The balances in the table above include unamortized premiums and net deferred loan costs and fees. As of June 30, 2026 and December 31, 2025, unamortized premiums from purchases of loans (excluding loans acquired during the Merger) were $10.9 million, and $11.6 million, respectively, due primarily to purchases of government-guaranteed loans. Net deferred loan fees net of costs totaled $2.9 million as of June 30, 2026 and December 31, 2025.
Consumer loans include $62 thousandand $82 thousand of demand deposit overdrafts as of June 30, 2026 and December 31, 2025, respectively.
Loans acquired in business combinations are recorded in the consolidated balance sheets at fair value at the acquisition date under the acquisition method of accounting. The fair value mark as of the Effective Date was $23.1 million. The table above includes a remaining net fair value mark of $3.9 million and $4.8 million as of June 30, 2026 and December 31, 2025, respectively, on the Acquired Loans.
The following table shows the aging of the Company's loan portfolio, by class, at June 30, 2026 (dollars in thousands):
30-59 Days
60-89 Days
90 Days or More Past Due and Still Accruing
Nonaccrual Loans
Current Loans
Total Loans
Commercial loans
$
4,784
$
3,236
$
3,626
$
-
$
247,329
$
258,975
Real estate construction and land
-
-
-
-
33,111
33,111
1-4 family residential mortgages
579
-
-
2,099
298,090
300,768
Commercial mortgages
239
452
-
-
615,950
616,641
Consumer loans
82
70
66
-
24,267
24,485
Total Loans
$
5,684
$
3,758
$
3,692
$
2,099
$
1,218,747
$
1,233,980
The following table shows the aging of the Company's loan portfolio, by class, at December 31, 2025 (dollars in thousands):
12
30-59 Days
60-89 Days
90 Days or More Past Due and Still Accruing
Nonaccrual Loans
Current Loans
Total Loans
Commercial loans
$
3,103
$
2,882
$
6,565
$
-
$
252,843
$
265,393
Real estate construction and land
-
-
-
-
35,000
35,000
1-4 family residential mortgages
256
221
391
2,198
294,523
297,589
Commercial mortgages
113
-
-
-
613,330
613,443
Consumer loans
162
73
86
-
25,831
26,152
Total Loans
$
3,634
$
3,176
$
7,042
$
2,198
$
1,221,527
$
1,237,577
The following tables show the Company's amortized cost basis of loans on nonaccrual status as of June 30, 2026 and December 31, 2025 (dollars in thousands). All nonaccrual loans are evaluated for an ACL on an individual basis. As of June 30, 2026 and December 31, 2025, no nonaccrual loans required an ACL.
June 30, 2026
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
Commercial loans
$
-
$
-
$
-
Real estate construction and land
-
-
-
1-4 family residential mortgages
2,099
-
2,099
Commercial mortgages
-
-
-
Consumer loans
-
-
-
Total Nonaccrual Loans
$
2,099
$
-
$
2,099
December 31, 2025
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
Commercial loans
$
-
$
-
$
-
Real estate construction and land
-
-
-
1-4 family residential mortgages
2,198
-
2,198
Commercial mortgages
-
-
-
Consumer loans
-
-
-
Total Nonaccrual Loans
$
2,198
$
-
$
2,198
Troubled loan modifications
From time to time, the Company modifies loans to borrowers who are experiencing financial difficulties by providing term extensions, interest rate reductions or other-than-insignificant payment delays. As the effect of most modifications is already included in the ACL due to the measurement methodologies used in its estimate, the ACL is typically not adjusted upon modification. For the three months ended June 30, 2026 and 2025, and the six months ended June 30, 2026 and 2025 there were no loans that were modified to borrowers who were experiencing financial difficulty.
The Company closely monitors the performance of all modified loans to understand the effectiveness of its modification efforts. Upon determination, if applicable, that all or a portion of a modified loan is uncollectible, that amount is charged against the ACL. During the three months ended June 30, 2026 and 2025, and the six months ended June 30, 2026 and 2025, no loans which had been previously modified were considered by management to be in default of the terms of their modification. There were no loans secured by 1-4 family properties in foreclosure as of June 30, 2026 or December 31, 2025.
Note 5. Allowance for Credit Losses
The ACL on the loan portfolio is a material estimate for the Company. The Company estimates an ACL on its loan portfolio on a quarterly basis and uses this analysis to assess the sufficiency of the ACL on loans and to determine the necessary provision for credit losses. The portfolio is segmented into categories based on common risk factors.
13
The following table shows the ACL activity by loan portfolio for the six months ended June 30, 2026 (dollars in thousands):
Commercial Loans
Real Estate Construction and Land
1-4 Family Residential Mortgages
Commercial Mortgages
Consumer Loans
Total
Allowance for Credit Losses:
Balance as of December 31, 2025
$
481
$
930
$
2,482
$
3,840
$
537
$
8,270
Charge-offs
-
-
-
-
(93
)
(93
)
Recoveries
8
-
-
1
76
85
Recovery of credit losses
(57
)
(193
)
(135
)
120
(16
)
(281
)
Balance as of March 31, 2026
$
432
$
737
$
2,347
$
3,961
$
504
$
7,981
Charge-offs
(8
)
-
-
(1
)
(65
)
(74
)
Recoveries
-
-
-
-
80
80
Provision for (recovery of) credit losses
15
231
42
(95
)
(56
)
137
Balance as of June 30, 2026
$
439
$
968
$
2,389
$
3,865
$
463
$
8,124
The following table shows the ACL activity by loan portfolio for the year ended December 31, 2025 (dollars in thousands):
Commercial Loans
Real Estate Construction and Land
1-4 Family Residential Mortgages
Commercial Mortgages
Consumer Loans
Total
Allowance for Credit Losses:
Balance as of December 31, 2024
$
760
$
737
$
2,551
$
3,533
$
874
$
8,455
Charge-offs
(6
)
-
-
-
(64
)
(70
)
Recoveries
4
-
1
1
42
48
Recovery of credit losses
(66
)
(12
)
(36
)
39
(30
)
(105
)
Balance as of March 31, 2025
$
692
$
725
$
2,516
$
3,573
$
822
$
8,328
Charge-offs
(9
)
-
-
-
(102
)
(111
)
Recoveries
5
-
-
1
34
40
Provision for (recovery of) credit losses
155
(269
)
(101
)
297
8
90
Balance as of June 30, 2025
$
843
$
456
$
2,415
$
3,871
$
762
$
8,347
The following table presents a breakdown of the provision for (recovery of) credit losses for the periods indicated (dollars in thousands):
Three Months Ended
Six Months Ended
June 30, 2026
June 30, 2025
June 30, 2026
June 30, 2025
Provision for (recovery of) credit losses:
Provision for (recovery of) loan losses
$
137
$
90
$
(144
)
$
(15
)
Provision for (recovery of) unfunded commitments
94
(87
)
39
(142
)
Total
$
231
$
3
$
(105
)
$
(157
)
As of June 30, 2026 and December 31, 2025, the Company had $2.1 million and $2.2 million respectively, of collateral dependent loans secured by 1-4 family residential mortgages, individually evaluated for expected losses. There was no ACL allocation for the loans for either period.
Credit Quality Indicators
The Company utilizes the following credit quality indicators:
Pass - Loans with the following risk ratings are pooled by class and considered together as “Pass”:
Excellent – minimal risk loans secured by cash or fully guaranteed by a U.S. government agency
Good – low risk loans secured by marketable collateral within margin
Satisfactory – modest risk loans where the borrower has strong and liquid financial statements and more than adequate cash flow
Average – average risk loans where the borrower has reasonable debt service capacity
Marginal – acceptable risk loans where the borrower has acceptable financial statements but is leveraged
14
Watch - These loans have an acceptable risk but require more attention than normal servicing.
Special Mention - These potential problem loans are currently protected but are potentially weak.
Substandard - These problem loans are inadequately protected by the sound worth and paying capacity of the borrower and/or the value of any collateral pledged. If such loans are not accruing interest, they would be evaluated on an individual basis.
Doubtful - Loans with this rating have significant deterioration in the sound worth and paying capacity of the borrower and/or the value of any collateral pledged, making collection or liquidation of the loan in full highly questionable. These loans would be considered impaired and evaluated on an individual basis.
15
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of June 30, 2026 (dollars in thousands). Current period gross write-off amounts represent write-offs for the six months ended June 30, 2026.
June 30, 2026
Term Loans Amortized Cost Basis by Origination Year
2026
2025
2024
2023
2022
Prior
Revolving Loans
Loans Converted to Term
Total
Commercial loans
Pass
$
20,780
$
45,508
$
77,164
$
71,696
$
9,496
$
22,104
$
11,387
$
100
$
258,235
Watch
-
-
-
-
10
-
-
-
10
Special Mention
-
51
-
-
-
-
-
-
51
Substandard
-
-
130
-
472
77
-
-
679
Total commercial
$
20,780
$
45,559
$
77,294
$
71,696
$
9,978
$
22,181
$
11,387
$
100
$
258,975
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
.
Real estate construction and land
Pass
$
4,306
$
9,732
$
6,973
$
1,925
$
352
$
2,422
$
1,035
$
-
$
26,745
Watch
-
-
-
-
-
-
-
-
-
Special Mention
-
-
-
-
-
151
-
-
151
Substandard
-
-
-
-
6,215
-
-
-
6,215
Total real estate construction and land
$
4,306
$
9,732
$
6,973
$
1,925
$
6,567
$
2,573
$
1,035
$
-
$
33,111
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
.
