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What changed in Virginia National Bankshares Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Virginia National Bankshares Corp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+276 added−250 removedSource: 10-K (2025-03-28) vs 10-K (2024-03-28)

Top changes in Virginia National Bankshares Corp's 2024 10-K

276 paragraphs added · 250 removed · 211 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

55 edited+37 added−20 removed116 unchanged
Biggest changeThe Company strives to ensure that its constituents believe in it as well, including its shareholders, customers, board, executive management and high performing employees. The Company believes that the shared vision, when properly aligned and communicated to all constituents, will produce more than above average performance in key metrics.
Biggest changeThe Company believes that the shared vision, when properly aligned and communicated to all constituents, will produce more than above average performance in key metrics. As part of the shared vision, the Company is committed to its shareholders, customers, employees and communities. A critical part of this commitment is attracting and retaining high performing employees.
The BHCA and related regulations require, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company.
The BHCA and related regulations require, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company.
The Basel III Final Rules also include a requirement that banks maintain additional capital known as the “capital conservation buffer.” 10 The Basel III Final Rules and capital conservation buffer require banks and bank holding companies to maintain: i. a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the minimum CET1 ratio, effectively resulting in a required ratio of CET1 to risk-weighted assets of at least 7.0%); ii. a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (effectively resulting in a required Tier 1 capital ratio of 8.5%); iii. a minimum ratio of total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (effectively resulting in a required total capital ratio of 10.5%), and iv. a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average total assets, subject to certain adjustments and limitations.
The Basel III Final Rules also include a requirement that banks maintain additional capital known as the “capital conservation buffer.” 11 The Basel III Final Rules and capital conservation buffer require banks and bank holding companies to maintain: i. a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the minimum CET1 ratio, effectively resulting in a required ratio of CET1 to risk-weighted assets of at least 7.0%); ii. a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a required Tier 1 capital ratio of 8.5%); iii. a minimum ratio of total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a required total capital ratio of 10.5%), and iv. a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average total assets, subject to certain adjustments and limitations.
Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 12 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the Bank’s unimpaired capital and unimpaired surplus.
Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the Bank’s unimpaired capital and unimpaired surplus.
Small creditors are those financial institutions that meet the following requirements: (i) have assets below $2 billion (adjustable annually by CFPB); (ii) originated no more than 2 thousand first-lien, closed-end residential mortgages subject to the ability-to-repay requirements in the preceding calendar year; and (iii) hold the qualified mortgage loan in its portfolio after origination.
Small creditors are those financial institutions that meet the following requirements: (i) have assets below $2 billion (adjustable annually by CFPB); (ii) originated no more than 2 thousand first-lien, closed-end residential mortgages 17 subject to the ability-to-repay requirements in the preceding calendar year; and (iii) hold the qualified mortgage loan in its portfolio after origination.
As required by the Dodd-Frank Act, the FDIC has adopted a large-bank pricing assessment scheme, set a target “designated reserve ratio” (described in more detail below) of 2 percent for the DIF and, in lieu of dividends, provides for a lower assessment rate schedule when the reserve ratio reaches 2 percent and 2.5 percent.
As required by the Dodd-Frank Act, the FDIC has adopted a large-bank pricing assessment scheme, set a target “designated reserve ratio” (described in more detail below) of 2% for the DIF and, in lieu of dividends, provides for a lower assessment rate schedule when the reserve ratio reaches 2% and 2.5%.
The appropriate federal banking agency for an undercapitalized institution also may take any number of 11 discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the DIF, subject in certain cases to specified procedures.
The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the DIF, subject in certain cases to specified procedures.
In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. 9 Capital Requirements . The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets.
In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. Capital Requirements . The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets.
This increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio reaches 1.35 percent by the statutory deadline of September 30, 2028. The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2 percent.
This increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio reaches 1.35% by the statutory deadline of September 30, 2028. The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2%.
Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.
Notification is required for incidents that have 15 materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.
The CFPB supervises and regulates providers of consumer financial products and 14 services, and has rulemaking authority in connection with numerous federal consumer financial protection laws (for example, but not limited to, the Truth-in-Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), the Electronic Funds Transfer Act (EFTA), the Equal Credit Opportunity Act (ECOA), the Home Ownership and Equity Protection Act (HOEPA), the Fair Credit and Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA) and the Home Mortgage Disclosure Act (HMDA)).
The CFPB supervises and regulates providers of consumer financial products and services, and has rulemaking authority in connection with numerous federal consumer financial protection laws (for example, but not limited to, the Truth-in-Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), the Electronic Funds Transfer Act (EFTA), the Equal Credit Opportunity Act (ECOA), the Home Ownership and Equity Protection 16 Act (HOEPA), the Fair Credit and Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA) and the Home Mortgage Disclosure Act (HMDA)).
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of being “well capitalized” as of December 31, 2023. As described above in “The Bank – Regulatory Capital Requirements,” the capital rules issued by the OCC incorporate new requirements into the prompt corrective action framework.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of being “well capitalized” as of December 31, 2024. As described above in “The Bank – Regulatory Capital Requirements,” the capital rules issued by the OCC incorporate new requirements into the prompt corrective action framework.
The FCLA runs as an in-person series of classroom meetings, currently held in Charlottesville and Warrenton, Virginia. This program is offered free-of-charge to those students accepted into the FCLA. Up to eight students are accepted into each session.
Currently held in Charlottesville, Virginia, the FCLA runs as an in-person series of classroom meetings. This program is offered free-of-charge to those students accepted into the FCLA. Up to eight students are accepted into each session.
Social In an effort to develop young talent in the financial industry, the Company has created the Finance Career & Leadership Academy (FCLA), which is an instructional program designed to not only provide advanced personal finance and employment readiness training, but also a path to career opportunities in banking for high school juniors and seniors within our communities.
Social To develop young talent in the financial industry, the Company has created the Finance Career & Leadership Academy ("FCLA"), which is an instructional program designed to not only provide advanced personal finance and employment readiness training, but also a path to career opportunities in banking for high school juniors and seniors within the Company's communities.
As a result of this final rule, the total base assessment rates beginning with the first quarter of 2023 for institutions with less than $10 billion in assets that have been insured for at least five years range from 2.5 to 32 basis points.
As a result of this final rule, the total base assessment rates beginning with the first quarter of 2023 for institutions with less than $10 billion in assets that have been insured for at least five years range from 2.5 bps to 32 bps.
While this proposed rule, if implemented, would not apply to banks with less than $10 billion in assets, including the Bank, the Bank cannot determine the ultimate impact such a regulatory change would have on the broader market for overdraft products and services, which may include a downward pressure on the interest and fees that a bank is able to charge for consumer transactions that overdraw deposit accounts.
While this rule does not apply to banks with less than $10 billion in assets, including the Bank, the Bank cannot determine the ultimate impact such a regulatory change would have on the broader market for overdraft products and services, which may include a downward pressure on the interest and fees that a bank is able to charge for consumer transactions that overdraw deposit accounts.
In determining whether to approve a proposed acquisition, the Federal Reserve will consider, among other factors, the following: the effect of the acquisition on competition; the public benefits expected to be received from the acquisition; any outstanding regulatory compliance issues of any institution that is a party to the transaction; the projected capital ratios and levels on a post-acquisition basis; the financial condition of each institution that is a party to the transaction and of the combined institution after the transaction; the parties’ managerial resources, as well as risk management and governance processes and systems; the parties’ compliance with the Bank Secrecy Act and anti-money laundering requirements; and the acquiring institution’s performance under the CRA and its compliance with fair housing and other consumer protection laws.
In determining whether to approve a proposed acquisition, the Federal Reserve will consider, among other factors, the following: the effect of the acquisition on competition; the public benefits expected to be received from the acquisition; any outstanding regulatory compliance issues of any institution that is a party to the transaction; the projected capital ratios and levels on a post-acquisition basis; the financial condition of each institution that is a party to the transaction and of the combined institution after the transaction; the parties’ managerial resources, as well as risk management and governance processes and systems; the parties’ compliance with the Bank Secrecy Act and anti-money laundering requirements; the acquiring institution’s performance under the CRA and its compliance with fair housing and other consumer protection laws; and the data security and cybersecurity infrastructure of the constituent organizations and the combined organization.
For the purposes of these capital rules, (i) CET1 capital consists principally of common stock (including surplus) and retained earnings; (ii) Tier 1 capital consists principally of CET1 plus non-cumulative preferred stock and related surplus, and certain grandfathered cumulative preferred stocks and trust preferred securities; and (iii) Tier 2 capital consists of other capital instruments, principally qualifying subordinated debt and preferred stock, and limited amounts of an institution’s allowance for credit losses.
For the purposes of these capital rules, (i) CET1 capital consists principally of common stock (including surplus) and retained earnings; (ii) Tier 1 capital consists principally of CET1 plus non-cumulative preferred stock and related surplus, and certain grandfathered cumulative preferred stocks and trust preferred securities; and (iii) Tier 2 capital consists of other capital instruments, principally qualifying subordinated debt and preferred stock, and limited amounts of an institution’s ACL.
The Bank exceeds the thresholds to be considered well capitalized as of December 31, 2023. See “Prompt Corrective Action” below.
The Bank exceeds the thresholds to be considered well capitalized as of December 31, 2024. See “Prompt Corrective Action” below.
For example, under the Federal Deposit Insurance Company Improvement Act of 1991, to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.
For example, under the Federal Deposit Insurance Company Improvement Act of 1991, to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan. 10 Under the Federal Deposit Insurance Act, the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards.
The Bank is exempt from the VCDPA, but certain third-party vendors of the Company or the Bank are subject to the VCDPA, which could negatively impact the products or services that we obtain from those vendors.
The Bank is exempt from the VCDPA, but certain third-party vendors of the Company or the Bank are subject to the VCDPA, which could negatively impact the products or services that the Company obtains from those vendors.
Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity. 8 Banking Acquisitions; Changes in Control .
Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
At December 31, 2023, 35% of our employees have been employed by the Company or its subsidiaries for at least 10 years. The Company owns BOLI policies on each executive officer and certain other senior officers of the Company.
At December 31, 2024, 35% of the Company's employees have been employed by the Company or its subsidiaries for at least 10 years. The Company owns BOLI policies on each executive officer and certain other senior officers of the Company.
On January 17, 2024, the CFPB proposed amendments to Regulation E and Regulation Z that would impose the disclosure requirements of TILA on extensions of overdraft credit, with certain exemptions, for financial institutions with greater than $10 billion in assets.
In January 2025, the CFPB adopted amendments to Regulation E and Regulation Z that would impose the disclosure requirements of TILA on extensions of overdraft credit, with certain exemptions, for financial institutions with greater than $10 billion in assets.
These laws and regulations impose compliance costs and create obligations and, in some cases, reporting obligations, and compliance with these laws, regulations, and obligations may require us to use significant resources. 13 Anti-Money Laundering Laws and Regulations.
These laws and regulations impose compliance costs and create obligations and, in some cases, reporting obligations, and compliance with these laws, regulations, and obligations may require the Company to use significant resources. Anti-Money Laundering Laws and Regulations.
Based on existing regulatory guidance, the Company and the Bank are expected to consider the institution’s interest rate risk management, commercial real estate loan concentrations and other credit-related information, and funding and liquidity management during this analysis of adverse market conditions or outcomes. Consumer Financial Protection .
Based on existing regulatory guidance, the Company and the Bank are expected to consider the institution’s interest rate risk management, commercial real estate loan concentrations and other credit-related information, and funding and liquidity management during this analysis of adverse market conditions or outcomes. Call Reports and Examination Cycle .
The Company expects that its trust preferred securities will be included in the Company’s regulatory capital as Tier 1 capital instruments until their maturity. The Tier 1, CET1, total capital to risk-weighted assets, and leverage ratios of the Company were 17.41%, 17.41%, 18.24% and 11.13%, respectively, as of December 31, 2023, thus exceeding the minimum requirements.
The Company expects that its trust preferred securities will be included in the Company’s regulatory capital as Tier 1 capital instruments until their maturity. The Tier 1, CET1, total capital to risk-weighted assets, and leverage ratios of the Company were 17.94%, 17.94%, 18.77% and 11.68%, respectively, as of December 31, 2024, thus exceeding the minimum requirements.
The Tier 1, CET1, total capital to risk-weighted assets, and leverage ratios of the Bank were 17.29%, 17.29%, 18.12% and 11.05%, respectively, as of December 31, 2023, also exceeding the minimum requirements.
The Tier 1, CET1, total capital to risk-weighted assets, and leverage ratios of the Bank were 17.77%, 17.77%, 18.60% and 11.55%, respectively, as of December 31, 2024, also exceeding the minimum requirements.
As of December 31, 2023, the Bank has not elected to apply the CBLR framework, but the Bank continues to assess the potential impact of opting in to the CBLR framework as part of its ongoing capital management and planning processes. Prompt Corrective Action .
As of December 31, 2024, the Bank has not elected to apply the CBLR framework, but the Bank continues to assess the potential impact of opting in to the CBLR framework as part of its ongoing capital management and planning processes. Small Bank Holding Company Policy Statement .
The proposed rules also impose additional corporate governance requirements on the boards of directors of covered financial institutions and impose additional record-keeping requirements. The comment period for these proposed rules has closed and a final rule has not yet been published. If the rules are adopted as proposed, they will restrict the manner in which executive compensation is structured.
The proposed rules also impose additional corporate governance requirements on the boards of directors of covered financial institutions and impose additional record-keeping requirements. The comment period for these proposed rules closed and a final rule has not yet been published.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. ​In 2016, the SEC and the federal banking agencies proposed rules that prohibit covered financial institutions (including bank holding companies and banks) from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk-taking by providing covered persons (consisting of senior executive officers and significant risk takers, as defined in the rules) with excessive compensation, fees or benefits that could lead to material financial loss to the financial institution.
In 2016, the SEC and the federal banking agencies proposed rules that prohibit covered financial institutions (including bank holding companies and banks) from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk-taking by providing covered persons (consisting of senior executive officers and significant risk takers, as defined in the rules) with excessive compensation, fees or benefits that could lead to material financial loss to the financial institution.
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products and services.
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products and services. Based on its expected asset size, the Company expects to begin complying with this rule in 2028 or 2029.
The subordinated debt owed to Trust II is reported as a liability of the Company. The main offices of the Company, the Bank, Masonry Capital and VNB Trust Estate Services, as well as corporate and Bank operations, are located in Charlottesville, Virginia.
The main offices of the Company, the Bank and VNB Trust Estate Services, as well as corporate and Bank operations, are located in Charlottesville, Virginia.
In addition, the Bank is affiliated with Visa ® and MasterCard ® , which are accepted worldwide, and offers debit cards to consumer and business customers. The Bank also offers short to long term commercial, real estate and consumer loans.
Other services offered by the Bank include ATMs, internet banking, treasury and cash management services and merchant card services. In addition, the Bank is affiliated with Visa ® , which is accepted worldwide, and offers debit cards to consumer and business customers. The Bank also offers short- to long-term commercial, real estate and consumer loans.
Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance.
Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. Small creditors, as described below, may originate qualified mortgages that are not restricted by the specific DTI threshold (however, the DTI must still be considered).
Note that the membership interests in this business line are planned to be sold to an officer of the Company effective April 1, 2024. Subsequent to the date of sale, the Company will receive an annual revenue-share amount for a period of six years.
The membership interests in this business line were sold to an officer of the Company effective April 1, 2024. Per the terms of the sale agreement, the Company will receive an annual revenue-share amount for a period of six years. No expenses have been or will be incurred by the Company related to Masonry Capital subsequent to April 1, 2024.
In order to begin a successful career and have a successful financial future, these young adults must be prepared to effectively communicate with a multi-generational workforce and have the skills necessary to manage their own finances intelligently and productively. 7 Employees The Company has a shared vision of guiding principles, core values and strategies that work and have guided the Company through both good and challenging times.
In order to begin a successful career and have a successful financial future, these young adults must be prepared to effectively communicate with a multi-generational workforce and have the skills necessary to manage their own finances intelligently and productively.
No expenses will be incurred by the Company related to Masonry Capital subsequent to April 1, 2024. References to the Company’s subsidiaries in this document include both the Bank and Masonry Capital. In addition, the Company owns Fauquier Statutory Trust II (“Trust II”), which is an unconsolidated subsidiary.
References to the Company’s subsidiaries in this document include both the Bank and Masonry Capital. In addition, the Company owns Fauquier Statutory Trust II (“Trust II”), which is an unconsolidated subsidiary. The subordinated debt owed to Trust II is reported as a liability of the Company.
The Bank is evaluating the expected impact of the modernized CRA regulations, but currently does not anticipate any material impact to its business, operations or financial condition due to the modified CRA regulations. Confidentiality of Customer Information .
The Bank is evaluating the expected impact of the modernized CRA regulations, but currently does not anticipate any material impact to its business, operations or financial condition due to the modified CRA regulations. The legality of the modernized CRA regulations is being challenged and a preliminary injunction against enforcing new rules implementing the modified CRA regulations has been granted.
The Company is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation, and examination by the Bureau of Financial Institutions of the Virginia State Corporation Commission. Permitted Activities .
The Company is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation, and examination by the Bureau of Financial Institutions of the Virginia State Corporation Commission. Regulatory Environment . Banking and other financial services statutes, regulations and policies are continually under review by Congress, state legislatures and federal and state regulatory agencies.
Effective July 1, 2018, VNBTrust was merged into the Bank. The Bank continues to offer trust and estate administration services under the name of VNB Trust and Estate Services. The Bank offered wealth and investment advisory services under the name Sturman Wealth Advisors, formerly known as VNB Investment Services, until the sale of the business line effective December 19, 2022.
Effective July 1, 2018, VNBTrust was merged into the Bank. The Bank continues to offer trust and estate administration services under the name of VNB Trust and Estate Services.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov . 17
The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov . 18
Prior to the Reorganization in 2013, the Bank filed the periodic and annual reports required under the Exchange Act with the OCC. Annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, plus any amendments to these reports, are available, free of charge, at www.vnbcorp.com .
Annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, plus any amendments to these reports, are available, free of charge, at www.vnbcorp.com . The Company’s SEC filings are posted and available as soon as reasonably practicable after the reports are filed electronically with the SEC.
Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks, including the Company, in the past and are expected to do so in the future. 16 Reporting Obligations under Securities Laws; Availability of Information The Company is subject to the periodic and other reporting requirements of the Exchange Act, including the filing of annual, quarterly and other reports with the SEC.
Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks, including the Company, in the past and are expected to do so in the future.
At December 31, 2023, the Company had 155 full-time equivalent employees, of which 8 were part-time employees. None of its employees are represented by any collective bargaining unit. The Company considers relations with its employees to be good. We strive for our workforce to reflect the diversity of the customers and communities we serve.
To 8 attract and retain high performing employees, the Company provides a competitive compensation and benefits program, including wellness benefits. At December 31, 2024, the Company had 146 full-time equivalent employees, of which 9 were part-time employees. None of its employees are represented by any collective bargaining unit. The Company considers relations with its employees to be good.
To qualify, a financial institution must not share nonpublic personal information about customers except as described in certain statutory exceptions which do not trigger a customer’s statutory opt-out right. In addition, the financial institution must not have changed its disclosure policies and practices from those disclosed in its most recent privacy notice.
Under this rule, certain qualifying financial institutions are not required to provide annual privacy notices to customers. To qualify, a financial institution must not share nonpublic personal information about customers except as described in certain statutory exceptions which do not trigger a customer’s statutory opt-out right.
Our selection and promotion process are without bias and include the active recruitment of minorities and women. At December 31, 2023, women represented 73% of our employees and racial and ethnic minorities represented 20% of our employees. We also aim for our employees to develop their careers in our businesses.
We strive for the Company's workforce to reflect the diversity of the customers and communities we serve. The Company's selection and promotion process are without bias and include the active recruitment of minorities and women. At December 31, 2024, women represented 75% of the Company's employees and racial and ethnic minorities represented 17% of the Company's employees.
In connection with the transaction, TFB, Fauquier's wholly-owned bank subsidiary, was merged with and into the Bank. 6 Products and Services The Bank offers a full range of banking and related financial services, including checking accounts, NOW accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, CDARS™, ICS ® and other depository services.
Products and Services The Bank offers a full range of banking and related financial services, including checking accounts, NOW accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, CDARS™, ICS ® and other depository services. The Bank actively solicits such accounts from individuals, businesses and charitable organizations within its trade areas.
Properties for additional information regarding locations. The Bank’s locations are well-positioned in attractive markets. Within its market areas, there are various types of industry including higher education, medical and professional services, research and development companies and retail. Competition The Company engages in highly competitive activities.
Within its market areas, there are various types of industry including higher education, medical and professional services, research and development companies and retail. Competition The Company engages in highly competitive activities. Each activity involves competition with other banks, as well as with non-banking enterprises that offer financial products and services that compete directly with the Company’s product and service offerings.
The Company and the Bank are subject to various laws and regulations that address the privacy of nonpublic personal financial information of customers. A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information.
A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information.
Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy laws and regulations generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.
These privacy laws and regulations generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer. 14 The CFPB published its final rule to update Regulation P pursuant to the amended Gramm-Leach-Bliley Act in 2018.
The Company, as a small creditor, does comply with the “qualified mortgage rules” and the other applicable TILA requirements. Incentive Compensation . Federal banking agencies have issued regulatory guidance (the Incentive Compensation Guidance) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
The Company, as a small creditor, does comply with the “qualified mortgage rules” and the other applicable TILA requirements. Incentive Compensation .
The impact of such changes on the Bank or its financial condition and results of operations cannot be determined at this time, but the Bank will continue to monitor developments related to this proposed rule and the CFPB’s broader policy agenda. Mortgage Banking Regulation.
The impact of such changes on the Bank or its financial condition and results of operations cannot be determined at this time. Beginning in January 2025, multiple lawsuits challenging these amendments were filed, and these rules may be subject to the presidential memo titled “Regulatory Freeze Pending Review” described above. Mortgage Banking Regulation.
The Company updated its previous compensation recovery policy to comply with the new Nasdaq listing rule and the policy is included as Exhibit 97 to this Annual Report on Form 10-K. Future Regulation From time-to-time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies.
The SEC and Federal Reserve did not join in such re-proposal, and on March 3, 2025, the FDIC withdrew this proposal. Future Regulation From time-to-time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies.
The financial instruments used include common and preferred stock, corporate bonds, bank loans and other debt securities, convertible securities, Exchange Traded Funds, options, warrants and cash equivalents. The Company primarily serves the Virginia communities in and around the cities of Charlottesville, Winchester, Manassas and Richmond, and the counties of Albemarle, Fauquier, Frederick and Prince William. Refer to Item 2.
Trust and estate administration services are offered through VNB Trust and Estate Services. 7 The Company primarily serves the Virginia communities in and around the cities of Charlottesville, Winchester, Manassas and Richmond, and the counties of Albemarle, Fauquier, Frederick and Prince William. Refer to Item 2. Properties for additional information regarding locations. The Bank’s locations are well-positioned in attractive markets.
Removed
Merger with Fauquier Bankshares, Inc. and The Fauquier Bank On April 1, 2021, the Company merged with Fauquier, pursuant to the Agreement and Plan of Reorganization dated September 30, 2020, including a related Plan of Merger.
Added
This program also offers the potential opportunity for training necessary to enter a lucrative career without incurring six-figure debt and four lost years of earning potential, as the most promising and top performing students from the Academy are considered for VNB’s College Program (the Commercial Banking/Staff Development Program).
Removed
Pursuant to the Merger Agreement, Fauquier shareholders received 0.675 shares of Company stock for each share of Fauquier common stock, with cash paid in lieu of fractional shares, resulting in the Company issuing 2,571,213 shares of common stock.
Added
The Company's partnership with the Center for Financial Training and Education Alliance (CFTEA) has allowed the Company to create a credentialing program specifically designed to prepare students to meet the demands of the industry, and to do so without the prohibitive cost of a four-year degree.
Removed
The Bank actively solicits such accounts from individuals, businesses and charitable organizations within its trade areas. Other services offered by the Bank include ATMs, internet banking, treasury and cash management services and merchant card services.
Added
This bank-sponsored, comprehensive, free training program consists of 16 courses of which 13 are accredited college/university courses (39 credit hours that are transferable to a 2 or 4-year college/university) and work projects.
Removed
Trust and estate administration services are offered through VNB Trust and Estate Services. Investment management services are offered through Masonry Capital, whose flagship product for separately managed accounts and a private investment fund employs a value-based, catalyst-driven investment strategy.
Added
Participants receive full-time pay with full fringe benefits (includes 401k with company match) while completing the program and, if successful in the program, have the potential opportunity for a career with VNB. Also, once employed, should they choose, they may go on to complete a 2 or 4-year degree at the Company’s expense.
Removed
Each activity involves competition with other banks, as well as with non-banking enterprises that offer financial products and services that compete directly with the Company’s product and service offerings.
Added
Employees The Company has a shared vision of guiding principles, core values and strategies that work and have guided the Company through both good and challenging times. The Company strives to ensure that its constituents, including its shareholders, customers, board, executive management and high performing employees, believe in it as well.
Removed
As part of the shared vision, the Company is committed to its shareholders, customers, employees and communities. A critical part of this commitment is attracting and retaining high performing employees. To attract and retain high performing employees, the Company provides a competitive compensation and benefits program, including wellness benefits.
Added
The scope of the laws and regulations, and the intensity of the supervision to which the Company and its subsidiaries are subject, have increased in recent years, initially in response to the 2008 financial crisis, and more recently in light of other factors, including continued turmoil and stress in the financial markets, technological factors, market changes, and increased scrutiny of proposed bank mergers and acquisitions by federal and state bank regulators.
Removed
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy, which, among other initiatives, encouraged the review of current practices and adoption of a plan for the revitalization of merger oversight under the BHCA and the Bank Merger Act.
Added
Proposals to change the laws, regulations and policies governing the banking industry are frequently raised at both the state and federal levels.
Removed
Making any formal changes to the framework for evaluating bank mergers would require an extended process, and any such changes are uncertain and cannot be predicted at this time. However, the adoption of more expansive or stringent standards may have an impact on the Company’s acquisition activity.
Added
The Trump administration may seek to implement a regulatory reform agenda that is significantly different than the agenda and policies of the previous administration, which the Company expects may significantly impact the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies. On January 20, 2025, President Donald J.
Removed
Additionally, this Executive Order could influence the federal bank regulatory agencies’ expectations and supervisory oversight for banking acquisitions.
Added
Trump issued a presidential memorandum titled “Regulatory Freeze Pending Review” that directs federal agencies to (1) not propose or issue any rules until they are reviewed and approved by a department or agency head appointed by the President, (2) immediately withdraw any unpublished rules to allow for the review by a department or agency head as described above, and (3) consider postponing for 60 days from the date of the executive order the effective date for any rules that have been published in the Federal Register, or any rules that have been issued but have not taken effect, to allow for review of any questions of fact, law or policy.