1-4 family residential mortgages
Pass
$
19,574
$
12,706
$
20,052
$
16,233
$
11,167
$
186,509
$
15,973
$
96
$
282,310
Watch
-
282
1,174
2,888
150
3,362
590
-
8,446
Special Mention
296
18
194
950
333
4,499
43
-
6,333
Substandard
-
-
102
-
56
3,521
-
-
3,679
Total 1-4 family residential mortgage
$
19,870
$
13,006
$
21,522
$
20,071
$
11,706
$
197,891
$
16,606
$
96
$
300,768
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
.
Commercial mortgages
Pass
$
40,238
$
57,120
$
89,791
$
81,705
$
37,210
$
249,226
$
1,113
$
-
$
556,403
Watch
-
-
-
16,138
-
3,746
-
-
19,884
Special Mention
-
80
12,450
14,025
-
12,862
-
-
39,417
Substandard
-
-
-
-
-
937
-
-
937
Total commercial mortgages
$
40,238
$
57,200
$
102,241
$
111,868
$
37,210
$
266,771
$
1,113
$
-
$
616,641
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
Pass
$
83
$
543
$
175
$
1,067
$
30
$
12,143
$
10,423
$
-
$
24,464
Watch
-
-
-
-
-
4
-
-
4
Special Mention
-
-
-
-
-
16
-
-
16
Substandard
-
-
-
1
-
-
-
-
1
Total consumer
$
83
$
543
$
175
$
1,068
$
30
$
12,163
$
10,423
$
-
$
24,485
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
158
$
-
$
-
$
158
16
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of December 31, 2025 (dollars in thousands). Current period gross write-off amounts represent write-offs for the year ended December 31, 2025.
December 31, 2025
Term Loans Amortized Cost Basis by Origination Year
2025
2024
2023
2022
2021
Prior
Revolving Loans
Loans Converted to Term
Total
Commercial loans
Pass
$
49,895
$
86,243
$
79,833
$
9,847
$
1,392
$
24,201
$
13,136
$
-
$
264,547
Watch
-
-
-
15
-
-
-
-
15
Special Mention
56
-
-
-
-
-
-
69
125
Substandard
-
77
-
524
-
104
1
-
706
Total commercial
$
49,951
$
86,320
$
79,833
$
10,386
$
1,392
$
24,305
$
13,137
$
69
$
265,393
Current period gross write-off
$
-
$
-
$
1
$
-
$
-
$
94
$
5
$
-
$
100
Real estate construction and land
Pass
$
8,570
$
6,978
$
8,984
$
365
$
1,823
$
1,163
$
104
$
-
$
27,987
Watch
-
-
-
-
153
-
-
-
153
Special Mention
-
-
-
-
-
186
-
-
186
Substandard
-
-
-
6,215
-
459
-
-
6,674
Total real estate construction and land
$
8,570
$
6,978
$
8,984
$
6,580
$
1,976
$
1,808
$
104
$
-
$
35,000
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
1-4 family residential mortgages
Pass
$
11,278
$
22,275
$
17,500
$
10,275
$
45,608
$
150,553
$
15,217
$
294
$
273,000
Watch
284
1,502
3,737
1,503
2,145
1,545
967
129
11,812
Special Mention
19
196
961
878
1,167
5,021
193
-
8,435
Substandard
-
206
-
266
162
3,207
391
110
4,342
Total 1-4 family residential mortgage
$
11,581
$
24,179
$
22,198
$
12,922
$
49,082
$
160,326
$
16,768
$
533
$
297,589
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial mortgages
Pass
$
57,470
$
105,944
$
110,311
$
37,753
$
38,914
$
236,444
$
571
$
-
$
587,407
Watch
-
-
987
-
-
8,145
-
-
9,132
Special Mention
-
77
1,741
-
1,357
12,600
-
-
15,775
Substandard
95
794
-
-
240
-
-
1,129
Total commercial mortgages
$
57,565
$
106,815
$
113,039
$
37,753
$
40,271
$
257,429
$
571
$
-
$
613,443
Current period gross write-off
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
Pass
$
619
$
559
$
1,076
$
36
$
145
$
13,341
$
10,140
$
-
$
25,916
Watch
-
-
-
-
8
58
1
-
67
Special Mention
-
-
-
-
15
64
-
-
79
Substandard
-
-
-
-
86
4
-
90
Total consumer
$
619
$
559
$
1,076
$
36
$
168
$
13,549
$
10,145
$
-
$
26,152
Current period gross write-off
$
-
$
-
$
-
$
-
$
9
$
343
$
1
$
-
$
353
17
Note 6. Goodwill and Other Intangible Assets
The carrying amount of goodwill was $7.8 million at June 30, 2026 and December 31, 2025.
The Company had $2.2 million and $2.7 million of other intangible assets as of June 30, 2026 and December 31, 2025, respectively, recognized in connection with the core deposits acquired from the Merger. The following table summarizes the gross carrying amounts and accumulated amortization of other intangible assets (dollars in thousands):
June 30, 2026
December 31, 2025
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Amortized intangible assets:
Core deposit intangible
$
9,660
$
(7,461
)
$
9,660
$
(6,978
)
Amortization expense was $236 thousand and $284 thousand for the three months ended June 30, 2026 and 2025, respectively, and $483 thousand and $579 thousand for the six months ended June 30, 2026 and 2025, respectively.
Estimated future amortization expense as of June 30, 2026 is as follows (dollars in thousands):
Core
Deposit
Intangible
For the six months ending December 31, 2026
$
435
For the year ending December 31, 2027
726
For the year ending December 31, 2028
535
For the year ending December 31, 2029
343
For the year ending December 31, 2030
152
Thereafter
8
Total
$
2,199
Note 7. Net Income Per Share
The table below shows the weighted average number of shares used in computing net income per common share and the effect of the weighted average number of shares of potential dilutive common stock for the three and six months ended June 30, 2026 and 2025. Diluted net income per share is computed based on the weighted average number of shares of common stock equivalents outstanding, to the extent dilutive. The Company’s common stock equivalents relate to outstanding common stock options. The recipients of unvested restricted shares have full voting and dividend rights, and as such, unvested restricted stock is included in the calculation of basic and diluted net income per share (dollars in thousands except per share data).
Three Months Ended
June 30, 2026
June 30, 2025
Net Income
Weighted Average Shares
Per Share Amount
Net Income
Weighted Average Shares
Per Share Amount
Basic net income per share
$
9,008
5,423,642
$
1.66
$
4,238
5,391,979
$
0.79
Effect of dilutive stock options
-
31,761
(0.01
)
-
25,921
(0.01
)
Diluted net income per share
$
9,008
5,455,403
$
1.65
$
4,238
5,417,900
$
0.78
Six Months Ended
June 30, 2026
June 30, 2025
Net Income
Weighted Average Shares
Per Share Amount
Net Income
Weighted Average Shares
Per Share Amount
Basic net income per share
$
14,268
5,416,631
$
2.63
$
8,727
5,385,461
$
1.62
Effect of dilutive stock options
-
32,678
(0.01
)
-
24,969
(0.01
)
Diluted net income per share
$
14,268
5,449,309
$
2.62
$
8,727
5,410,430
$
1.61
For the three and six months ended June 30, 2026, there were 53,520 and 56,120option shares, respectively, considered anti-dilutive and excluded from this calculation. For the three and six months ended June 30, 2025, there were 101,864 and 119,464 option shares, respectively, considered anti-dilutive and excluded from this calculation.
18
Note 8. Stock Incentive Plans
The 2022 Plan permits the Company to grant both incentive and nonqualified stock options, as well as restricted stock, unrestricted stock and other stock based awards. No new grants can be issued under the previous 2014 Plan as that plan has expired. Outstanding stock options expire ten years from the grant date. Both plans had outstanding options and restricted stock at June 30, 2026. Restricted stock and stock options from both plans vest by the fourth or fifth anniversary of the date of the grant.
For the 2022 Plan, the option price for any stock options cannot be less than the fair value of the Company’s stock on the grant date. In addition, 95% of the common stock authorized for issuance must have a vesting or exercise schedule of at least one year. For the 2014 Plan, the option price of incentive stock options could not be less than the fair value of the stock at the time an option was granted and nonqualified stock options could have been granted at prices established by the Board of Directors, including prices less than the fair value on the date of grant.
The Company accounts for all of its stock incentive plans under recognition and measurement accounting principles which require that the compensation cost relating to stock-based payment transactions be recognized in the financial statements. Stock-based compensation arrangements include stock options and restricted stock. All stock-based payments to employees are required to be valued at a fair value on the date of grant and expensed based on that fair value over the applicable vesting period.
Stock Options
Changes in the stock options outstanding related to the Plans are summarized below (dollars in thousands except per share data):
June 30, 2026
Number of Options
Weighted Average Exercise Price
Aggregate Intrinsic Value
Outstanding at January 1, 2026
226,294
$
33.17
$
-
Issued
-
-
-
Exercised
(37,997
)
30.10
-
Forfeited
(12,937
)
34.35
-
Expired
-
-
-
Outstanding at June 30, 2026
175,360
$
33.75
$
1,864
Options exercisable at June 30, 2026
137,020
$
33.98
$
1,425
For the three months ended June 30, 2026 and 2025, the Company recognized $23 thousand and $35 thousand, respectively, in compensation expense for stock options. For the six months ended June 30, 2026, and 2025, the Company recognized $27 thousand and $69 thousand, respectively, in compensation expense for stock options. As of June 30, 2026, there was $226 thousand in unrecognized compensation expense remaining to be recognized in future reporting periods through 2030. The fair value of any stock option grant is estimated at the grant date using the Black-Scholes pricing model. There were no stock options granted during the three months ended June 30, 2026 compared to 2,600 shares issued during the same time period for 2025. There were no stock options granted during the first six months of 2026 compared to 8,200 shares issued during the six months ended June 30, 2025.
Summary information pertaining to options outstanding at June 30, 2026 is shown below.
Options Outstanding
Options Exercisable
Exercise Price
Number of Options Outstanding
Weighted- Average Remaining Contractual Life
Weighted- Average Exercise Price
Number of Options Exercisable
Weighted- Average Exercise Price
$23.75 to $30.00
71,040
5.3 Years
$
26.02
57,180
$
25.58
$30.01 to $40.00
61,800
5.9 Years
36.54
37,320
37.03
$40.01 to $42.62
42,520
1.9 Years
42.62
42,520
42.62
Total
175,360
4.7 Years
$
33.75
137,020
$
33.98
19
Stock Grants
Restricted stock grants – Under the 2022 Plan, during thethree months ended June 30, 2026 and 2025, no shares of restricted stock were issued; however, for the six months ended June 30, 2026 and 2025, 20,900 and 21,068 restricted shares, respectively, were granted to employees and non-employee directors. The shares vest over a four-year period. For the three months ended June 30, 2026 and 2025, $208 thousand and $212 thousand, respectively, was expensed as a result of restricted stock grants. For the six months ended June 30, 2026 and 2025, $506 thousand and $426 thousand, respectively, was expensed as a result of restricted stock grants. As of June 30, 2026, there was $1.8 million in unrecognized compensation expense for all restricted stock grants remaining to be recognized in future reporting periods through 2030.
Changes in the restricted stock grants outstanding during the six months ended June 30, 2026 are summarized below (dollars in thousands except per share data):
June 30, 2026
Number of Shares
Weighted Average Grant Date Fair Value Per Share
Aggregate Intrinsic Value
Nonvested as of January 1, 2026
62,468
$
33.30
$
2,772
Issued
20,900
40.85
928
Vested
(24,974
)
(33.33
)
(1,108
)
Forfeited
(220
)
(35.91
)
(10
)
Nonvested at June 30, 2026
58,174
$
35.99
$
2,582
Note 9. Fair Value Measurements
Determination of Fair Value
The Company follows ASC 820, “Fair Value Measurements and Disclosures,” to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value:
Level 1 –
Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –
Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –
Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
20
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:
Securities available for sale
Securities AFS are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the balances measured at fair value on a recurring basis at the dates indicated (dollars in thousands):
Fair Value Measurements at June 30, 2026 Using:
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
U.S. Government agencies
$
30,857
$
-
$
30,857
$
-
Mortgage-backed/CMOs
113,732
-
113,732
-
Corporate bonds
5,958
-
5,958
-
Municipal bonds
84,223
-
84,223
-
Total securities AFS
$
234,770
$
-
$
234,770
$
-
Fair Value Measurements at December 31, 2025 Using:
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
U.S. Government agencies
$
31,263
$
-
$
31,263
$
-
Mortgage-backed/CMOs
123,505
-
123,505
-
Corporate bonds
7,899
-
7,899
-
Municipal bonds
85,325
-
85,325
-
Total securities AFS
$
247,992
$
-
$
247,992
$
-
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets. There were no assets measured at fair value on a nonrecurring basis as of June 30, 2026 and December 31, 2025.
Fair Value of Financial Instruments
ASC 825, “Financial Instruments,” requires disclosures about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis. The carrying values and estimated fair values of the Company's financial instruments at the dates indicated are as follows (dollars in thousands):
21
Fair Value Measurements at June 30, 2026 Using:
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Fair Value
Assets
Cash and cash equivalent
$
77,347
$
77,347
$
-
$
-
$
77,347
Available for sale securities
234,770
-
234,770
-
234,770
Restricted securities
6,195
-
6,195
-
6,195
Loans, net
1,225,856
-
-
1,200,251
1,200,251
Bank owned life insurance
41,953
-
41,953
-
41,953
Accrued interest receivable
5,870
-
1,313
4,557
5,870
Liabilities
Demand deposits and interest-bearing transaction and money market accounts
$
1,128,374
$
-
$
1,128,374
$
-
$
1,128,374
Certificates of deposit
280,822
-
280,494
-
280,494
Borrowings
20,000
-
20,111
-
20,111
Junior subordinated debt, net
3,578
-
3,578
-
3,578
Accrued interest payable
1,457
-
1,457
-
1,457
Fair Value Measurements at December 31, 2025 Using:
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Fair Value
Assets
Cash and cash equivalent
$
70,614
$
70,614
$
-
$
-
$
70,614
Available for sale securities
247,992
-
247,992
-
247,992
Restricted securities
6,172
-
6,172
-
6,172
Loans, net
1,229,307
-
-
1,202,216
1,202,216
Bank owned life insurance
41,302
-
41,302
-
41,302
Accrued interest receivable
6,213
-
1,371
4,842
6,213
Liabilities
Demand deposits and interest-bearing transaction and money market accounts
$
1,140,432
$
-
$
1,140,432
$
-
$
1,140,432
Certificates of deposit
291,299
-
291,499
-
291,499
Borrowings
20,000
-
19,954
-
19,954
Junior subordinated debt, net
3,554
-
3,554
-
3,554
Accrued interest payable
1,431
-
1,431
-
1,431
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. Consequently, the fair values of the Company’s financial instruments will fluctuate when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk; however, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
22
Note 10. Accumulated Other Comprehensive Loss
The following table presents the changes in each component of accumulated other comprehensive loss during the three months ended June 30, 2026 and 2025 (dollars in thousands).
AFS Securities
Accumulated other comprehensive loss at March 31, 2026
$
(31,944
)
Other comprehensive income arising during the period
1,141
Related income tax effects
(240
)
901
Accumulated other comprehensive loss at June 30, 2026
$
(31,043
)
AFS Securities
Accumulated other comprehensive loss at March 31, 2025
$
(38,341
)
Other comprehensive income arising during the period
1,832
Related income tax effects
(385
)
1,447
Accumulated other comprehensive loss at June 30, 2025
$
(36,894
)
The following table presents the changes in each component of accumulated other comprehensive loss during the six months ended June 30, 2026 and 2025 (dollars in thousands).
AFS Securities
Accumulated other comprehensive loss at December 31, 2025
$
(30,668
)
Other comprehensive loss arising during the period
(475
)
Related income tax effects
100
(375
)
Accumulated other comprehensive loss at June 30, 2026
$
(31,043
)
AFS Securities
Accumulated other comprehensive loss at December 31, 2024
$
(41,862
)
Other comprehensive income arising during the period
6,289
Related income tax effects
(1,321
)
4,968
Accumulated other comprehensive loss at June 30, 2025
$
(36,894
)
Note 11. Segment Reporting
For the financial periods noted in this report, the Company has two reportable segments. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report. Asset information is not disclosed because all are held at the bank level.
The two reportable segments are:
•
Bank - The commercial banking segment involves making loans and generating deposits from individuals, businesses and charitable organizations. Loan fee income, service charges from deposit accounts, and other noninterest related fees, such as fees for debit cards and ATM usage and fees for treasury management services, generate additional income for the Bank segment.
•
VNB Trust & Estate Services - VNB Trust & Estate Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as management fees that are derived from Assets Under
23
Management. Investment management services currently are offered through in-house and third-party managers.
Segment information for the three and six months ended June 30, 2026 and 2025 is shown in the following tables (dollars in thousands).