Removed
Under the Federal Deposit Insurance Act, the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards.
Added
Subsequent to that presidential memorandum, the administration has taken actions that have reduced available staffing at certain regulatory agencies, and reduced the current regulatory and enforcement activities of certain regulatory agencies, among other substantive impacts.
Removed
Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2 percent, and again when it reaches 2.5 percent. In 2023 and 2022, the Company expensed $710 thousand and $511 thousand, respectively, in deposit insurance assessments. Transactions with Affiliates .
Added
The Company continues to experience ongoing regulatory reform and these regulatory changes could have a significant effect on how the Company and the Bank conduct business. The specific impacts of regulatory reforms cannot yet be fully predicted and will depend to a large extent on the specific regulations that are likely to be adopted in the future.
Removed
The CFPB published its final rule to update Regulation P pursuant to the amended Gramm-Leach-Bliley Act in 2018. Under this rule, certain qualifying financial institutions are not required to provide annual privacy notices to customers.
Added
Further, a change in the manner in which laws, regulations and regulatory guidance are interpreted by regulatory agencies or courts may have a material impact on the Company’s business, operations and earnings. 9 Permitted Activities .
Removed
For banks with over $850 million and less than $50 billion in total assets, such as the Bank, compliance would be required approximately two and one-half years after adoption of the final rule.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

42 edited+11 added−6 removed145 unchanged
Biggest changeAny deterioration of the borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have 18 a material adverse effect on its financial condition and results of operations. Steps to mitigate such risks include underwriting multiple sources of repayment, including but not limited to, business cash flow, personal guarantees, collateral, and government guarantees, where applicable.
Biggest changeSteps to mitigate such risks include underwriting multiple sources of repayment, including but not limited to, business cash flow, personal guarantees, collateral, and government guarantees, where applicable. Although the Company has taken these mitigation steps, there is no guarantee that such practices will be effective to prevent the increased credit risk.
There is no assurance that any such losses would not materially and adversely affect results of operations. 24 The Company’s operations may be adversely affected by cybersecurity risks. In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information related to its customers and employees in systems and on networks.
There is no assurance that any such losses would not materially and adversely affect results of operations. The Company’s operations may be adversely affected by cybersecurity risks. In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information related to its customers and employees in systems and on networks.
The Company’s plans to expand could depress earnings in the short run, even if it efficiently executes a growth strategy leading to long-term financial benefits. Operational Risks The Company is subject to a variety of operational risks, including reputational risk, legal and compliance risk, and the risk of fraud or theft by employees or outsiders.
The Company’s plans to expand could depress earnings in the short run, even if it efficiently executes a growth strategy leading to long-term financial benefits. 24 Operational Risks The Company is subject to a variety of operational risks, including reputational risk, legal and compliance risk, and the risk of fraud or theft by employees or outsiders.
The loss of these revenue streams and the loss of deposits as a lower cost source of funds could have a material adverse effect on our financial condition and results of operations. The Company’s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies into its operations.
The loss of these revenue streams and the loss of deposits as a lower cost source of funds could have a material adverse effect on the Company's financial condition and results of operations. The Company’s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies into its operations.
If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of the Company’s ongoing monitoring of internal control, it may discover material weaknesses or significant deficiencies in its internal control 23 that require remediation.
If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of the Company’s ongoing monitoring of internal control, it may discover material weaknesses or significant deficiencies in its internal control that require remediation.
Although the Company has taken these mitigation steps, there is no guarantee that such practices will be effective to prevent the increased credit risk. The Company’s results of operations are significantly affected by the ability of borrowers to repay their loans.
Although the Company has taken these mitigation steps, there is no guarantee that such practices will be effective to prevent the increased credit risk. 20 The Company’s results of operations are significantly affected by the ability of borrowers to repay their loans.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. 25 The Company is currently facing increased regulation and supervision of its industry. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. The Company is currently facing increased regulation and supervision of its industry. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes.
This competition could increase prices for 22 potential acquisitions that the Company believes are attractive. Acquisitions may also be subject to various regulatory approvals. If the Company fails to receive the appropriate regulatory approvals, it will not be able to consummate acquisitions that it believes are in its best interests.
This competition could increase prices for potential acquisitions that the Company believes are attractive. Acquisitions may also be subject to various regulatory approvals. If the Company fails to receive the appropriate regulatory approvals, it will not be able to consummate acquisitions that it believes are in its best interests.
Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect the Company’s business and financial condition. Regulations issued by the CFPB could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.
Further, 27 any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect the Company’s business and financial condition. Regulations issued by the CFPB could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.
Furthermore, the Company may not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.
Furthermore, the Company may not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with the Company, particularly where such information is transmitted by electronic means.
Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, results in loss of revenue and/or cause the Company to incur additional expenses.
Such events could affect the stability of the deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, results in loss of revenue and/or cause the Company to incur additional expenses.
Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject the Company to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage the Company’s reputation and otherwise adversely affect its operations, financial condition and results of operations. 26 The Company’s business and earnings are impacted by governmental, fiscal and monetary policy over which it has no control.
Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject the Company to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage the Company’s reputation and otherwise adversely affect its operations, financial condition and results of operations. 28 The Company’s business and earnings are impacted by governmental, fiscal and monetary policy over which it has no control.
If the interest rates paid on deposits and other borrowings increase at a faster 21 rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected.
The Company has adopted underwriting 19 and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss.
The Company has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss.
A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to the Company’s reputation, which could adversely affect its business and financial condition.
A breach in security could result in legal claims, regulatory penalties, disruption 26 in operations, and damage to the Company’s reputation, which could adversely affect its business and financial condition.
If some investors find the Company’s common stock less attractive because the Company may rely on these reduced disclosure obligations, there may be a less active trading market for its common stock and its stock price may be more volatile. 27 While the Company’s common stock is currently listed on the Nasdaq Capital Market, it has less liquidity than stocks for larger companies listed on national securities exchanges.
If some investors find the Company’s common stock less attractive because the Company may rely on these reduced disclosure obligations, there may be a less active trading market for its common stock and its stock price may be more volatile. 29 While the Company’s common stock is currently listed on the Nasdaq Capital Market, it has less liquidity than stocks for larger companies listed on national securities exchanges.
Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also have a material adverse effect on the Company’s business, financial condition or results of operations. There is no assurance that this discussion covers all potential risks that the Company faces.
Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also have a material adverse effect on the Company’s business, financial condition or results of operations. There is no assurance that this discussion covers all potential risks that the Company may face.
The level of the allowance reflected management’s evaluation of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions.
The level of the ACL reflected management’s evaluation of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions.
Although the Company believed the ACL was a reasonable estimate of known and inherent losses in the loan portfolio at the time, it could not precisely predict such losses or be certain that the loan loss allowance would be adequate in the future.
Although the Company believed the ACL was a reasonable estimate of known and inherent losses in the loan portfolio at the time, it could not precisely predict such losses or be certain that the ACL would be adequate in the future.
Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.
Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on the Company's business, financial condition and results of operations.
While the adoption of ASC 326 will not affect ultimate loan performance or cash flows of the Company from making loans, the period in which expected credit losses affect net income of the Company may not be similar to the recognition of loan losses under prior accounting guidance, and recognizing an allowance based on expected credit losses may create more volatility in the level of our ACL and our results of operations, including based on volatility in economic forecasts and our expectations of loan performance in future periods, as actual results may differ materially from our estimates.
While the adoption of ASC 326 does not affect ultimate loan performance or cash flows of the Company from making loans, the period in which expected credit losses affect net income of the Company may not be similar to the recognition of loan losses under prior accounting guidance, and recognizing an ACL based on expected credit losses may create more volatility in the level of the Company's ACL and results of operations, including based on volatility in economic forecasts and expectations of loan performance in future periods, as actual results may differ materially from management's estimates.
Severe weather, earthquakes, other natural disasters, pandemics, endemics, acts of war or terrorism and other external events could significantly impact our business. Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
Severe weather, earthquakes, other natural disasters, pandemics, endemics, acts of war or terrorism and other external events could significantly impact the Company's business. Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other adverse external events could have a significant impact on the Company's ability to conduct business.
In addition, bank regulatory agencies and the Company’s auditors periodically reviewed its ACL and may have required an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different from those of management. No adjustments to the ACL have been recommended or required as a result of audits.
In addition, bank regulatory agencies and the Company’s auditors periodically reviewed its ACL and may have required an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different from those of management.
These types of loans are generally viewed as having higher risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the property to service the debt, successful completion of construction projects and, for development loans, sale of the underlying asset.
They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the property to service the debt, successful completion of construction projects and, for development loans, sale of the underlying asset.
As of December 31, 2023, approximately 25.5% of our deposits were uninsured and we rely on these deposits for liquidity. Accordingly, the Company may be required from time-to-time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations.
As of December 31, 2024, approximately 27.4% of the Company's deposits were uninsured and the Company relies on these deposits for liquidity. Accordingly, the Company may be required from time-to-time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations.
If we are required to materially increase our level of ACL for any reason, such increase could adversely affect our business, financial condition, and results of operations.
If the Company is required to materially increase the level of ACL for any reason, such increase could adversely affect the Company's business, financial condition, and results of operations.
In addition, any failure to maintain effective controls or to timely effect any necessary improvement of the Company’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Company’s reputation or cause investors to lose confidence in its reported financial information, all of which could have a material adverse effect on its results of operation and financial condition.
In addition, any failure to maintain effective controls or to timely effect any necessary improvement of the Company’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Company’s reputation or cause investors to lose confidence in its reported financial information, all of which could have a material adverse effect on its results of operation and financial condition. 25 The Company depends on the accuracy and completeness of information about customers and counterparties, and the Company’s financial condition could be adversely affected if it relies on misleading or incorrect information.
A key aspect of the Company’s long-term business strategy is its continued growth and expansion. The Company’s ability to continue to grow depends, in part, upon its ability to (i) open new branch offices or acquire existing branches or other financial institutions, (ii) attract deposits to those locations, and (iii) identify attractive loan and investment opportunities.
The Company’s ability to continue to grow depends, in part, upon its ability to (i) open new branch offices or acquire existing branches or other financial institutions, (ii) attract deposits to those locations, and (iii) identify attractive loan and investment opportunities.
The Company’s focus on lending to small to mid-sized community-based businesses may increase its credit risk. Most of the Company’s commercial business and commercial real estate loans are made to small and mid-sized businesses and 501(c)3 organizations.
No adjustments to the ACL have been recommended or required as a result of audits. 19 The Company’s focus on lending to small to mid-sized community-based businesses may increase its credit risk. Most of the Company’s commercial business and commercial real estate loans are made to small and mid-sized businesses and 501(c)3 organizations.
The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Credit risk and credit losses can increase if its loans are concentrated to borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions.
Credit risk and credit losses can increase if its loans are concentrated to borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions. As of December 31, 2024, approximately 76.4% of the Company’s loans are secured by real estate, both residential and commercial.
Further, if the Company needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. 20 An inability to raise additional capital on acceptable terms when needed could have a material adverse impact on the Company’s business, financial condition and results of operations.
Further, if the Company needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors.
Item 1A. RIS K FACTORS. The Company’s business is subject to risk. The following discussion, along with management’s discussion and analysis and the financial statements and footnotes, sets forth the most significant risks and uncertainties that management believes could adversely affect the Company’s business, financial condition or results of operations.
The following discussion, along with management’s discussion and analysis, the information contained in “Forward Looking Statements and Factors that Could Affect Future Results,” and the financial statements and footnotes, sets forth the most significant risks and uncertainties that management believes could adversely affect the Company’s business, financial condition or results of operations, and that investors in the Company’s securities should carefully consider.
As of December 31, 2023, the Company had approximately $396.1 million in loans secured by commercial real estate, which represented approximately 36.3% of total loans outstanding at that date; such loans consist of non-owner occupied commercial real estate, construction, land development, multi-family and other land loans.
As of December 31, 2024, the Company had approximately $453.9 million in loans secured by non-owner occupied commercial real estate, which represented approximately 36.7% of total loans outstanding at that date and 226% of regulatory capital.
Declines in asset values can reduce the value of clients’ portfolios or fund assets, which in turn can result in lower fees earned for managing such assets. Changes in economic conditions, especially in the areas in which the Company conducts operations, could materially and negatively affect its business.
Declines in asset values can reduce the value of clients’ portfolios or fund assets, which in turn can result in lower fees earned for managing such assets. Weaknesses in economic or market conditions, or adverse developments in the financial services industry, could pose challenges for the Company and could adversely affect the results of operations, liquidity, and financial condition [.
Liquidity Risks The Company’s liquidity needs could adversely affect results of operations and financial condition. The Company’s primary sources of funds are deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans.
While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans.
Moreover, a portion of these loans have been made by the Company in recent years and the borrowers may not have experienced a complete business or economic cycle.
Moreover, a portion of these loans have been made by the Company in recent years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on its financial condition and results of operations.
The Company’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, and inflation, all of which are beyond its control.
Deterioration in, or uncertain, economic conditions could adversely affect the Company’s business which is directly affected by general economic and market conditions; broad trends in industry and finance; legislative and regulatory changes; changes in governmental monetary and fiscal policies, including trade policies and tariffs; and inflation, all of which are beyond the Company’s control.