Three months ended June 30, 2026
Bank
VNB Trust & Estate Services
Consolidated
Net interest income
$
13,748
$
-
$
13,748
Provision for credit losses
231
-
231
Net interest income after provision for credit losses
$
13,517
$
-
$
13,517
Noninterest income:
Wealth management fees
$
-
$
214
$
214
Deposit account fees
359
-
359
Debit/credit card and ATM fees
245
-
245
Bank owned life insurance income
332
-
332
Gain on sale of limited partnership investment
4,662
-
4,662
Other
220
-
220
Total noninterest income
$
5,818
$
214
$
6,032
Noninterest expense:
Salaries and employee benefits
$
3,840
$
187
$
4,027
Net occupancy
693
27
720
Equipment
212
-
212
Bank franchise tax
468
-
468
Computer software
214
-
214
Data processing
609
-
609
FDIC deposit insurance assessment
187
-
187
Marketing, advertising and promotion
254
-
254
Professional fees
333
-
333
Core deposit intangible amortization
236
-
236
Other
954
55
1,009
Total noninterest expense
$
8,000
$
269
$
8,269
Income before income taxes
$
11,335
$
(55
)
$
11,280
Provision for (benefit of) income taxes
2,283
(11
)
2,272
Net income (loss)
$
9,052
$
(44
)
$
9,008
24
Six months ended June 30, 2026
Bank
VNB Trust & Estate Services
Consolidated
Net interest income
$
26,655
$
-
$
26,655
Recovery of credit losses
(105
)
-
(105
)
Net interest income after recovery of credit losses
$
26,760
$
-
$
26,760
Noninterest income:
Wealth management fees
$
-
$
434
$
434
Deposit account fees
725
-
725
Debit/credit card and ATM fees
496
-
496
Bank owned life insurance income
651
-
651
Gains on sale of assets, net
5
-
5
Gain on sale of limited partnership investment
4,662
-
4,662
Other
548
-
548
Total noninterest income
$
7,087
$
434
$
7,521
Noninterest expense:
Salaries and employee benefits
$
7,649
$
377
$
8,026
Net occupancy
1,447
52
1,499
Equipment
398
-
398
Bank franchise tax
936
-
936
Computer software
428
-
428
Data processing
1,159
-
1,159
FDIC deposit insurance assessment
362
-
362
Marketing, advertising and promotion
521
-
521
Professional fees
681
-
681
Core deposit intangible amortization
483
-
483
Other
1,828
147
1,975
Total noninterest expense
$
15,892
$
576
$
16,468
Income before income taxes
$
17,955
$
(142
)
$
17,813
Provision for (benefit of) income taxes
3,574
(29
)
3,545
Net income (loss)
$
14,381
$
(113
)
$
14,268
25
Three months ended June 30, 2025
Bank
VNB Trust & Estate Services
Consolidated
Net interest income
$
12,796
$
-
$
12,796
Provision for credit losses
3
-
3
Net interest income after provision for credit losses
$
12,793
$
-
$
12,793
Noninterest income:
Wealth management fees
$
-
$
206
$
206
Deposit account fees
293
-
293
Debit/credit card and ATM fees
355
-
355
Bank owned life insurance income
307
-
307
Other
150
-
150
Total noninterest income
$
1,105
$
206
$
1,311
Noninterest expense:
Salaries and employee benefits
$
3,612
$
251
$
3,863
Net occupancy
856
33
889
Equipment
198
4
202
Bank franchise tax
489
-
489
Computer software
266
-
266
Data processing
693
39
732
FDIC deposit insurance assessment
145
-
145
Marketing, advertising and promotion
179
-
179
Professional fees
297
34
331
Core deposit intangible amortization
284
-
284
Other
1,293
8
1,301
Total noninterest expense
$
8,312
$
369
$
8,681
Income before income taxes
$
5,586
$
(163
)
$
5,423
Provision for (benefit of) income taxes
1,219
(34
)
1,185
Net income (loss)
$
4,367
$
(129
)
$
4,238
26
Six months ended June 30, 2025
Bank
VNB Trust & Estate Services
Consolidated
Net interest income
$
25,090
$
-
$
25,090
Recovery of credit losses
(157
)
-
(157
)
Net interest income after recovery of credit losses
$
25,247
$
-
$
25,247
Noninterest income:
Wealth management fees
$
-
$
435
$
435
Deposit account fees
600
-
600
Debit/credit card and ATM fees
725
-
725
Bank owned life insurance income
600
-
600
Gains on sale of assets, net
278
-
278
Other
433
-
433
Total noninterest income
$
2,636
$
435
$
3,071
Noninterest expense:
Salaries and employee benefits
$
7,309
$
490
$
7,799
Net occupancy
1,840
65
1,905
Equipment
381
7
388
Bank franchise tax
828
-
828
Computer software
522
-
522
Data processing
1,388
79
1,467
FDIC deposit insurance assessment
290
-
290
Marketing, advertising and promotion
433
-
433
Professional fees
517
70
587
Core deposit intangible amortization
579
-
579
Other
2,693
14
2,707
Total noninterest expense
$
16,780
$
725
$
17,505
Income before income taxes
$
11,103
$
(290
)
$
10,813
Provision for (benefit of) income taxes
2,146
(60
)
2,086
Net income (loss)
$
8,957
$
(230
)
$
8,727
Note 12. Subsequent Event
In July 2026, the Company entered into an amendment to the ground lease for the Pantops headquarters property. The amendment, which is effective beginning on November 1, 2026, extends the term of the lease from five years to 20 years. The extension increases both the right-of-use asset and the lease liability by $5.2 million. This change reflects the present value of additional lease payments over the new term.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited consolidated financial statements, and notes thereto, of Virginia National Bankshares Corporation included in this report and the audited consolidated financial statements, and notes thereto, of the Company included in the Company’s Form 10-K for the year ended December 31, 2025. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results for the year ending December 31, 2026 or any future period.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS
Certain statements in this report may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements concerning future results of operations or financial position, borrowing capacity and future liquidity, future investment results, future credit exposure, future loan losses, plans and objectives for future operations, changes in laws and regulations applicable to the Company and its subsidiaries, adequacy of funding sources, actuarial expected benefit payments, valuation of foreclosed assets, regulatory requirements, economic environment and other statements contained herein regarding matters that are not historical facts. Such statements are often characterized by use of qualified words such as “expect,” “believe,” “estimate,” “project,” “anticipate,” “intend,” “will,” “should,” or words of similar meaning or their derivatives, or other statements concerning the opinions or judgment of the Company and its management about future events. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only management’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside management’s control. Although the Company believes that management’s expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of the Company’s business and operations, there can be no assurance that actual future results, performance, or achievements of, or trends affecting, the Company will not differ materially from any projected future results, performance, achievements or trends expressed in or implied by such forward-looking statements. Any forward-looking statements made by the Company speak only as of the date on which such statements are made, and the Company does not undertake to update any forward-looking statements to reflect changes or events that may occur after the date of this report. The Company’s actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements.
Factors that could cause the Company's actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; liquidity and capital requirements; market disruptions including trade restrictions, tariffs, pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts or other major events, the governmental and societal responses thereto, or the prospect of these events; changes, particularly declines, in general economic and market conditions in the local economies in which the Company operates, including the effects of declines in real estate values; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve; the impact of changes in laws, regulations and guidance related to financial services, including, but not limited to, taxes, banking, securities and insurance; changes in accounting principles, standards, policies and guidelines; the financial condition of the Company’s borrowers; the Company's ability to attract, hire, train and retain qualified employees; an increase in unemployment levels; competitive pressures on loan and deposit pricing and demand; fluctuation in asset quality; assumptions that underlie the Company’s ACL; the value of securities held in the Company's investment portfolio; performance of assets under management; cybersecurity threats or attacks and the development and maintenance of reliable electronic systems; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the risks and uncertainties described from time-to-time in the Company’s press releases and filings with the SEC; and the Company’s performance in managing the risks involved in any of the foregoing.
Additional risk factors and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and in other reports filed from time to time by the Company with the Securities and Exchange Commission. All risk factors and uncertainties described herein and therein should be considered in evaluating any forward-looking statements. The forward-looking statements are expressly qualified by this cautionary statement, and undue reliance should not be placed on such forward-looking statements.
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OVERVIEW
Our primary financial goal is to maximize the Company’s earnings to increase long-term shareholder value. We monitor four key financial performance measures to determine our success in realizing this goal: 1) return on average assets, 2) return on average equity, 3) net income per share, and 4) tangible book value per share (a non-GAAP financial measure).
•
ROAA for the three months ended June 30, 2026 of 2.24% increased 119 bpswhen compared to the three months ended June 30, 2025 of1.05%. ROAA for the six months ended June 30, 2026 was 1.77% compared to 1.08% realized in the same period in the prior year. Both periods of 2026 reflect higher non-interest income due to a gain from the sale of a limited investment partnership interest in Bearing Insurance Group, LLC ("Bearing").
•
ROAE for the three months ended June 30, 2026 was 18.81% compared to 10.05% in the same period in the prior year. ROAE for the six months ended June 30, 2026 was 15.14% compared to 10.54% realized in the same period in the prior year.
•
Net income per diluted share was $1.65 for the three months ended June 30, 2026, compared to $0.78 for the same period in the prior year. Net income per diluted share was $2.62 for the six months ended June 30, 2026 compared to $1.61 for the same period in the prior year.
•
Tangible book value per share (non-GAAP) increased to $34.05 as of June 30, 2026, compared to $29.63 as of June 30, 2025. The increase reflects the impact of the Company's earnings performance that the Company posts as well as the gain from the Bearing transaction in the second quarter of 2026.
Refer to the Results of Operations, Non-GAAP Presentation section, later in this Management’s Discussion and Analysis for more discussion on financial performance measures determined other than in accordance with GAAP.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
The Company considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s consolidated financial statements.The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of financial condition and results of operations.
For additional information regarding critical accounting policies, refer to the Application of Critical Accounting Policies and Critical Accounting Estimates section under Item 8 in the Company’s 2025 Form 10-K, there have been no changes since that time.
FINANCIAL CONDITION
Total assets
The total assets of the Company as of June 30, 2026 were $1.6 billion. This is a $11.5 million, or 0.7%, decrease from total assets reported at December 31, 2025.
Securities
The Company’s investment securities portfolio as of June 30, 2026 totaled $241.0 million, a decrease of $13.2 million compared with the $254.2 million reported at December 31, 2025. The decrease from year-end was the result of maturities and normal cash flow from paydowns. Paydowns within the securities portfolio provide additional liquidity allowing the Company to take advantage of investment opportunities that complement its growth and earnings strategies. At June 30, 2026 and December 31, 2025, the investment securities holdings represented 14.7% and 15.4% of the Company’s total assets, respectively.