As of December 31, 2023, approximately 82.6% of the Company’s loans are secured by real estate, both residential and commercial. The Company has established concentration limits that are regularly monitored by management and reported to the Board.
The Company has established concentration limits that are regularly monitored by management and reported to the Board.
The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.
This agency’s broad rulemaking authority includes identifying practices or acts that are unfair, deceptive, or abusive in connection with any consumer financial transaction, financial product, or service.
In response, the Federal Reserve increased the federal funds target rate at the fastest pace in over 40 years, increasing 425 bps during 2022 and an additional 100 bps in 2023. Price-wage inflation may cause the Company to give higher than normal raises to employees and start new employees at a higher wage.
During 2022, the United States experienced the highest level of inflation since the 1980s. In response, the Federal Reserve increased the federal funds target rate at the fastest pace in over 40 years, increasing 425 bps during 2022 and an additional 100 bps in 2023, before declining by 100bps during 2024 and early 2025.
The Company had no foreclosed property as of December 31, 2023 or December 31, 2022. Strategic Risks The Company faces strong and growing competition from financial services companies and other companies that offer banking and other financial services, which could negatively affect the Company’s business.
An inability to raise additional capital on acceptable terms when needed could have a material adverse impact on the Company’s business, financial condition and results of operations. 23 Strategic Risks The Company faces strong and growing competition from financial services companies and other companies that offer banking and other financial services, which could negatively affect the Company’s business.
Although the Company has taken these mitigation steps, there is no guarantee that such practices will be effective to prevent the increased credit risk. The Company’s concentration in loans secured by real estate may increase its future credit losses, which would negatively affect the Company’s financial results.
The Company’s concentration in loans secured by real estate may increase its future credit losses, which would negatively affect the Company’s financial results. The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans.
Removed
A deterioration in economic conditions, whether caused by global, national or local concerns, especially within the Company’s market area, could result in the following potentially material consequences: loan delinquencies increasing; problem assets and foreclosures increasing; demand for products and services decreasing; low cost or noninterest bearing deposits decreasing; and collateral for loans, especially real estate, declining in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans.
Added
Item 1A. RIS K FACTORS. The Company’s business is subject to risk.
Removed
A continued economic downturn could result in losses that materially and adversely affect the Company’s business. Inflation can have an adverse impact on the Company’s business and on its customers. During 2022, the United States experienced the highest level of inflation since the 1980s.
Added
Such category of loans consists of $309.8 million of non-owner occupied commercial real estate, $107.2 million of multifamily and $37.0 million of construction, land development and other land loans. These types of loans are generally viewed as having higher risk of default than residential real estate loans.
Removed
The Company depends on the accuracy and completeness of information about customers and counterparties, and the Company’s financial condition could be adversely affected if it relies on misleading or incorrect information.
Added
Prolonged periods of inflation may impact profitability by negatively impacting fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for products and services. Additionally, inflation may lead to a decrease in consumer and commercial purchasing power and an increase in default rates on loans.
Removed
The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers.
Added
Any deterioration in economic conditions, in particular a prolonged economic slowdown within the Company’s geographic region or a broader disruption in the economy, possibly as a result of a pandemic or other widespread public health emergency, acts of terrorism, or outbreak of domestic or international hostilities (including the ongoing military conflicts between Russia and Ukraine or and in the Middle East), or unanticipated events in the banking industry, such as high-profile bank failures in 2023, could result in the following consequences, any of which could hurt business materially; declines in real estate values and home sales and increases in the financial stress on borrowers and unemployment rates, all of which could lead to increases in loan delinquencies, problem assets and foreclosures, and a deterioration in the value of collateral for loans made by the Company's various business segments; an increase in the level of loan losses exceeding the level the Company has provided in its ACL, which would reduce the Company’s earnings; a decline in demand for the Company's products and services; changes in the fair value of financial instruments held by the Company or its subsidiaries; or declines in available sources or amounts of liquidity and funding.
Removed
For example, the CFPB issued a final rule, effective January 10, 2014, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms, or to originate “qualified mortgages” that meet specific requirements with respect to terms, pricing and fees.
Added
Events in the financial services industry, such as the high-profile bank failures in 2023, may also cause concern 21 and uncertainty about the financial services industry generally, which may result in sudden deposit outflows, increased borrowing and funding costs, and increased competition for liquidity, any of which could have a material adverse impact on the Company’s business, financial condition, and results of operations.] Inflation can have an adverse impact on the Company’s business and on its customers.
Removed
The rule also contains additional disclosure requirements at mortgage loan origination and in monthly statements. The requirements under the CFPB’s regulations and policies could limit the Company’s ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact the Company’s profitability.
Added
Price-wage inflation may cause the Company to give higher than normal raises to employees and start new employees at a higher wage.
Added
The Company had no foreclosed property as of December 31, 2024 or December 31, 2023. 22 Liquidity Risks The Company’s liquidity needs could adversely affect results of operations and financial condition. The Company’s primary sources of funds are deposits and loan repayments.
Added
The CFPB significantly influences consumer financial laws, regulation and policy through rulemaking related to enforcement of the Dodd-Frank Act’s prohibitions against unfair, deceptive, and abusive consumer finance products or practices, which are directly affecting the business operations of financial institutions offering consumer financial products or services, including the Company.
Added
In particular, the CFPB’s interpretation of the Dodd-Frank Act’s prohibitions against unfair, deceptive, and abusive consumer finance products or practices may ultimately affect products or services currently offered by the Company and its subsidiaries and may affect the amount of revenue that may be derived from these products and services in the future, especially revenue from overdraft products offered by the Bank.
Added
Although the CFPB has supervisory jurisdiction over banks with $10 billion or greater in assets, rules, regulations, and policies issued by the CFPB may also apply to the Company or its subsidiaries by virtue of the adoption of such policies and practices by the Federal Reserve and the OCC.
Added
Further, the CFPB may include its own examiners in regulatory examinations by the Company and the Bank’s primary regulators. The limitations and restrictions imposed by the CFPB may produce significant, material effects on the Company's business, financial condition, and results of operations.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeItem 1C. CYBERSECURITY . Cybersecurity Risk Management and Strategy As a corporation committed to maintaining the integrity, confidentiality, and availability of our digital assets and sensitive information, the Company recognizes the critical importance of cybersecurity in today's interconnected business landscape. The Company's cybersecurity measures are designed to safeguard our systems, networks, data, and information from unauthorized access, disruption, or misuse.
Biggest changeItem 1C. CYBERSECURITY . Cybersecurity Risk Management and Strategy As a corporation committed to maintaining the integrity, confidentiality, and availability of the Company's digital assets and sensitive information, the Company recognizes the critical importance of cybersecurity in today's interconnected business landscape.
Implementation of new technologies, practices, and infrastructures to target security vulnerabilities is ongoing. • Compliance and Reporting: The Company adheres to relevant cybersecurity regulations and standards applicable to our industry and maintains transparency by disclosing material cybersecurity incidents or risks in accordance with regulatory obligations. The Company had no material cybersecurity incidents in 2023. 29
Implementation of new technologies, practices, and infrastructures to target security vulnerabilities is ongoing. • Compliance and Reporting: The Company adheres to relevant cybersecurity regulations and standards applicable to the Company's industry and maintains transparency by disclosing material cybersecurity incidents or risks in accordance with regulatory obligations. The Company had no material cybersecurity incidents in 2024. 31
The Company recognizes that cybersecurity is fundamental to maintaining trust with shareholders, customers, and other stakeholders. By prioritizing cybersecurity as a strategic imperative, the Company strives to safeguard business operations, sensitive information, and integrity which preserves the value delivered to all our constituents.
By prioritizing cybersecurity as a strategic imperative, the Company strives to safeguard business operations, sensitive information, and integrity which preserves the value delivered to all the Company's constituents.
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The Company's cybersecurity measures are designed to safeguard the Company's systems, networks, data, and information from unauthorized access, disruption, or misuse. The Company recognizes that cybersecurity is fundamental to maintaining trust with shareholders, customers, and other stakeholders.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeVNB Trust and Estate Services is located at 103 Third Street, SE, Charlottesville, Virginia. Of the fourteen locations used as bank branches, seven of the buildings are owned by the Company and six are leased from nonaffiliates. Leases with affiliates are described below.
Biggest changeVNB Trust and Estate Services is located at 103 Third Street, SE, Charlottesville, Virginia. Of the thirteen locations used as bank branches, five of the buildings are owned by the Company, six are leased from nonaffiliates and two are leased from affiliates described below. One former branch location is currently under contract to be sold.
The five-story building located at 404 People Place, Charlottesville, Virginia, just east of the Charlottesville city limits on Pantops Mountain, was constructed by the Bank on a pad site leased in 2005 from Pantops Park, LLC for a term of twenty years, with seven five-year renewal options. William D.
Leases with affiliates are described below. The five-story building located at 404 People Place, Charlottesville, Virginia, just east of the Charlottesville city limits on Pantops Mountain, was constructed by the Bank on a pad site leased in 2005 from Pantops Park, LLC for a term of twenty years, with seven five-year renewal options. William D.
Item 2. PR OPERTIES. The Company and its subsidiaries currently occupy fourteen full-service banking facilities in the cities of Charlottesville, Manassas, Richmond and Winchester, and the counties of Albemarle, Fauquier and Prince William. The Company’s main office, a full-service banking facility, operations, and offices of Masonry Capital are located at 404 People Place, Charlottesville, Virginia.
Item 2. PR OPERTIES. The Company and its subsidiaries currently occupy twelve full-service and one limited-service banking facilities in the cities of Charlottesville, Manassas, Richmond and Winchester, and the counties of Albemarle, Fauquier and Prince William. The Company’s main office, a full-service banking facility and operations are located at 404 People Place, Charlottesville, Virginia.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of December 31, 2023, the Company had issued and outstanding 5,365,982 shares of common stock, which included 62,721 shares of restricted stock that have not yet vested. These shares were held by approximately 690 registered shareholders of record, not including beneficial holders of securities held in street name at a brokerage or other firm.
Biggest changeAs of December 31, 2024, the Company had issued and outstanding 5,370,912 shares of common stock, which included 65,889 shares of restricted stock that have not yet vested. As of March 26, 2025, there were approximately 660 shareholders of record.
Recent Issuances of Unregistered Securities No unregistered shares were issued in 2023 or 2022.
Recent Issuances of Unregistered Securities No unregistered shares were issued in 2024 or 2023.
Dividends Declared 2023 2022 2023 2022 High Low High Low First Quarter $ 41.74 $ 34.69 $ 40.00 $ 34.00 $ 0.33 $ 0.30 Second Quarter $ 36.77 $ 27.30 $ 35.53 $ 27.05 $ 0.33 $ 0.30 Third Quarter $ 38.49 $ 30.01 $ 34.50 $ 29.85 $ 0.33 $ 0.30 Fourth Quarter $ 43.08 $ 24.96 $ 36.93 $ 29.30 $ 0.33 $ 0.30 Total $ 1.32 $ 1.20 Equiniti Trust Company, LLC (formerly American Stock Transfer and Trust Company) is the Company’s stock transfer agent and registrar.
Dividends Declared 2024 2023 2024 2023 High Low High Low First Quarter $ 37.21 $ 27.50 $ 41.74 $ 34.69 $ 0.33 $ 0.33 Second Quarter $ 32.96 $ 24.06 $ 36.77 $ 27.30 $ 0.33 $ 0.33 Third Quarter $ 42.00 $ 29.80 $ 38.49 $ 30.01 $ 0.33 $ 0.33 Fourth Quarter $ 44.00 $ 37.50 $ 43.08 $ 24.96 $ 0.33 $ 0.33 Total $ 1.32 $ 1.32 Equiniti Trust Company, LLC (formerly American Stock Transfer and Trust Company) is the Company’s stock transfer agent and registrar.
The data in the table below represents the high sales and low sales prices that occurred between January 1, 2022 and December 31, 2023 as reported by Nasdaq. Additionally, the table shows the dividends declared per quarter in 2023 and 2022.
There were no shares of the Company's common stock repurchased during the three months ending December 31, 2024. The data in the table below represents the high sales and low sales prices that occurred between January 1, 2023 and December 31, 2024 as reported by Nasdaq. Additionally, the table shows the dividends declared per quarter in 2024 and 2023.
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On June 28, 2023, the Company's Board of Directors approved a share repurchase plan of up to 5% of outstanding common stock. The program was announced in a Current Report on Form 8-K on July 17, 2023. The first repurchases of stock under this plan occurred in February 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(Dollars in thousands) For the year ended December 31 Variance 2023 2022 $ % Noninterest income: Trust and estate services fees $ 968 $ 1,538 $ (570 ) -37.1 % Performance fees 376 265 111 41.9 % Investment management income 632 752 (120 ) -16.0 % Advisory and brokerage income - 770 (770 ) - Deposit account fees 1,593 1,799 (206 ) -11.5 % Debit/credit card and ATM fees 2,277 2,794 (517 ) -18.5 % Bank owned life insurance income 1,764 963 801 83.2 % Resolution of commercial dispute - 2,400 (2,400 ) - Gains on sale of assets, net 112 1,043 (931 ) -89.3 % Gain on termination of interest rate swap 460 - 460 - Gain on sale of business line - 404 (404 ) - Losses on sales of AFS, net (206 ) - (206 ) - Other 1,125 933 192 20.6 % Total noninterest income $ 9,101 $ 13,661 $ (4,560 ) -33.4 % Noninterest income of $9.1 million for the year ended December 31, 2023 decreased $4.6 million over the prior year, as a result of the following nonrecurring items in the year ended December 31, 2022: • The Company received and recognized a $2.4 million one-time payment to resolve a commercial dispute in the first quarter of 2022; • A $1.0 million gain was recognized in connection with the sale of two buildings during the second quarter of 2022, and • $770 thousand of advisory and brokerage income was earned in the prior year by Sturman Wealth Advisors, and a $404 thousand gain was recognized in the fourth quarter of 2022 in connection with the sale of this business line.
Biggest change(Dollars in thousands) For the year ended December 31 Variance 2024 2023 $ % Noninterest income: Trust and estate services fees $ 1,152 $ 968 $ 184 19.0 % Performance fees - 376 (376 ) -100.0 % Investment management income - 632 (632 ) -100.0 % Deposit account fees 1,363 1,593 (230 ) -14.4 % Debit/credit card and ATM fees 1,914 2,277 (363 ) -15.9 % Bank owned life insurance income 1,155 1,764 (609 ) -34.5 % Gains on sale of assets, net 36 112 (76 ) -67.9 % Gain on early redemption of debt 904 - 904 --- Gain on termination of interest rate swap - 460 (460 ) -100.0 % Losses on sales of AFS, net (4 ) (206 ) 202 -98.1 % Other 1,069 1,125 (56 ) -5.0 % Total noninterest income $ 7,589 $ 9,101 $ (1,512 ) -16.6 % Noninterest income of $7.6 million for the year ended December 31, 2024 decreased $1.5 million over the prior year, as a result of the following: • Investment management income of $632 thousand and performance fees of $376 thousand were recognized in 2023 related to the Masonry business line.
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.
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% that was applicable for all periods presented.
In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.
In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.
Intangible assets with definite useful lives are amortized over their estimated useful lives, which range from 3 to 10 years, to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s Consolidated Balance Sheets.
Intangible assets with definite useful lives are amortized over their 34 estimated useful lives, which range from 3 to 10 years, to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s Consolidated Balance Sheets.
Furthermore, this sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates. 50 In simulating the effects of upward and downward changes in market rates to net interest income over a rolling two-year horizon, the model utilizes a “static” balance sheet approach where balance sheet composition or mix as of the measurement date is maintained over the two-year horizon.
Furthermore, this sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates. 52 In simulating the effects of upward and downward changes in market rates to net interest income over a rolling two-year horizon, the model utilizes a “static” balance sheet approach where balance sheet composition or mix as of the measurement date is maintained over the two-year horizon.
The Bank exceeds the thresholds to be considered well capitalized as of December 31, 2023. On September 17, 2019 the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy for qualifying community banking organizations, referred to as, the community bank leverage ratio framework, as required by the EGRRCPA.
The Bank exceeds the thresholds to be considered well capitalized as of December 31, 2024. On September 17, 2019 the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy for qualifying community banking organizations, referred to as, the community bank leverage ratio framework, as required by the EGRRCPA.
Simultaneously, the trust used the proceeds of that sale to purchase $4.0 million principal amount of the Fauquier’s Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of December 31, 2023, total capital securities were $3.5 million, as adjusted to fair value as of the date of the Merger.
Simultaneously, the trust used the proceeds of that sale to purchase $4.0 million principal amount of the Fauquier’s Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of December 31, 2024, total capital securities were $3.5 million, as adjusted to fair value as of the date of the Merger.
(3) Net interest margin (FTE) is net interest income (FTE) expressed as a percentage of average earning assets. 36 The purpose of the volume and rate analysis below is to describe the impact on the net interest income (FTE) of the Company resulting from changes in average balances and average interest rates for the periods indicated.
(3) Net interest margin (FTE) is net interest income (FTE) expressed as a percentage of average earning assets. 38 The purpose of the volume and rate analysis below is to describe the impact on the net interest income (FTE) of the Company resulting from changes in average balances and average interest rates for the periods indicated.
Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the ACL.
Loan losses are charged against the ACL for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the ACL.
Financial Statements and Supplementary Data. 40 BALANCE SHEET ANALYSIS Securities The investment securities portfolio has a primary role in the management of the Company’s liquidity requirements and interest rate sensitivity, as well as generating significant interest income. Investment securities also play a key role in diversifying the Company’s balance sheet.
Financial Statements and Supplementary Data. 42 BALANCE SHEET ANALYSIS Securities The investment securities portfolio has a primary role in the management of the Company’s liquidity requirements and interest rate sensitivity, as well as generating significant interest income. Investment securities also play a key role in diversifying the Company’s balance sheet.
The level of interest rates and the volume and mix of earning assets and interest bearing liabilities impact net interest income (FTE) and net interest margin (FTE). The following table details the average balance sheet, including an analysis of net interest income (FTE) for earning assets and interest bearing liabilities, for the years ended December 31, 2023, 2022, and 2021.
The level of interest rates and the volume and mix of earning assets and interest bearing liabilities impact net interest income (FTE) and net interest margin (FTE). The following table details the average balance sheet, including an analysis of net interest income (FTE) for earning assets and interest bearing liabilities, for the years ended December 31, 2024, 2023, and 2022.
Business.” In addition, information regarding the Company’s risk-based capital at December 31, 2023 and December 31, 2022 is presented in Note 15 – Capital Requirements of the Notes to Consolidated Financial Statements, contained in Item 8. Financial Statements and Supplementary Data.
Business.” In addition, information regarding the Company’s risk-based capital at December 31, 2024 and December 31, 2023 is presented in Note 15 – Capital Requirements of the Notes to Consolidated Financial Statements, contained in Item 8. Financial Statements and Supplementary Data.
The effective income tax rates for 2023 and 2022 were lower than the U.S. statutory rate of 21% due to the effect of tax-exempt income from municipal bonds and tax-exempt interest from bank owned life insurance policies.
The effective income tax rates for 2024 and 2023 were lower than the U.S. statutory rate of 21% due to the effect of tax-exempt income from municipal bonds and tax-exempt interest from bank owned life insurance policies.
Cash flow projections are subject to change based upon changes to market interest rates. 42 Loan Portfolio The Company’s objective is to maintain the historically strong credit quality of the loan portfolio by maintaining rigorous underwriting standards.
Cash flow projections are subject to change based upon changes to market interest rates. 44 Loan Portfolio The Company’s objective is to maintain the historically strong credit quality of the loan portfolio by maintaining rigorous underwriting standards.
Details of the changes in the various components of net income are further discussed below. 35 Net Interest Income Net interest income is computed as the difference between the interest income on earning assets and the interest expense on deposits and other interest bearing liabilities.
Details of the changes in the various components of net income are further discussed below. 37 Net Interest Income Net interest income is computed as the difference between the interest income on earning assets and the interest expense on deposits and other interest bearing liabilities.
Net aggregate unrealized gains or losses on these securities are included, net of taxes, as a component of shareholders’ equity. All of the Company’s unrestricted securities were investment grade or better as of December 31, 2023.
Net aggregate unrealized gains or losses on these securities are included, net of taxes, as a component of shareholders’ equity. All of the Company’s unrestricted securities were investment grade or better as of December 31, 2024.
Revenue for this segment is generated from management fees which are derived from Assets Under Management and incentive income which is based on the investment returns generated on performance-based Assets Under Management. Note that the membership interests in this business line are planned to be sold to an officer of the Company effective April 1, 2024.
Revenue for this segment is generated from management fees which are derived from Assets Under Management and incentive income which is based on the investment returns generated on performance-based Assets Under Management. Note that the membership interests in this business line were sold to an officer of the Company effective April 1, 2024.
The level of the allowance is particularly sensitive to changes in the actual and forecasted national unemployment rate and changes in current conditions or reasonably expected future conditions affecting the collectability of loans. 32 • Fair value measurements are used by the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
The level of the ACL is particularly sensitive to changes in the actual and forecasted national unemployment rate and changes in current conditions or reasonably expected future conditions affecting the collectability of loans. • Fair value measurements are used by the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Yields on tax-exempt securities have been computed on a tax-equivalent basis using the federal corporate income tax rate of 21 percent. As stated, the preceding table reflects the distribution of the contractual maturities of the investment portfolio at December 31, 2023.
Yields on tax-exempt securities have been computed on a tax-equivalent basis using the federal corporate income tax rate of 21%. As stated, the preceding table reflects the distribution of the contractual maturities of the investment portfolio at December 31, 2024.
Interest expense as a percentage of average earning assets increased to 143 bps for 2023, compared to 19 and 21 bps for 2022 and 2021, respectively. Net interest margin will be impacted by future changes in short-term and long-term interest rate levels on deposits, as well as the impact from the competitive environment.
Interest expense as a percentage of average earning assets increased to 196 bps for 2024, compared to 143 bps and 19 bps for 2023 and 2022, respectively. Net interest margin will be impacted by future changes in short-term and long-term interest rate levels on deposits, as well as the impact from the competitive environment.
At December 31, 2023, the securities issued by political subdivisions or agencies were highly rated with 100% of the municipal bonds having A+ or higher ratings. Approximately 63% of the municipal bonds are general obligation bonds, and issuers are geographically diverse. The Company held no issues that exceeded 10% of the Company’s shareholders' equity at December 31, 2023.
At December 31, 2024, the securities issued by political subdivisions or agencies were highly rated with 93% of the municipal bonds having A+ or higher ratings. Approximately 63% of the municipal bonds are general obligation bonds, and issuers are geographically diverse. The Company held no issues that exceeded 10% of the Company’s shareholders' equity at December 31, 2024.
The table below provides an allocation of year-end allowance for credit losses by loan type; however, allocation of a portion of the allowance to one loan category does not preclude its availability to absorb losses in other categories.
The table below provides an allocation of year-end ACL by loan type; however, allocation of a portion of the allowance to one loan category does not preclude its availability to absorb losses in other categories.
This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the ACL, we consider a range of possible assumptions and outcomes related to the various factors identified above.
This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the ACL, the Company considers a range of possible assumptions and outcomes related to the various factors identified above.
Stock ownership in the bank holding company for Community Bankers’ Bank provides the Bank with several benefits that are not available to non-shareholder correspondent banks. None of these stock issues are traded on the open market and can only be redeemed by the respective issuer. Restricted stock holdings are recorded at cost.
Stock ownership in the bank holding company for Community Bankers’ Bank provides the Bank with several benefits that are not available to non-shareholder correspondent banks. None of these stock issues are traded on the open market and can only be redeemed by the respective issuer.
The Company’s holdings of restricted securities totaled $8.4 million and $5.1 million at December 31, 2023 and December 31, 2022, respectively, and consisted of stock in the Federal Reserve Bank, stock in the FHLB, and stock in CBB Financial Corporation, the holding company for Community Bankers’ Bank, and an investment in an SBA loan fund.
The Company’s holdings of restricted securities totaled $6.2 million and $8.4 million at December 31, 2024 and December 31, 2023, respectively, and consisted of stock in the Federal Reserve Bank, stock in the FHLB, and stock in CBB Financial Corporation, the holding company for Community Bankers’ Bank, and an investment in an SBA loan fund.
Management has evaluated whether the decline in fair value is the result of credit losses and has determined that no credit loss provision is required as of December 31, 2023 related to the AFS portfolio. AFS securities included gross unrealized losses of $50.9 million as of December 31, 2023.
Management has evaluated whether the decline in fair value is the result of credit losses and has determined that no credit loss provision is required as of December 31, 2024 related to the AFS portfolio. AFS securities included gross unrealized losses of $53.0 million as of December 31, 2024.
This represents approximately 46% of the investment portfolio’s AFS balance at December 31, 2023 that will be available to support the future liquidity needs of the Company.
This represents approximately 28% of the investment portfolio’s AFS balance at December 31, 2024 that will be available to support the future liquidity needs of the Company.
The Company offers ICS ® , which allows customers access to multi-million-dollar FDIC insurance on funds placed into demand deposit and/or money market deposit accounts. As of December 31, 2023, the reciprocal ICS ® balances included in demand deposit and money market accounts were $44.2 million and $107.3 million, respectively.
The Company offers ICS ® , which allows customers access to multi-million-dollar FDIC insurance on funds placed into demand deposit and/or money market deposit accounts. As of December 31, 2024, the reciprocal ICS ® balances included in demand deposit and money market accounts were $44.5 million and $122.1 million, respectively.
Of this amount, approximately $317.6 million represented loans on 1-4 family residential properties. Commercial real estate loans totaled $550.9 million as of December 31, 2023. Sources of repayment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral.
Of this amount, approximately $313.6 million represented loans on 1-4 family residential properties. Commercial real estate loans totaled $593.5 million as of December 31, 2024. Sources of repayment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral.
The following is a summary of the changes in the allowance for credit losses for the years ended December 31, 2023, 2022, and 2021: (Dollars in thousands) 2023 2022 2021 Allowance for credit losses, January 1 $ 5,552 $ 5,984 $ 5,455 Impact of ASC 326 adoption $ 2,491 $ - $ - Charge-offs (721 ) (1,255 ) (835 ) Recoveries 377 717 350 Provision for credit losses 696 106 1,014 Allowance for credit losses, December 31 $ 8,395 $ 5,552 $ 5,984 Allowance for credit losses as a percentage of period-end total loans 0.77 % 0.59 % 0.56 % 38 Noninterest Income The major components of noninterest income are detailed below.