The Company’s investment securities portfolio included restricted securities totaling $6.2 million as of June 30, 2026 and December 31, 2025. These securities represent stock in the FRB, the FHLB, CBB Financial Corporation (the holding company for Community Bankers' Bank), and an investment in an SBA loan fund. The level of FRB and FHLB stock that the Company is required to hold is determined in accordance with membership guidelines provided by the Federal Reserve and the FHLB, respectively. Stock ownership in CBB Financial Corporation provides the Company with several benefits that are not available to non-shareholder correspondent banks. None of these restricted securities are traded on the open market and can only be redeemed by the respective issuer.
29
At June 30, 2026, the unrestricted securities portfolio totaled $234.8 million. The following table summarizes the Company's AFS securities by type as of June 30, 2026, and December 31, 2025 (dollars in thousands):
June 30, 2026
December 31, 2025
% of
% of
Balance
Total
Balance
Total
U.S. Government agencies
$
30,857
13.1
%
$
31,263
12.6
%
Mortgage-backed/CMOs
113,732
48.5
%
123,505
49.8
%
Corporate bonds
5,958
2.5
%
7,899
3.2
%
Municipal bonds
84,223
35.9
%
85,325
34.4
%
Total AFS securities
$
234,770
100.0
%
$
247,992
100.0
%
The unrestricted securities are held primarily for earnings, liquidity, and asset/liability management purposes and are reviewed quarterly for possible impairments indicating credit losses. During this review, management analyzes the length of time the fair value has been below cost, the expectation for each security’s performance, the creditworthiness of the issuer, and the Company’s intent and ability to hold the security to recovery or maturity. These factors are analyzed for each individual security.
Loan portfolio
A management objective is to grow loan balances while maintaining the asset quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of, and the designation of lending limits for, each borrowing relationship. The portfolio strategies include seeking industry, loan size, and loan type diversification to minimize credit exposure and originating loans in markets with which the Company is familiar. The Company's geographical trade area includes localities in Virginia, Maryland, the District of Columbia and West Virginia.
Total loans were $1.2 billion as of June 30, 2026 and December 31, 2025. Loans as a percentage of total assets at June 30, 2026 were 75.3%, compared to 75.0% as of December 31, 2025.
The following table summarizes the Company's loan portfolio by type of loan as of June 30, 2026 and December 31, 2025 (dollars in thousands):
June 30, 2026
December 31, 2025
Balance
% of Total
Balance
% of Total
Commercial loans
$
258,975
21.0
%
$
265,393
21.4
%
Real estate mortgage:
Construction and land
33,111
2.7
%
35,000
2.8
%
1-4 family residential mortgages
300,768
24.3
%
297,589
24.1
%
Commercial mortgages
616,641
50.0
%
613,443
49.6
%
Total real estate mortgage
$
950,520
77.0
%
$
946,032
76.5
%
Consumer loans
24,485
2.0
%
26,152
2.1
%
Total loans
$
1,233,980
100.0
%
$
1,237,577
100.0
%
Despite strong loan originations in the first half of 2026, loan balances declined $3.6 million from December 31, 2025 to June 30, 2026. During the first half of 2026, the Company funded $85 million in loans, which was comprised of $64 million in organic loan production and $21 million of purchased government guaranteed loans. Payoffs and normal amortization offset the loans funded during the first half of 2026.
30
The following table details the Company's levels of non-owner occupied commercial real estate as of June 30, 2026, along with the average loan size and percentage of risk ratings for each category (dollars in thousands):
Loan Type
Balance
# of Loans
% of Total CRE
Average Loan Size
Special Mention
Sub- standard
Nonaccrual
Hotels
$
46,695
8
14.14
%
$
5,837
0.00
%
0.00
%
0.00
%
Office Building
74,946
85
22.70
%
$
882
3.56
%
0.00
%
0.00
%
Warehouses/Industrial
65,109
31
19.72
%
$
2,100
0.78
%
0.00
%
0.00
%
Retail
124,201
70
37.61
%
$
1,774
13.96
%
0.57
%
0.00
%
Day Cares / Schools
10,740
7
3.25
%
$
1,534
0.00
%
0.00
%
0.00
%
All Other Commercial Buildings
8,518
10
2.58
%
$
852
0.00
%
0.00
%
0.00
%
Total Non-Owner Occupied CRE
$
330,209
The following table details the Company's levels of non-owner occupied commercial real estate as of December 31, 2025, along with the average loan size and percentage of risk ratings for each category (dollars in thousands):
Loan Type
Balance
# of Loans
% of Total CRE
Average Loan Size
Special Mention
Sub- standard
Nonaccrual
Hotels
$
42,870
8
12.85
%
$
5,359
0.00
%
0.00
%
0.00
%
Office Building
77,908
81
23.35
%
$
962
0.00
%
0.00
%
0.00
%
Warehouses/Industrial
63,622
29
19.07
%
$
2,194
0.87
%
0.00
%
0.00
%
Retail
128,548
65
38.52
%
$
1,978
3.04
%
0.00
%
0.00
%
Day Cares / Schools
11,655
9
3.49
%
$
1,295
0.00
%
0.00
%
0.00
%
All Other Commercial Buildings
9,091
11
2.72
%
$
826
0.00
%
0.00
%
0.00
%
Total Non-Owner Occupied CRE
$
333,694
Loan quality
The Company continues to experience extremely low levels of NPAs, as a result of strict underwriting standards and practices. However, the economic environment in the Company's lending footprint could be impacted, which could increase NPAs in future periods.
Nonaccruals - Nonaccrual loans, comprised of fourteen loans to twelve borrowers, totaled $2.1 million at June 30, 2026, compared to $2.2 million reported at December 31, 2025.
Past Due Loans - The Company had loans in its portfolio totaling $3.7 million, and $7.0 million as of June 30, 2026, and December 31, 2025, respectively, that were 90 or more days past due and still accruing interest as the Company deemed them to be collectible. The past due balance as of June 30, 2026 is comprised of four loans totaling $3.6 million which are 100% government-guaranteed, and six student loans totaling $66 thousand.
Troubled Loan Modifications - No loans were modified during the three and six months ended June 30, 2026 or 2025.
Management identifies potential problem loans through its periodic loan review process and considers potential problem loans as those loans classified as special mention, substandard, or doubtful.
31
Allowance for Credit Losses
The relationship of the ACL to total loans and nonaccrual loans appears below (dollars in thousands):
June 30, 2026
December 31, 2025
Total loans
$
1,233,980
$
1,237,577
Nonaccrual loans
$
2,099
$
2,198
Allowance for credit losses
$
8,124
$
8,270
Nonaccrual loans to total loans
0.17
%
0.18
%
ACL to total loans
0.66
%
0.67
%
ACL to nonaccrual loans
387.04
%
376.25
%
The ACL on loans as a percentage of loans was 0.66% as of June 30, 2026 and 0.67% as of December 31, 2025, and the fair value mark that was allocated to the acquired loans was $3.9 million as of June 30, 2026 and $4.7 million as of December 31, 2025.
Recoveries of credit losses on loans totaling $144 thousand and $15 thousand were recorded in the six months ended June 30, 2026 and 2025, respectively. The following is a summary of the changes (dollars in thousands):
2026
2025
Allowance for credit losses, December 31 of prior year
$
8,270
$
8,455
Charge-offs
(158
)
(181
)
Recoveries
156
88
Recovery of credit losses
(144
)
(15
)
Allowance for credit losses, June 30
$
8,124
$
8,347
For additional insight into management’s approach and methodology in estimating the ACL, please refer to the earlier discussion of “Allowance for Credit Losses” in Note 5 of the Notes to Consolidated Financial Statements.
Management has elected to perform an individual evaluation on all loans in nonaccrual status. As of June 30, 2026 and 2025, after reviewing each loan no specific reserve was deemed necessary.
The $144 thousand provision release from December 31, 2025 to June 30, 2026 was the result of a combination of events. The improved economic forecast in the first quarter of 2026 drove improvement in factors and thus overall lower reserves. During the first quarter, a significant number of construction loans converted to permanent financing into pools with lower reserve rates. Even though second quarter origination activity was brisk, it did not overtake the releases warranted due to the balance decrease. These changes led to the reduction in the ACL on loans as a percentage of loans of 1 bps from 0.67% at December 31, 2025 to 0.66% at June 30, 2026. The provision for unfunded commitments increased by $36 thousand from December 31, 2025 to June 30, 2026 due to a second quarter increase in unfunded commitments.
The balance in government-guaranteed loans, which do not require an ACL, decreased $2.3 million from December 31, 2025 to June 30, 2026, from $227.5 million to $225.2 million.
Management reviews the ACL on a quarterly basis to ensure it is adequate based upon the calculated probable losses inherent in the portfolio. Management believes the ACL was adequately provided for as of June 30, 2026 and acknowledges that the ACL may increase throughout the year as loan growth and economic conditions may change in the foreseeable future.
32
Premises and equipment
The Company’s premises and equipment, net of depreciation, totaled $11.6 million and $11.7 million as of June 30, 2026 and December 31, 2025, respectively. Depreciation expense is computed by the straight-line method based on the estimated useful lives of assets. Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon disposition, assets and related accumulated depreciation are removed from the books, and any resulting gain or loss is charged to income.
As of June 30, 2026, the Company occupied thirteen banking facilities throughout Albemarle, Fauquier and Prince William counties and the cities of Charlottesville, Richmond, Manassas and Winchester, Virginia. The Company operates a drive-through location, at 301 East Water Street, Charlottesville, Virginia, which is included in the thirteen.
The five-story office building at 404 People Place, Charlottesville, Virginia, located in Albemarle County, also serves as the Company’s corporate headquarters and operations center. VNB Trust & Estate Services is located at 103 Third Street, SE, Charlottesville, Virginia.
Both the Arlington Boulevard facility in Charlottesville and the People Place facility in Albemarle County also contain office space that is currently under lease to tenants.
Leases
As of June 30, 2026, the Company has recorded $5.6 million of right-of-use assets and $5.5 million of lease liabilities. As of December 31, 2025, $6.3 million of right-of-use assets and $6.2 million of lease liabilities were included on the balance sheet. Right-of-use assets are assets that represent the Company’s right to use, or control the use of, a specified asset for the lease term, offset by the lease liability, which is the Company’s obligation to make lease payments arising from a lease, measured on a discounted basis. During the second quarter of 2025, the Company extended the ground lease associated with the Pantops headquarters for an additional five-year period. In July 2026, the Company further extended the term of such ground lease. The amended lease has a 20-year term which will begin on November 1, 2026. The extension increases both the right-of-use asset and the lease liability by $5.2 million. This change reflects the present value of additional lease payments over the new term.
Deposits
Deposit accounts represent the Company’s primary source of funds and are comprised of demand deposits, interest-bearing checking, money market, and savings accounts as well as time deposits. These deposits have been provided predominantly by individuals, businesses and charitable organizations in the Commonwealth of Virginia.
Total deposits as of June 30, 2026 were $1.4 billion, a decrease of $22.5 million, or 1.6%, compared to December 31, 2025 (dollars in thousands).
June 30, 2026
December 31, 2025
% of
% of
Balance
Total
Balance
Total
No cost and low cost deposits:
Noninterest demand deposits
$
367,348
26.1
%
$
362,322
25.3
%
Interest checking accounts
279,179
19.8
%
308,295
21.5
%
Money market and savings deposit accounts
481,847
34.2
%
469,815
32.9
%
Total noninterest and low cost deposit accounts
$
1,128,374
80.1
%
$
1,140,432
79.7
%
Time deposit accounts:
Certificates of deposit
270,733
19.2
%
285,472
19.9
%
CDARS deposits
10,089
0.7
%
5,827
0.4
%
Total certificates of deposit and other time deposits
$
280,822
19.9
%
$
291,299
20.3
%
Total deposit account balances
$
1,409,196
100.0
%
$
1,431,731
100.0
%
Noninterest-bearing demand deposits on June 30, 2026 were $367.3 million, representing 26.1% of total deposits. Interest-bearing transaction, money market, and savings accounts totaled $761.0 million, and represented 54.0% of total deposits at June 30, 2026. Collectively, noninterest-bearing and interest-bearing transaction, money market and savings
33
accounts represented 80.1% of total deposit accounts at June 30, 2026. These account types are an excellent source of low-cost funding for the Company.
The Company also offers insured cash sweep deposit products. ICS® deposit balances of $51.3 million and $145.1 million are included in the interest checking accounts and in the money market and savings deposit accounts balances, respectively, in the table above, as of June 30, 2026. As of December 31, 2025, ICS® deposit balances of $60.8 million and $139.6 million are included in the interest checking accounts and in the money market and savings deposit account balances, respectively. All ICS® accounts consist of reciprocal balances for the Company’s customers. The Company currently holds no brokered or specialty certificates of deposit.
The remaining 19.9% of total deposits consisted of certificates of deposit and other time deposit accounts totaling $280.8 million at June 30, 2026, decreasing from $291.3 million as of December 31, 2025. Included in these deposit totals are CDARSTM, whereby depositors can obtain FDIC deposit insurance on account balances of up to $50 million. CDARSTM deposits totaled $10.1 million as of June 30, 2026 and $5.8 million as of December 31, 2025, all of which were reciprocal balances for the Company’s customers.
As of June 30, 2026 and December 31, 2025, the estimated amounts of uninsured deposits were $333.6 million, or 23.7% of total deposits and $392.0 million, or 27.4% of total deposits, respectively.
Borrowings
Borrowings, consisting primarily of FHLB advances, are additional sources of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company's ability to earn a favorable spread on the funds obtained.
As of June 30, 2026, based on the FHLB’s evaluation, the Company has an available credit position of $494.0 million, for which access can be negotiated based on multiple factors. The Company currently has a collateral dependent line of credit with the FHLB for $133.5 million, secured by commercial mortgages, with borrowings of $20.0 million as of June 30, 2026 and December 31, 2025.
Additional borrowing arrangements maintained by the Company include formal unsecured federal funds lines with five major regional correspondent banks for a total of $120.0 million and a secured line with the Federal Reserve discount window in the amount of $3.3 million, based on the market value of the collateral.
Junior Subordinated Debt
In 2006, a subsidiary of Fauquier, Fauquier Statutory Trust II, privately issued $4.0 million face amount of the trust’s Floating Rate Capital Securities in a pooled capital securities offering. Simultaneously, the trust used the proceeds of that sale to purchase $4.0 million principal amount of Fauquier’s Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of June 30, 2026 and December 31, 2025, total capital securities were $3.6 million, as adjusted to fair value as of the date of the Merger. The rate is a spread adjustment of 0.03% plus a margin of 1.70% above the three-month CME Term SOFR.
The Trust II issuance of capital securities and the respective subordinated debentures are callable at any time. The subordinated debentures are an unsecured obligation of the Company and are junior in right of payment to all present and future senior indebtedness of the Company. The capital securities are guaranteed by the Company on a subordinated basis.
Shareholders' equity and regulatory capital ratios
The following table displays the changes in shareholders' equity for the Company from December 31, 2025 to June 30, 2026 (dollars in thousands):
Equity, December 31, 2025
$
184,161
Net income
14,268
Other comprehensive loss
(375
)
Cash dividends declared
(3,902
)
Equity increase due to expensing of stock options
27
Equity increase due to expensing of restricted stock
506
Equity, June 30, 2026
$
194,685
The Basel III capital rules require banks and bank holding companies to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting
34
in a minimum Tier 1 capital ratio of 8.5%); (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%); and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).
The Company’s Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 20.77%, 20.77%, 21.59%, and 13.38% respectively, as of June 30, 2026, thus exceeding the minimum requirements. The Bank’s Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 20.52%, 20.52%, 21.35%, and 13.21%, respectively, as of June 30, 2026, also exceeding the minimum requirements.
As of June 30, 2026, the Bank exceeded all of the following minimum capital ratios in order to be considered “well capitalized” under the PCA regulations, as revised: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage ratio of at least 5.0%.
RESULTS OF OPERATIONS
Industry events and economic environment
Management of the Company continually monitors the impact of various global and national events on the Company's results of operations and financial condition, including inflation and economic recessionary conditions, changes in interest rates, the political environment, geopolitical conflicts, competition, liquidity matters, changes in legislative or regulatory requirements and changes in government policy, such as the imposition of tariffs and potential trade barriers. The timing and impact of inflation, fluctuations in and volatility of interest rates, and the competitive landscape of loans and deposits on our business and results of operations will depend on future developments, which are uncertain and unpredictable.
In 2025, the Federal Reserve reduced rates three times with each rate reduction being 25 bps, and the final reduction occurred in December. There were no rate changes in the first half of 2026. While growth is solid, inflation remains above the 2% goal due to supply and energy shocks. At the July 29, 2026 FOMC meeting, where the rates remained unchanged again, the new Federal Reserve Chair Kevin Warsh avoided future guidance on forward rate paths, and focused instead on new task forces to review policy frameworks.
Management will continue to deploy solid asset liability management strategies to manage our risk related to interest rate fluctuations and monitor balance sheet trends, deposit flows, and liquidity needs to enable us to meet the needs of our customers and maintain financial flexibility.
35
Non-GAAP presentations
The accounting and reporting policies of the Company conform to GAAP and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance. These include tangible book value per share, tangible equity and the following fully-taxable equivalent measures: net interest income-FTE, efficiency ratio-FTE and net interest margin-FTE. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented.
Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of (1) balances of intangible assets, including goodwill, that vary significantly between institutions, and (2) tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered an alternative to, or more important than, GAAP-basis financial statements, and other banks and bank holding companies may define or calculate these or similar measures differently. Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.”
A reconcilement of the non-GAAP financial measures used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures is presented below (dollars in thousands, except per share data):
As of or for the Three Months Ended
For the Six Months Ended
June 30, 2026
June 30, 2025
June 30, 2026
June 30, 2025
Fully tax-equivalent measures
Net interest income (GAAP)
$
13,748
$
12,796
$
26,655
$
25,090
Fully tax-equivalent adjustment
87
85
172
172
Net interest income (FTE) (non-GAAP)
$
13,835
$
12,881
$
26,827
$
25,262
Efficiency ratio (GAAP)
41.8
%
61.5
%
48.2
%
62.2
%
Fully tax-equivalent adjustment
-0.2
%
-0.3
%
-0.3
%
-0.4
%
Efficiency ratio (FTE) (non-GAAP)
41.6
%
61.2
%
47.9
%
61.8
%
Net interest margin (GAAP)
3.63
%
3.37
%
3.50
%
3.32
%
Fully tax-equivalent adjustment
0.02
%
0.02
%
0.02
%
0.02
%
Net interest margin (FTE) (non-GAAP)
3.65
%
3.40
%
3.52
%
3.34
%
Other financial measures
Book value per share (GAAP)
$
35.89
$
31.67
Impact of intangible assets
(1.84
)
(2.04
)
Tangible book value per share (non-GAAP)
$
34.05
$
29.63
Total equity (GAAP)
$
194,685
$
170,772
Impact of intangible assets
(9,967
)
(10,981
)
Tangible equity (non-GAAP)
$
184,718
$
159,791
Net income
Net income for the three months ended June 30, 2026 was $9.0 million, a $4.8 million increase compared to $4.2 million reported for the three months ended June 30, 2025. Net income per diluted share was $1.65 for the three months ended June 30, 2026 compared to $0.78 per diluted share for the same period in the prior year.