The following is a summary of the changes in the ACL for the years ended December 31, 2024, 2023, and 2022: (Dollars in thousands) 2024 2023 2022 Allowance for credit losses, January 1 $ 8,395 $ 5,552 $ 5,984 Impact of ASC 326 adoption - 2,491 - Charge-offs (759 ) (721 ) (1,255 ) Recoveries 1,537 377 717 Provision for (recovery of) credit losses (718 ) 696 106 Allowance for credit losses, December 31 $ 8,455 $ 8,395 $ 5,552 Allowance for credit losses as a percentage of period-end total loans 0.68 % 0.77 % 0.59 % 40 Noninterest Income The major components of noninterest income are detailed below.
Net interest income represents the principal source of revenue for the Company and accounted for 84.3% of the total revenue in 2023. Net interest margin (FTE) is the ratio of taxable-equivalent net interest income to average earning assets for the period.
Net interest income represents the principal source of revenue for the Company and accounted for 85.9% of the total revenue in 2024. Net interest margin (FTE) is the ratio of taxable-equivalent net interest income to average earning assets for the period.
This decrease was the result of a $4.6 million decrease in net interest income, a $4.6 million decrease in noninterest income, offset by a $4.5 million decrease in noninterest expense. Each component of such year-over-year changes are described in more detail below.
This decrease was the result of a $2.6 million decrease in net interest income and a $1.5 million decrease in noninterest income, offset by a $397.0 thousand decrease in noninterest expense. Each component of such year-over-year changes are described in more detail below.
Another indication of the investment portfolio’s liquidity potential is shown by the projected annual principal cash flow from maturities, callable bonds, and monthly principal repayments. For the next three years, the principal cash flows are estimated to be $161.0 million for 2024, $32.4 million for 2025, and $25.0 million for 2026, based upon rates remaining at current levels.
Another indication of the investment portfolio’s liquidity potential is shown by the projected annual principal cash flow from maturities, callable bonds, and monthly principal repayments. For the next three years, the principal cash flows are estimated to be $33.5 million for 2025, $24.4 million for 2026, and $30.9 million for 2027, based upon rates remaining at current levels.
Average loans for 2023 of $980.6 million were $2.3 million higher than the 2022 average of $978.3 million. The increase in rates paid on deposits in 2023 compared to 2022 negatively impacted net interest income.
Average loans for 2024 of $1.2 billion were $185.1 million higher than the 2023 average of $980.6 million. The increase in rates paid on deposits in 2024 compared to 2023 negatively impacted net interest income.
To illustrate the difference between contractual maturity and average life, consider the difference for the fixed rate mortgage-backed securities (MBS) component of this portfolio. At December 31, 2023, the weighted average maturity of the fixed rate MBS sector was 16.5 years, and the projected average life for this group of securities is 7.3 years.
To illustrate the difference between contractual maturity and average life, consider the difference for the fixed rate mortgage-backed securities (MBS) component of this portfolio. At December 31, 2024, the weighted average maturity of the fixed rate MBS sector was 15.6 years, and the projected average life for this group of securities is 6.0 years.
Loans 90 days or more past due and still accruing interest amounted to $879 thousand as of December 31, 2023, compared to $705 thousand as of December 31, 2022. The 2023 balance includes two loans totaling $782 thousand which are 100% government-guaranteed, and five student loans totaling $97 thousand.
Loans 90 days or more past due and still accruing interest amounted to $754 thousand as of December 31, 2024, compared to $879 thousand as of December 31, 2023. The 2024 balance includes three loans totaling $705 thousand which are 100% government-guaranteed, and three student loans totaling $49 thousand.
The Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios of the Bank were 17.29%, 17.29%, 18.12% and 11.05%, respectively, as of December 31, 2023, exceeding the minimum requirements.
The Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios of the Bank were 17.77%, 17.77%, 18.60% and 11.55%, respectively, as of December 31, 2024, exceeding the minimum requirements.
Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.” 33 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) Reconcilement of Non-GAAP Measures: Year Ended December 31 2023 2022 Fully taxable-equivalent measures Net interest income $ 48,969 $ 53,547 Fully taxable-equivalent adjustment 349 333 Net interest income (FTE) 1 $ 49,318 $ 53,880 Efficiency ratio 2 58.7 % 57.4 % Impact of FTE adjustment -0.4 % -0.3 % Efficiency ratio (FTE) 3 58.3 % 57.1 % Net interest margin 3.34 % 3.19 % Fully tax-equivalent adjustment 0.02 % 0.02 % Net interest margin (FTE) 1 3.36 % 3.21 % Other financial measures Book value per share $ 28.52 $ 25.00 Impact of intangible assets (2.40 ) (2.69 ) Tangible book value per share (non-GAAP) $ 26.12 $ 22.31 1 FTE calculations use a Federal income tax rate of 21%. 2 The efficiency ratio, GAAP basis, is computed by dividing noninterest expense by the sum of net interest income and noninterest income. 3 The efficiency ratio, FTE, is computed by dividing noninterest expense by the sum of net interest income (FTE) and noninterest income.
Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.” 35 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) Reconcilement of Non-GAAP Measures: Year Ended December 31 2024 2023 Fully taxable-equivalent measures Net interest income $ 46,376 $ 48,969 Fully taxable-equivalent adjustment 347 347 Net interest income (FTE) 1 $ 46,723 $ 49,316 Efficiency ratio 2 62.4 % 58.7 % Impact of FTE adjustment -0.4 % -0.4 % Efficiency ratio (FTE) 3 62.0 % 58.3 % Net interest margin 3.08 % 3.34 % Fully tax-equivalent adjustment 0.02 % 0.02 % Net interest margin (FTE) 1 3.10 % 3.36 % Other financial measures Book value per share $ 29.85 $ 28.52 Impact of intangible assets (2.15 ) (2.40 ) Tangible book value per share (non-GAAP) $ 27.70 $ 26.12 1 FTE calculations use a Federal income tax rate of 21%. 2 The efficiency ratio, GAAP basis, is computed by dividing noninterest expense by the sum of net interest income and noninterest income. 3 The efficiency ratio, FTE, is computed by dividing noninterest expense by the sum of net interest income (FTE) and noninterest income.
These loans were recorded at estimated fair value on the date of acquisition without the carryover of the related ALLL.
These loans were recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for loan loss.
Following is a schedule of future minimum rental payments under non-cancelable operating leases that have initial or remaining terms in excess of one year as of December 31, 2023: (Dollars in thousands) 1 year or less 1-3 years 3-5 years After 5 years Total Operating lease obligations $ 1,520 $ 2,532 $ 1,877 $ 913 $ 6,842
Following is a schedule of future minimum rental payments under non-cancelable operating leases that have initial or remaining terms in excess of one year as of December 31, 2024: (Dollars in thousands) 1 year or less 1-3 years 3-5 years After 5 years Total Operating lease obligations $ 1,497 $ 2,222 $ 1,458 $ 654 $ 5,831
Net interest income (FTE) for 2022 totaled $53.9 million, a $8.6 million increase over the 2021 total of $45.3 million. Average earning assets decreased $212.1 million or 12.6% in 2023 compared to 2022 and increased $139.7 million or 9.1% in 2022 compared to 2021.
Net interest income (FTE) for 2023 totaled $49.3 million, a $4.6 million decrease over the 2022 total of $53.9 million. Average earning assets increased $37.8 million or 2.6% in 2024 compared to 2023 and decreased $212.1 million or 12.6% in 2023 compared to 2022.
Results of Operations Consolidated Return on Assets and Equity and Other Key Ratios The ratio of net income to average total assets and average shareholders' equity and certain other ratios for the years indicated are as follows: 2023 2022 Return on average assets 1.22 % 1.30 % Return on average equity 13.81 % 16.61 % Average equity to average assets 8.85 % 7.85 % Cash dividend payout ratio 33.47 % 27.40 % Efficiency ratio (FTE) 58.30 % 57.10 % Net income for the year ended December 31, 2023 was $19.3 million, or $3.58 per diluted share, an 17.81% decrease compared to $23.4 million, or $4.38 per diluted share for the year ended December 31, 2022.
Results of Operations Consolidated Return on Assets and Equity and Other Key Ratios The ratio of net income to average total assets and average shareholders' equity and certain other ratios for the years indicated are as follows: 2024 2023 Return on average assets 1.06 % 1.22 % Return on average equity 10.78 % 13.81 % Average equity to average assets 9.80 % 8.85 % Cash dividend payout ratio 41.80 % 33.47 % Efficiency ratio (FTE) 62.00 % 58.30 % Net income for the year ended December 31, 2024 was $17.0 million, or $3.15 per diluted share, an 11.9% decrease compared to $19.3 million, or $3.58 per diluted share for the year ended December 31, 2023.
The Company’s real estate loan portfolio increased by $82.3 million to a balance of $902.1 million at December 31, 2023 from $819.9 million at December 31, 2022. This category comprises 82.6% of all loans, and these loans are secured by mortgages on real property located principally in our market area.
The Company’s real estate loan portfolio increased by $42.0 million to a balance of $944.1 million at December 31, 2024 from $902.1 million at December 31, 2023. This category comprises 76.4% of all loans, and these loans are secured by mortgages on real property located principally in the Company's market area.
Management’s estimates for the ACL resulted in the Company’s allowance to total loans outstanding ratio of 0.77% at December 31, 2023, compared to 0.59% at December 31, 2022. During 2023, there were $721 thousand in loan balances charged off, with a total of $377 thousand in recoveries of previously charged-off balances, resulting in net charge-offs of $344 thousand.
Management’s estimates for the ACL resulted in the Company’s ACL to total loans outstanding ratio of 0.68% at December 31, 2024, compared to 0.77% at December 31, 2023. During 2024, there were $759 thousand in loan balances charged off, with a total of $1.5 million in recoveries of previously charged-off balances, resulting in net charge-offs of $778 thousand.
The table also presents the portion of loans that have fixed interest rates or variable/floating interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index such as the Wall Street Journal prime rate or U.S. Treasury bond indices.
The following table presents the maturity/repricing distribution of the Company’s loans at December 31, 2024. The table also presents the portion of loans that have fixed interest rates or variable/floating interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index such as the Wall Street Journal prime rate or U.S.
Based on management’s continuing evaluation of the loan portfolio in 2023, the Company recorded a provision for credit losses of $734 thousand, which includes $38 thousand of provision for unfunded commitments, compared to $106 thousand in 2022 and $1.0 million in 2021.
Based on management’s continuing evaluation of the loan portfolio in 2024, the Company recorded a net recovery of provision for credit losses of $600 thousand, which is net of a $118 thousand provision for unfunded commitments, compared to provision expense of $734 thousand, which includes a $38 thousand provision for unfunded commitments, in 2023 and provision expense of $106 thousand in 2022.
(Dollars in thousands) 2023 2022 2021 Average Balance % of Total Deposits Average Balance % of Total Deposits Average Balance % of Total Deposits Non-interest demand deposits $ 418,091 30.3 % $ 526,389 32.0 % $ 434,989 29.6 % Interest checking accounts 321,154 23.2 % 409,504 24.9 % 355,419 24.2 % Money market and savings deposit accounts 421,083 30.5 % 563,374 34.3 % 529,027 35.9 % Total non-interest and low-cost deposit accounts $ 1,160,328 84.0 % $ 1,499,267 91.2 % $ 1,319,435 89.7 % Time deposits 220,348 16.0 % 144,564 8.8 % 152,211 10.3 % Total deposit account balances $ 1,380,676 100.0 % $ 1,643,831 100.0 % $ 1,471,646 100.0 % Provision for Credit Losses The level of the ACL reflects changes in the size of the portfolio or in any of its components, as well as management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, and economic, political and regulatory conditions.
(Dollars in thousands) 2024 2023 2022 Average Balance % of Total Deposits Average Balance % of Total Deposits Average Balance % of Total Deposits Non-interest demand deposits $ 370,178 26.5 % $ 418,091 30.3 % $ 526,389 32.0 % Interest checking accounts 269,136 19.3 % 321,154 23.2 % 409,504 24.9 % Money market and savings deposit accounts 425,386 30.4 % 421,083 30.5 % 563,374 34.3 % Total non-interest and low-cost deposit accounts $ 1,064,700 76.2 % $ 1,160,328 84.0 % $ 1,499,267 91.2 % Time deposits 333,139 23.8 % 220,348 16.0 % 144,564 8.8 % Total deposit account balances $ 1,397,839 100.0 % $ 1,380,676 100.0 % $ 1,643,831 100.0 % Provision for Credit Losses The level of the ACL reflects changes in the size of the portfolio or in any of its components, as well as management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, and economic, political and regulatory conditions.
Available borrowing arrangements maintained by the Bank include formal federal funds lines with six major regional correspondent banks, access to advances from the Federal Home Loan Bank and access to the discount window at the Federal Reserve Bank.
Available borrowing arrangements maintained by the Bank include formal federal funds lines with six major regional correspondent banks, access to advances from the Federal Home Loan Bank and access to the discount window at the Federal Reserve Bank. Access to borrowings at the discount window are dependent on the fair value of any securities pledged for advances.
Allocation of the Allowance for Credit Losses December 31, 2023 (Dollars in thousands) Allowance Percentage of loans in each category to total loans Commercial loans $ 193 13.95 % Real estate construction and land 462 3.08 % 1-4 family residential mortgages 1,492 29.07 % Real estate mortgages 5,261 50.42 % Consumer 987 3.48 % Total $ 8,395 100.00 % December 31, 2022 (Dollars in thousands) Allowance Percentage of loans in each category to total loans Commercial loans $ 194 7.60 % Real estate construction and land 221 4.01 % 1-4 family residential mortgages 1,618 34.51 % Real estate mortgages 2,820 49.03 % Consumer 699 4.85 % Total $ 5,552 100.00 % Deposits Depository accounts represent the Company’s primary source of funding and are comprised of demand deposits, interest bearing checking accounts, money market deposit accounts and time deposits.