36
Net income for the six months ended June 30, 2026 was $14.3 million, compared to $8.7 million for the six months ended June 30, 2025. Net income per diluted share was $2.62 for the six months ended June 30, 2026, compared to $1.61 for the six months ended June 30, 2025.
The increase in net income in 2026 is primarily the result of the increase in noninterest income, continued decreases in the cost of funds and increases in earning asset yields despite some contraction in loan balances, along with decreases in noninterest expense, particularly in net occupancy, data processing and other expenses. The gain from the sale of the Bearing limited partnership investment augmented noninterest income.
Net interest income
Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets for the period. The level of interest rates, together with the volume and mix of earning assets and interest-bearing liabilities, impact net interest income (FTE) and net interest margin (FTE).
Quarterly overview - Net interest income (FTE) for the three months ended June 30, 2026 was $13.8 million, a $954 thousand increase compared to net interest income (FTE) of $12.9 million for the three months ended June 30, 2025. The net interest margin (FTE) of 3.65% for the three months ended June 30, 2026 was 25 bps higher than the 3.40% realized during the three months ended June 30, 2025. Interest expense decreased by $590 thousand, positively impacting net interest income (FTE) and net interest margin (FTE), compared to the same period in the prior year. Overall, the cost of interest-bearing deposits decreased 11 bps period over period, from 2.23% to 2.12%. A $3.3 million decrease in average balances of time deposit products contributed to the reduced interest expense during the three months ended June 30, 2026 compared to 2025. Average loan balances of $1.2 billion for the three months ended June 30, 2025 were flat compared to average loan balances for the three months ended June 30, 2026. Earning assets were negatively impacted by the decrease in the average balances of securities, decreasing from$266.9 million in the three months ended June 30, 2025 to$243.9 million in the three months ended June 30, 2026; however, an increase of $25.9 million in Federal funds sold during the same periods helped to offset the decreased securities balances. The primary contributor to the margin improvement was decreased funding costs with a $590 thousand expense reduction due to the control of interest rates paid and decreased borrowings.
Year-to-date overview - Net interest income (FTE) for the six months ended June 30, 2026 was $26.8 million, a $1.6 million increase compared to net interest income (FTE) for the six months ended June 30, 2025. The net interest margin (FTE) of 3.52% was 18 bps higher than the 3.34% realized during the six months ended June 30, 2025. Interest expense decreased by $1.3 million, positively impacting net interest income (FTE) and net interest margin (FTE), compared to the same period in the prior year. Overall, the cost of interest-bearing deposits decreased 15 bps period over period, from 230 bps to 215 bps. A $9.0 million decrease in average balances of time deposit products contributed to a lower interest expense in 2026. Average loan balances of $1.2 billion for the six months ended June 30, 2026 were flat compared to average loan balances for the six months ended June 30, 2025. Earning assets were negatively impacted by the decrease in the average balances of securities, decreasing from $269.2 million in the six months ended June 30, 2025 to $248.8 million in the six months ended June 30, 2026. There was an increase in Federal funds sold of $31.8 million which helped offset the decrease in securities.
Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP presentations section for a reconcilement of GAAP net interest margin to non-GAAP net interest margin (FTE).
37
The following tables detail the average balance sheet, including an analysis of net interest income (FTE) for earning assets and interest-bearing liabilities. These tables also include rate/volume analyses for these same periods (dollars in thousands).
Consolidated Average Balance Sheet and Analysis of Net Interest Income
For the Three Months Ended
June 30, 2026
June 30, 2025
Change in Interest Income/ Expense
Average
Interest
Average
Average
Interest
Average
Change Due to 4 :
Total
Balance
Income/
Yield/
Balance
Income/
Yield/
Volume
Rate
Increase/
Expense
Cost 5
Expense
Cost 5
(Decrease)
ASSETS
Interest Earning Assets:
Securities:
Taxable Securities
$179,586
$1,149
2.56%
$201,507
$1,374
2.73%
$(144)
$(81)
$(225)
Tax Exempt Securities 1
64,347
413
2.57%
65,347
408
2.50%
(6)
11
5
Total Securities 1
243,933
1,562
2.56%
266,854
1,782
2.67%
(150)
(70)
(220)
Loans, net of deferred fees and costs
1,235,696
17,688
5.74%
1,240,563
17,330
5.60%
(68)
426
358
Federal funds sold
31,554
288
3.66%
5,698
64
4.51%
238
(14)
224
Other interest-bearing deposits
9,147
47
2.06%
8,230
45
2.19%
5
(3)
2
Total Earning Assets
1,520,330
19,585
5.17%
1,521,345
19,221
5.07%
25
339
364
Less: Allowance for Credit Losses
(7,996)
(8,338)
Total Non-Earning Assets
97,395
102,550
Total Assets
$1,609,729
$1,615,557
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking
$265,742
$67
0.10%
$268,728
$67
0.10%
$(1)
$1
-
Money Market and Savings Deposits
489,059
2,940
2.41%
464,058
2,927
2.53%
154
(141)
13
Time Deposits
283,277
2,478
3.51%
286,555
2,670
3.74%
(30)
(162)
(192)
Total Interest-Bearing Deposits
1,038,078
5,485
2.12%
1,019,341
5,664
2.23%
123
(302)
(179)
Federal funds purchased
-
-
0.00%
1,472
18
4.90%
(18)
-
(18)
Borrowings
20,000
194
3.89%
49,275
582
4.74%
(298)
(90)
(388)
Junior subordinated debt
3,570
71
7.98%
3,523
76
8.65%
1
(6)
(5)
Total Interest-Bearing Liabilities
1,061,648
5,750
2.17%
1,073,611
6,340
2.37%
(192)
(398)
(590)
Noninterest-Bearing Liabilities:
Demand deposits
344,699
364,033
Other liabilities
11,299
8,790
Total Liabilities
1,417,646
1,446,434
Shareholders' Equity
192,083
169,123
Total Liabilities & Shareholders' Equity
$1,609,729
$1,615,557
Net Interest Income (FTE)
$13,835
$12,881
$217
$737
$954
Interest Rate Spread 2
3.00%
2.70%
Cost of Funds
1.64%
1.77%
Interest Expense as a Percentage of Average Earning Assets
1.52%
1.67%
Net Interest Margin (FTE) 3
3.65%
3.40%
(1)
Tax-exempt income for investment securities has been adjusted to a fully tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations earlier in this section.
(2)
Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.
(3)
Net interest margin (FTE) is net interest income expressed as a percentage of average earning assets (a non-GAAP financial measure).
(4)
The impact on the net interest income (FTE) resulting from changes in average balances and average rates is shown for the period indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(5)
Ratio is computed on an annualized basis.
38
Consolidated Average Balance Sheet and Analysis of Net Interest Income
For the Six Months Ended
June 30, 2026
June 30, 2025
Change in Interest Income/ Expense
Average
Interest
Average
Average
Interest
Average
Change Due to 4 :
Total
Balance
Income/
Yield/
Balance
Income/
Yield/
Volume
Rate
Increase/
Expense
Cost 5
Expense
Cost 5
(Decrease)
ASSETS
Interest Earning Assets:
Securities:
Taxable Securities
$
184,352
$
2,342
2.54
%
$
203,584
$
2,798
2.75
%
$
(253
)
$
(203
)
$
(456
)
Tax Exempt Securities 1
64,411
820
2.55
%
65,572
818
2.49
%
(15
)
17
2
Total Securities 1
248,763
3,162
2.54
%
269,156
3,616
2.69
%
(268
)
(186
)
(454
)
Loans, net of deferred fees and costs
1,234,592
34,521
5.64
%
1,237,061
34,363
5.60
%
(69
)
227
158
Federal funds sold
43,046
782
3.66
%
11,256
248
4.44
%
585
(51
)
534
Other interest-bearing deposits
8,696
82
1.90
%
8,041
87
2.18
%
7
(12
)
(5
)
Total Earning Assets
1,535,097
38,547
5.06
%
1,525,514
38,314
5.06
%
255
(22
)
233
Less: Allowance for Credit Losses
(8,135
)
(8,416
)
Total Non-Earning Assets
98,624
105,321
Total Assets
$
1,625,586
$
1,622,419
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking
$
275,134
$
137
0.10
%
$
271,736
$
136
0.10
%
$
2
$
(1
)
$
1
Money Market and Savings Deposits
488,403
5,993
2.47
%
464,231
5,930
2.58
%
302
(239
)
63
Time Deposits
287,339
5,063
3.55
%
296,388
5,724
3.89
%
(171
)
(490
)
(661
)
Total Interest-Bearing Deposits
1,050,876
11,193
2.15
%
1,032,355
11,790
2.30
%
133
(730
)
(597
)
Federal funds purchased
-
-
0.00
%
1,017
25
4.96
%
(12
)
(13
)
(25
)
Borrowings
20,000
386
3.89
%
46,038
1,091
4.78
%
(531
)
(174
)
(705
)
Junior subordinated debt
3,564
141
7.98
%
3,517
146
8.37
%
2
(7
)
(5
)
Total Interest-Bearing Liabilities
1,074,440
11,720
2.20
%
1,082,927
13,052
2.43
%
(408
)
(924
)
(1,332
)
Non-Interest-Bearing Liabilities:
Demand deposits
349,925
363,198
Other liabilities
11,125
9,328
Total Liabilities
1,435,490
1,455,453
Shareholders' Equity
190,096
166,966
Total Liabilities & Shareholders' Equity
$
1,625,586
$
1,622,419
Net Interest Income (FTE)
$
26,827
$
25,262
$
663
$
902
$
1,565
Interest Rate Spread 2
2.86
%
2.63
%
Cost of Funds
1.66
%
1.82
%
Interest Expense as a Percentage of Average Earning Assets
1.54
%
1.73
%
Net Interest Margin (FTE) 3
3.52
%
3.34
%
(1)
Tax-exempt income for investment securities has been adjusted to a fully tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations earlier in this section.