Allocation of the Allowance for Credit Losses December 31, 2024 (Dollars in thousands) Allowance Percentage of loans in each category to total loans Commercial loans $ 760 20.85 % Real estate construction and land 737 2.99 % 1-4 family residential mortgages 2,551 25.37 % Real estate mortgages 3,533 48.02 % Consumer 874 2.77 % Total $ 8,455 100.00 % 48 December 31, 2023 (Dollars in thousands) Allowance Percentage of loans in each category to total loans Commercial loans $ 193 13.95 % Real estate construction and land 462 3.08 % 1-4 family residential mortgages 1,492 29.07 % Real estate mortgages 5,261 50.42 % Consumer 987 3.48 % Total $ 8,395 100.00 % Deposits Depository accounts represent the Company’s primary source of funding and are comprised of demand deposits, interest bearing checking accounts, money market deposit accounts and time deposits.
The average balance for loans as a percentage of earnings assets for 2023 was 66.8%, compared to 58.3% and 66.1% in 2022 and 2021, respectively. 37 The 2023 net interest margin (FTE) improved 15 bps to 3.36% from 3.21% in 2022. The 2022 net interest margin (FTE) improved 27 bps from 2.94% in 2021.
The average balance for loans as a percentage of earnings assets for 2024 was 77.5%, compared to 66.8% and 58.3% in 2023 and 2022, respectively. 39 The 2024 net interest margin (FTE) declined 26 bps to 3.10% from 3.36% in 2023. The 2023 net interest margin (FTE) improved 15 bps from 3.21% in 2022.
Allowance for Credit Losses The relationship of the ACL to total loans and nonaccrual loans appears below: (Dollars in thousands) 2023 2022 Total loans $ 1,092,665 $ 936,415 Nonaccrual loans $ 1,852 $ 673 Allowance for credit losses $ 8,395 $ 5,552 Nonaccrual loans to total loans 0.17 % 0.07 % ACL to total loans 0.77 % 0.59 % ACL to nonaccrual loans 453.29 % 824.96 % See Note 4 – Loans and Note 5 – Allowance for Credit Losses in the accompanying Notes to Consolidated Financial Statements included in Item 8.
Allowance for Credit Losses The relationship of the ACL to total loans and nonaccrual loans appears below: (Dollars in thousands) 2024 2023 Total loans $ 1,235,969 $ 1,092,665 Nonaccrual loans $ 2,267 $ 1,852 Allowance for credit losses $ 8,455 $ 8,395 Nonaccrual loans to total loans 0.18 % 0.17 % ACL to total loans 0.68 % 0.77 % ACL to nonaccrual loans 372.96 % 453.29 % See Note 4 – Loans and Note 5 – Allowance for Credit Losses in the accompanying Notes to Consolidated Financial Statements included in Item 8.
During 2022, there were $1.3 million in loan balances charged off, with a total of $717 thousand in recoveries of previously charged-off balances, resulting in net charge-offs of $538 thousand. The ratio of net charge-offs to average loans was 0.04% and 0.05% for 2023 and 2022, respectively.
During 2023, there were $721 thousand in loan balances charged off, with a total of $377 thousand in recoveries of previously charged-off balances, resulting in net charge-offs of $344 thousand. The ratio of net charge-offs to average loans was 0.07% (net recovery) and 0.04% for 2024 and 2023, respectively.
The table shown below details the amortized cost and fair value of AFS securities at December 31, 2023 based upon contractual maturities, by major investment categories. Expected maturities may differ from contractual maturities because issuers have the right to call or prepay obligations. The tax-equivalent yield is based upon a federal tax rate of 21%.
Restricted stock holdings are recorded at cost. 43 The table shown below details the amortized cost and fair value of AFS securities at December 31, 2024 based upon contractual maturities, by major investment categories. Expected maturities may differ from contractual maturities because issuers have the right to call or prepay obligations.
As of December 31, 2023, the Company’s investment portfolio totaled $429.0 million, with obligations of U.S. government corporations and government-sponsored enterprises amounting to $316.5 million, or approximately 74% of the total. The Company’s investment portfolio totaled $543.3 million as of December 31, 2022.
As of December 31, 2024, the Company’s investment portfolio totaled $269.7 million, with obligations of U.S. government corporations and government-sponsored enterprises amounting to $163.9 million, or approximately 61% of the total. The Company’s investment portfolio totaled $429.0 million as of December 31, 2023.
The increase in 2023 is primarily the result of the adoption of ASC 326, which increased the ACL by $2.5 million effective January 1, 2023, as well as increase in provision related to organic loan growth.
The increase in 2023 is primarily the result of the adoption of ASC 326, which increased the ACL by $2.5 million effective January 1, 2023, as well as increase in provision related to organic loan growth. The ACL as a percentage of total loans was 0.68% at December 31, 2024 compared to 0.77% at December 31, 2023.
Consolidated Average Balance Sheets and Analysis of Net Interest Income (FTE) 2023 2022 2021 Interest Average Interest Average Interest Average (Dollars in thousands) Average Balance Income Expense Yield/ Cost Average Balance Income Expense Yield/ Cost Average Balance Income Expense Yield/ Cost ASSETS Interest earning assets: Securities Taxable securities $ 400,189 $ 11,921 2.98 % $ 373,680 $ 8,696 2.33 % $ 198,450 $ 2,980 1.50 % Tax exempt securities 1 66,895 1,655 2.47 % 65,861 1,582 2.40 % 53,716 1,292 2.41 % Total securities 1 467,084 13,576 2.91 % 439,541 10,278 2.34 % 252,166 4,272 1.69 % Loans: Real estate 839,326 47,996 5.72 % 847,238 38,011 4.49 % 808,707 35,303 4.37 % Commercial 100,122 5,121 5.11 % 81,410 3,583 4.40 % 145,462 5,731 3.94 % Consumer 41,140 2,936 7.14 % 49,619 2,637 5.31 % 63,039 2,865 4.54 % Total Loans 980,588 56,053 5.72 % 978,267 44,231 4.52 % 1,017,208 43,899 4.32 % Fed funds sold 3,825 207 5.41 % 100,033 1,088 1.09 % 109,104 139 0.13 % Other interest bearing deposits 15,489 501 3.23 % 161,260 1,467 0.91 % 160,960 233 0.14 % Total earning assets 1,466,986 70,337 4.79 % 1,679,101 57,064 3.40 % 1,539,438 48,543 3.15 % Less: Allowance for credit losses (7,907 ) (5,702 ) (5,297 ) Total non-earning assets 115,908 124,525 115,193 Total assets $ 1,574,987 $ 1,797,924 $ 1,649,334 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Interest bearing deposits: Interest checking $ 321,154 $ 346 0.11 % $ 409,504 $ 230 0.06 % $ 355,419 $ 261 0.07 % Money market and savings deposits 421,083 9,673 2.30 % 563,374 2,097 0.37 % 529,027 2,047 0.39 % Time deposits 220,348 8,617 3.91 % 144,564 657 0.45 % 152,211 1,108 0.73 % Total interest bearing deposits 962,585 18,636 1.94 % 1,117,442 2,984 0.27 % 1,036,657 3,416 0.33 % Borrowings 37,286 1,934 5.19 % - - - 23,700 (280 ) -1.18 % Federal Funds Purchased 2,632 138 5.24 % - - - - - - Junior subordinated debt 3,436 313 9.11 % 3,389 200 5.90 % 2,565 148 5.77 % Total interest bearing liabilities 1,005,939 21,021 2.09 % 1,120,831 3,184 0.28 % 1,062,922 3,284 0.31 % Non-interest bearing liabilities: Demand deposits 418,091 526,389 434,989 Other liabilities 9,989 9,581 10,875 Total liabilities 1,434,019 1,656,801 1,508,786 Shareholders' equity 139,443 141,123 140,548 Total liabilities & shareholders' equity $ 1,573,462 $ 1,797,924 $ 1,649,334 Net interest income (FTE) $ 49,316 $ 53,880 $ 45,259 Interest rate spread 2 2.70 % 3.12 % 2.84 % Cost of funds 1.48 % 0.19 % 0.22 % Interest expense as a percentage of average earning assets 1.43 % 0.19 % 0.21 % Net interest margin (FTE) 3 3.36 % 3.21 % 2.94 % (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%.
Consolidated Average Balance Sheets and Analysis of Net Interest Income (FTE) 2024 2023 2022 Interest Average Interest Average Interest Average (Dollars in thousands) Average Balance Income Expense Yield/ Cost Average Balance Income Expense Yield/ Cost Average Balance Income Expense Yield/ Cost ASSETS Interest earning assets: Securities Taxable securities $ 249,858 $ 7,120 2.85 % $ 400,189 $ 11,921 2.98 % $ 373,680 $ 8,696 2.33 % Tax exempt securities 1 66,399 1,649 2.48 % 66,895 1,655 2.47 % 65,861 1,582 2.40 % Total securities 1 316,257 8,769 2.77 % 467,084 13,576 2.91 % 439,541 10,278 2.34 % Loans: Real estate 908,356 51,532 5.67 % 839,326 47,996 5.72 % 847,238 38,011 4.49 % Commercial 220,276 12,430 5.64 % 100,122 5,121 5.11 % 81,410 3,583 4.40 % Consumer 37,013 2,572 6.95 % 41,140 2,936 7.14 % 49,619 2,637 5.31 % Total Loans 1,165,645 66,534 5.71 % 980,588 56,053 5.72 % 978,267 44,231 4.52 % Fed funds sold 14,663 765 5.22 % 3,825 207 5.41 % 100,033 1,088 1.09 % Other interest bearing deposits 8,220 206 2.51 % 15,489 501 3.23 % 161,260 1,467 0.91 % Total earning assets 1,504,785 76,274 5.07 % 1,466,986 70,337 4.79 % 1,679,101 57,064 3.40 % Less: Allowance for credit losses (8,350 ) (7,907 ) (5,702 ) Total non-earning assets 109,500 115,908 124,525 Total assets $ 1,605,935 $ 1,574,987 $ 1,797,924 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Interest bearing deposits: Interest checking $ 269,136 $ 272 0.10 % $ 321,154 $ 346 0.11 % $ 409,504 $ 230 0.06 % Money market and savings deposits 425,386 11,803 2.77 % 421,083 9,673 2.30 % 563,374 2,097 0.37 % Time deposits 333,139 15,410 4.63 % 220,348 8,617 3.91 % 144,564 657 0.45 % Total interest bearing deposits 1,027,661 27,485 2.67 % 962,585 18,636 1.94 % 1,117,442 2,984 0.27 % Borrowings 36,111 1,691 4.68 % 37,286 1,934 5.19 % - - - Federal Funds Purchased 489 29 5.93 % 2,632 138 5.24 % - - - Junior subordinated debt 3,482 346 9.94 % 3,436 313 9.11 % 3,389 200 5.90 % Total interest bearing liabilities 1,067,743 29,551 2.77 % 1,005,939 21,021 2.09 % 1,120,831 3,184 0.28 % Non-interest bearing liabilities: Demand deposits 370,178 418,091 526,389 Other liabilities 10,597 9,989 9,581 Total liabilities 1,448,518 1,434,019 1,656,801 Shareholders' equity 157,417 139,443 141,123 Total liabilities & shareholders' equity $ 1,605,935 $ 1,573,462 $ 1,797,924 Net interest income (FTE) $ 46,723 $ 49,316 $ 53,880 Interest rate spread 2 2.30 % 2.70 % 3.12 % Cost of funds 2.06 % 1.48 % 0.19 % Interest expense as a percentage of average earning assets 1.96 % 1.43 % 0.19 % Net interest margin (FTE) 3 3.10 % 3.36 % 3.21 % (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%.
The Company had $3.5 million in federal funds purchased as of December 31, 2023 compared to no outstanding balances in federal funds purchased as of December 31, 2022 or 2021. 47 Borrowings, excluding federal funds purchased, consist of the following as of December 31, 2023, 2022, and 2021: (Dollars in thousands) 2023 2022 2021 FHLB advances $ 66,500 $ - $ - Total borrowings $ 66,500 $ - $ - Maximum amount at any month-end during the year $ 66,500 $ - $ 42,575 Annual average balance outstanding $ 37,286 $ - $ 23,700 Annual average interest rate paid 5.19 % 0.00 % 0.82 % Annual average interest rate, including impact of fair value mark 4.87 % 0.00 % -1.18 % Annual interest rate at end of period - - 0.00 % Details on available borrowing lines can be found later under Liquidity in the Asset/Liability Management section. 48 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.
Borrowings, excluding federal funds purchased, consist of the following as of December 31, 2024, 2023, and 2022: (Dollars in thousands) 2024 2023 Federal funds purchased $ 236 $ 3,462 FHLB advances 20,000 66,500 Total borrowings $ 20,236 $ 69,962 Maximum amount at any month-end during the year $ 55,702 $ 80,808 Annual average balance outstanding $ 36,600 $ 39,917 Annual average interest rate paid 4.70 % 5.19 % Annual average interest rate, including impact of fair value mark 4.82 % 4.92 % Details on available borrowing lines can be found later under Liquidity in the Asset/Liability Management section. 50 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.
The Company’s loan portfolio totaled $1.1 billion as of December 31, 2023 or 66.4% of total assets. Loan balances increased $156.3 million, or 16.7%, from the balance of $936.4 million as of December 31, 2022. Note that all loan balances are presented net of credit and other fair value discounts, when applicable.