(2)
Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.
(3)
Net interest margin (FTE) is net interest income expressed as a percentage of average earning assets (a non-GAAP financial measure).
(4)
The impact on the net interest income (FTE) resulting from changes in average balances and average rates is shown for the period indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(5)
Ratio is computed on an annualized basis.
39
Provision for credit losses
A provision for credit losses of $231 thousand was recognized during the three months ended June 30, 2026 compared to $3 thousand recognized during the three months ended June 30, 2025. For the six months ended June 30, 2026 and 2025 there were recoveries of $105 thousand and $157 thousand, respectively. The provision recognized in the three months ended June 30, 2026 was due to construction and multifamily project loans originated which drove increases in the ACL as those pools require higher reserves. The fluctuation of loan balances with a net reduction of outstanding balances from December 31, 2025 to June 30, 2026 contributed to the release. In addition, the migration of loans that were refinanced into pools requiring lower reserves contributed to the release.
Further discussion of management’s assessment of the ACL is provided earlier in the report and in Note 5 – Allowance for Credit Losses, found in the Notes to the Consolidated Financial Statements. In management’s opinion, the ACL was adequately provided for at June 30, 2026. The ACL calculation, provision for credit losses, asset quality and collateral values may be significantly impacted by deterioration in economic conditions. Should economic conditions worsen, we could experience increases in our required ACL and record additional provision for credit loss exposure.
Noninterest income
The components of noninterest income are shown below (dollars in thousands):
For the Three Months Ended
Variance
June 30, 2026
June 30, 2025
$
%
Noninterest income:
Wealth management fees
$
214
$
206
$
8
3.9
%
Deposit account fees
359
293
66
22.5
%
Debit/credit card and ATM fees
245
355
(110
)
-31.0
%
Bank owned life insurance income
332
307
25
8.1
%
Gain on sale of limited partnership investment 1
4,662
-
4,662
N/A
Other
220
150
70
46.7
%
Total noninterest income
$
6,032
$
1,311
$
4,721
360.1
%
(1)
Percentage change is not reported when the baseline (prior period) is zero, as the percentage change is mathematically undefined.
Noninterest income for the three months ended June 30, 2026 of $6.0 million was $4.7 million or 360.1% more than the amount recorded for the three months ended June 30, 2025, due primarily to the gain on the sale of limited partnership investment. The sale of the Company's interest in the investment in Bearing Insurance Group, LLC, a full service insurance agency owned by multiple banks throughout Virginia, was completed on May 1, 2026.
For the Six Months Ended
Variance
June 30, 2026
June 30, 2025
$
%
Noninterest income:
Wealth management fees
$
434
$
435
$
(1
)
-0.2
%
Deposit account fees
725
600
125
20.8
%
Debit/credit card and ATM fees
496
725
(229
)
-31.6
%
Bank owned life insurance income
651
600
51
8.5
%
Gains on sale of assets, net
5
278
(273
)
-98.2
%
Gain on sale of limited partnership investment 1
4,662
-
4,662
N/A
Other
548
433
115
26.6
%
Total noninterest income
$
7,521
$
3,071
$
4,450
144.9
%
(1)
Percentage change is not reported when the baseline (prior period) is zero, as the percentage change is mathematically undefined.
Noninterest income for the six months ended June 30, 2026 of $7.5 million was $4.5 million or 144.9% more than the amount recorded for the six months ended June 30, 2025, due primarily to the gain on sale of the limited partnership investment, as discussed above.
40
Noninterest expense
The components of noninterest expense are shown below (dollars in thousands):
For the Three Months Ended
Variance
June 30, 2026
June 30, 2025
$
%
Noninterest expense:
Salaries and employee benefits
$
4,027
$
3,863
$
164
4.2
%
Net occupancy
720
889
(169
)
-19.0
%
Equipment
212
202
10
5.0
%
Bank franchise tax
468
489
(21
)
-4.3
%
Computer software
214
266
(52
)
-19.5
%
Data processing
609
732
(123
)
-16.8
%
FDIC deposit insurance assessment
187
145
42
29.0
%
Marketing, advertising and promotion
254
179
75
41.9
%
Professional fees
333
331
2
0.6
%
Core deposit intangible amortization
236
284
(48
)
-16.9
%
Other
1,009
1,301
(292
)
-22.4
%
Total noninterest expense
$
8,269
$
8,681
$
(412
)
-4.7
%
Noninterest expense for the quarter ended June 30, 2026 of $8.3 million was $412 thousand or 4.7% less than the quarter ended June 30, 2025. This decrease is primarily due to lower data processing costs resulting from the contract renewal negotiations which occurred in the fourth quarter of 2025, reduction of depreciation expenses on fully-depreciated assets and a reduction in other expenses (which includes legal fees) incurred in the most recent quarter compared to the same quarter of 2025.
The components of noninterest expense for the six months ended June 30, 2026 and 2025 are shown below (dollars in thousands):
For the Six Months Ended
Variance
June 30, 2026
June 30, 2025
$
%
Noninterest expense:
Salaries and employee benefits
$
8,026
$
7,799
$
227
2.9
%
Net occupancy
1,499
1,905
(406
)
-21.3
%
Equipment
398
388
10
2.6
%
Bank franchise tax
936
828
108
13.0
%
Computer software
428
522
(94
)
-18.0
%
Data processing
1,159
1,467
(308
)
-21.0
%
FDIC deposit insurance assessment
362
290
72
24.8
%
Marketing, advertising and promotion
521
433
88
20.3
%
Professional fees
681
587
94
16.0
%
Core deposit intangible amortization
483
579
(96
)
-16.6
%
Other
1,975
2,707
(732
)
-27.0
%
Total noninterest expense
$
16,468
$
17,505
$
(1,037
)
-5.9
%
Noninterest expense for the six months ended June 30, 2026 of $16.5 million was $1.0 million or 5.9% less than the six months ended June 30, 2025. This decrease is primarily due to the same factors discussed above.
Efficiency Ratio
The efficiency ratio (FTE) was 41.6% for the three months ended June 30, 2026 compared to 61.2% for the same quarter of 2025, primarily due to a one time gain on sale of limited partner investment. The efficiency ratio (FTE) of 47.9% for the six months ended June 30, 2026 improved from 61.8% realized in the six months ended June 30, 2025, as all the components of the ratio improved for both the quarter to date and year to date periods of 2026 compared to 2025. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP presentations section for a reconcilement of GAAP to Non-GAAP efficiency ratio.
41
Provision for Income Taxes
For the three months ended June 30, 2026 and 2025, the Company provided $2.3 million and $1.2 million for Federal income taxes, respectively, resulting in effective income tax rates of 20.1% and 21.9%, respectively. For the six months ended June 30, 2026 and 2025, the Company provided $3.5 million and $2.1 million for Federal income taxes, respectively, resulting in effective tax rates of 19.9% and 19.3%, respectively. For each period, the effective income tax rate differed from the U.S. statutory rate of 21% due to the changes in pretax earnings, low-income housing tax credits and the levels of permanent tax differences.
OTHER SIGNIFICANT EVENTS
None
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level. There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of its operations, the Company and/or its subsidiaries are parties to various legal proceedings from time to time. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome of such proceedings, in the aggregate, will not have a material adverse effect on the business or financial condition of the Company and its subsidiary.
ITEM 1A. RISK FACTORS.
During the quarter ended June 30, 2026, there have been no material changes from the risk factors described in the Company’s Form 10-K for the year ended December 31, 2025. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered not to be material also may materially adversely affect our business, financial condition and/or operating results.
42
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) Sales of Unregistered Securities - None
(b) Use of Proceeds - Not Applicable
(c) Issuer Purchases of Securities - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable
ITEM 5. OTHER INFORMATION.
(a)
Required 8-K disclosures.
None
(b)
Changes in procedures for director nominations by security holders.
None
(c) Rule 10b5-1 Trading arrangements
During the three months ended June 30, 2026 none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Exchange Act of 1934).
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2026, formatted in Inline eXtensible Business Reporting Language, pursuant to Rule 405 of Regulation S-T (1): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Shareholders' Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited), tagged as blocks of text and including detailed tags
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2026, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101)
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIRGINIA NATIONAL BANKSHARES CORPORATION
(Registrant)
/s/ Glenn W. Rust
Glenn W. Rust
President and Chief Executive Officer
(principal executive officer)
Date:
August 13, 2026
/s/ Cathy W. Liles
Cathy W. Liles
Executive Vice President and Chief Financial Officer