Loan balances increased $143.3 million, or 13.1%, from the balance of $1.1 billion as of December 31, 2023. Note that all loan balances are presented net of credit and other fair value discounts, when applicable.
The Company’s low-cost deposit accounts, which include both non-interest and interest bearing checking accounts as well as money market accounts, represented 77.4% of total deposit account balances at December 31, 2023 compared to 92.2% of total deposit account balances at December 31, 2022, declining due to the rising rate environment and customers' desires to earn higher rates of interest.
The Company’s low-cost deposit accounts, which include both non-interest and interest bearing checking accounts as well as money market accounts, represented 78.3% of total deposit account balances at December 31, 2024 compared to 77.4% of total deposit account balances at December 31, 2023.
Loan fee income, service charges from deposit accounts, and other non-interest-related revenue, such as fees for debit cards and ATM usage and fees for treasury management services, generate additional income for this segment. • Sturman Wealth Advisors – This segment offered wealth and investment advisory services.
Loan fee income, service charges from deposit accounts, and other non-interest-related revenue, such as fees for debit cards and ATM usage and fees for treasury management services, generate additional income for this segment. • VNB Trust and Estate Services - This segment offers corporate trustee services, trust and estate administration, IRA administration and custody services and offers in-house investment management services.
Impact of Inflation and Changing Prices The Company’s financial statements included herein have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.
Using the most recent capital requirements, the Bank’s capital ratios remain above the levels designated by bank regulators as "well capitalized" at December 31, 2024. 54 Impact of Inflation and Changing Prices The Company’s financial statements included herein have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.
Investment management services currently are offered through affiliated and third-party managers. • Masonry Capital - Masonry Capital offers investment management services for separately managed accounts and a private investment fund employing a value-based, catalyst-driven investment strategy.
Revenue for this segment is generated from administration, service and custody fees, as well as management fees which are derived from Assets Under Management. Investment management services currently are offered through affiliated and third-party managers. • Masonry Capital - Masonry Capital offers investment management services for separately managed accounts and a private investment fund employing a value-based, catalyst-driven investment strategy.
Related Party Transactions The Company and its subsidiaries have business dealings with companies owned by directors and beneficial shareholders of the Company. In 2023 and 2022, leasing/rental expenditures of $543 thousand and $528 thousand respectively, (including reimbursements for taxes, insurance, and other expenses) were paid to an entity indirectly owned by a director of the Company.
In 2024 and 2023, leasing/rental expenditures of $562 thousand and $543 thousand respectively, (including reimbursements for taxes, insurance, and other expenses) were paid to an entity indirectly owned by a director of the Company.
Maturities of time deposits in excess of FDIC insurance limits as of December 31, 2023 were as follows: (Dollars in thousands) Amount Percentage Three months or less $ 44,338 41.6 % Over three months to six months 20,033 18.8 % Over six months to one year 33,497 31.4 % Over one year 8,755 8.2 % Totals $ 106,623 100.0 % Borrowings Borrowings, consisting primarily of FHLB advances and federal funds purchased, are additional sources of funds for the Company.
Maturities of time deposits in excess of FDIC insurance limits as of December 31, 2024 were as follows: (Dollars in thousands) Amount Percentage Three months or less $ 43,967 43.0 % Over three months to six months 31,217 30.6 % Over six months to one year 14,976 14.7 % Over one year 11,938 11.7 % Totals $ 102,098 100.0 % Borrowings Borrowings, consisting primarily of FHLB advances and federal funds purchased, are additional sources of funds for the Company.
The tax-equivalent yield on average earning assets for 2023 of 4.79% was 140 bps higher than the 2022 yield of 3.40%. The 2022 tax-equivalent yield on average earning assets was 25 bps higher than the comparable 2021 yield of 3.15%. Loan yields for 2023 were 5.72%, improving 120 bps from the loan yield of 4.52% for 2022.
The tax-equivalent yield on average earning assets for 2024 of 5.07% was 28 bps higher than the 2023 yield of 4.79%. The 2023 tax-equivalent yield on average earning assets was 139 bps higher than the comparable 2022 yield of 3.40%. Loan yields for 2024 were 5.71%, declining only 1 bp from the loan yield of 5.72% for 2023.
Average Balances and Rates Paid (Dollars in thousands) Years Ended December 31 2023 2022 Average Average Average Average Balance Rate Balance Rate Non-interest bearing demand deposits $ 418,091 $ 526,389 Interest bearing deposits: Interest checking 321,154 0.11 % 409,504 0.06 % Money market and savings deposits 421,083 2.30 % 563,374 0.37 % Time deposits 220,348 3.91 % 144,564 0.45 % Total interest bearing deposits $ 962,585 1.94 % $ 1,117,442 0.27 % Total deposits $ 1,380,676 $ 1,643,831 As of December 31, 2023 and 2022, the estimated amounts of total uninsured deposits were $360.0 million and $459.4 million, respectively.
Average Balances and Rates Paid (Dollars in thousands) Years Ended December 31 2024 2023 Average Average Average Average Balance Rate Balance Rate Non-interest bearing demand deposits $ 370,178 $ 418,091 Interest bearing deposits: Interest checking 269,136 0.10 % 321,154 0.11 % Money market and savings deposits 425,386 2.77 % 421,083 2.30 % Time deposits 333,139 4.63 % 220,348 3.91 % Total interest bearing deposits $ 1,027,661 2.67 % $ 962,585 1.94 % Total deposits $ 1,397,839 $ 1,380,676 49 As of December 31, 2024 and 2023, the estimated amounts of total uninsured deposits were $389.6 million and $360.0 million, respectively.
In 2022, the Company provided $5.1 million for Federal income taxes, resulting in an effective income tax rate of 17.9%. The effective tax rate was lower in 2023 due to the nontaxability of proceeds from bank owned life insurance as a result of the death of a former employee.
In addition, the effective tax rate was lower in 2023 due to the nontaxability of proceeds from bank owned life insurance as a result of the death of a former employee.
The table below shows the composition of the loan portfolio: (Dollars in thousands) As of December 31, 2023 2022 Commercial loans $ 152,517 $ 71,139 Real estate mortgage: Construction and land 33,682 37,541 1-4 family residential mortgages 317,558 323,185 Commercial 550,867 459,125 Total real estate mortgage $ 902,107 $ 819,851 Consumer 38,041 45,425 Total loans $ 1,092,665 $ 936,415 Less: Allowance for credit losses (8,395 ) (5,552 ) Net loans $ 1,084,270 $ 930,863 At December 31, 2023, the loan-to-deposit ratio stood at 77.5%, compared to 63.3% at December 31, 2022.
The table below shows the composition of the loan portfolio: (Dollars in thousands) As of December 31, 2024 2023 Commercial loans $ 257,671 $ 152,517 Real estate mortgage: Construction and land 36,977 33,682 1-4 family residential mortgages 313,610 317,558 Commercial 593,496 550,867 Total real estate mortgage $ 944,083 $ 902,107 Consumer 34,215 38,041 Total loans $ 1,235,969 $ 1,092,665 Less: Allowance for credit losses (8,455 ) (8,395 ) Net loans $ 1,227,514 $ 1,084,270 At December 31, 2024, the loan-to-deposit ratio stood at 86.8%, compared to 77.5% at December 31, 2023.
Subsequent to the date of sale, the Company will receive an annual revenue-share amount for a period of six years. No expenses will be incurred by the Company related to Masonry Capital subsequent to April 1, 2024. The Bank segment earned net income of $19.4 million in 2023, a $2.2 million decrease compared to the $21.6 million netted in 2022.
Subsequent to the date of sale, the Company will receive an annual revenue-share amount for a period of six years. No expenses have been or will be incurred by the Company related to Masonry Capital subsequent to April 1, 2024.
During the year ended December 31, 2023, $49.8 million of securities were sold incurring a pre-tax loss of $206 thousand, as part of a strategic decision to reinvest proceeds into higher yielding assets. During the year ended December 31, 2022, there were no sales of securities.
During the years ended December 31, 2024, and December 31, 2023, $40.0 million and $49.8 million of securities were sold incurring pre-tax losses of $4 thousand and $206 thousand, respectively. All of these sales were part of strategic decisioning to reinvest proceeds into higher yielding assets.
The interest rate on the capital security resets every three months at 1.70% above the then current three-month LIBOR and is paid quarterly. Management is in communication with the issuer regarding the alternative reference rate that will apply after the discontinuance of LIBOR. The Trust II issuance of capital securities and the respective subordinated debentures are callable at any time.
The interest rate on the capital security resets every three months at 1.70% above the then current three-month CME Term SOFR plus a spread adjustment of 0.26% and is paid quarterly. The Trust II issuance of capital securities and the respective subordinated debentures are callable at any time.
At December 31, 2023 and 2022, the Company had loans classified as non-accrual with balances of $1.9 million and $673 thousand, respectively. The non-accrual balance as of December 31, 2023 consists of eight loans to seven borrowers.
At December 31, 2024 and 2023, the Company had loans classified as non-accrual with balances of $2.3 million and $1.9 million, respectively. The non-accrual balance as of December 31, 2024 consists of twelve loans to eleven borrowers and 100% of such balance is secured by real estate.
Depository accounts held by the Company as of December 31, 2023, totaled $1.4 billion, a decrease of $69.2 million or 4.68% compared to the December 31, 2022 total of $1.5 billion. 46 At December 31, 2023, the balances of non-interest bearing demand deposits were $372.9 million or 26.5% of total deposits, a 24.8% decrease from $495.6 million at December 31, 2022. interest bearing transaction and money market accounts totaled $717.7 million at December 31, 2023, a decrease of $149.9 million compared to $0.9 billion at December 31, 2022.
At December 31, 2024, the balances of non-interest bearing demand deposits were $374.1 million or 26.3% of total deposits, a 0.3% increase from $372.9 million at December 31, 2023. Interest bearing transaction and money market accounts totaled $741.0 million at December 31, 2024, an increase of $23.4 million compared to $717.7 million at December 31, 2023.
Volume and Rate Analysis 2023 compared to 2022 Change due to: Increase/ (Dollars in thousands) Volume Rate (Decrease) Assets: Securities $ 677 $ 2,623 $ 3,300 Loans: Real estate (483 ) 10,468 9,985 Commercial 922 616 1,538 Consumer (501 ) 800 299 Total loans (62 ) 11,884 11,822 Federal funds sold (1,857 ) 976 (881 ) Other interest bearing deposits (2,220 ) 1,254 (966 ) Total earning assets $ (3,462 ) $ 16,737 $ 13,275 Liabilities and Shareholders' equity: Interest bearing deposits: Interest checking $ (58 ) 174 $ 116 Money market and savings (657 ) 8,233 7,576 Time deposits 513 7,447 7,960 Total interest bearing deposits (202 ) 15,854 15,652 Short term borrowings - 1,934 1,934 Federal Funds Purchased - 138 138 Junior subordinated debt 3 110 113 Total interest bearing liabilities (199 ) 18,036 17,837 Change in net interest income $ (3,263 ) $ (1,299 ) $ (4,562 ) 2022 compared to 2021 Change due to: Increase/ (Dollars in thousands) Volume Rate (Decrease) Assets: Securities $ 3,815 $ 2,191 $ 6,006 Loans: Real estate 1,833 875 2,708 Commercial (2,780 ) 632 (2,148 ) Consumer (669 ) 441 (228 ) Total loans (1,616 ) 1,948 332 Federal funds sold (13 ) 962 949 Other interest bearing deposits: (21 ) 1,255 1,234 Total earning assets $ 2,165 $ 6,356 $ 8,521 Liabilities and Shareholders' equity: Interest bearing deposits: Interest checking $ 36 (67 ) $ (31 ) Money market and savings 130 (80 ) 50 Time deposits (53 ) (398 ) (451 ) Total interest bearing deposits 113 (545 ) (432 ) Short term borrowings 280 - 280 Junior subordinated debt 14 38 52 Total interest bearing liabilities 407 (507 ) (100 ) Change in net interest income $ 1,758 $ 6,863 $ 8,621 For 2023, net interest income (FTE) of $49.3 million was recognized, a decrease of $4.6 million over 2022.
Volume and Rate Analysis 2024 compared to 2023 Change due to: Increase/ (Dollars in thousands) Volume Rate (Decrease) Assets: Securities $ (4,316 ) $ (491 ) $ (4,807 ) Loans: Real estate 3,919 (383 ) 3,536 Commercial 6,730 579 7,309 Consumer (288 ) (76 ) (364 ) Total loans 10,361 120 10,481 Federal funds sold 566 (8 ) 558 Other interest bearing deposits (170 ) (125 ) (295 ) Total earning assets $ 6,441 $ (504 ) $ 5,937 Liabilities and Shareholders' equity: Interest bearing deposits: Interest checking $ (54 ) (20 ) $ (74 ) Money market and savings 100 2,030 2,130 Time deposits 5,005 1,788 6,793 Total interest bearing deposits 5,051 3,798 8,849 Short term borrowings (59 ) (184 ) (243 ) Federal funds purchased (125 ) 16 (109 ) Junior subordinated debt 4 29 33 Total interest bearing liabilities 4,871 3,659 8,530 Change in net interest income $ 1,570 $ (4,163 ) $ (2,593 ) 2023 compared to 2022 Change due to: Increase/ (Dollars in thousands) Volume Rate (Decrease) Assets: Securities $ 677 $ 2,623 $ 3,300 Loans: Real estate (483 ) 10,468 9,985 Commercial 922 616 1,538 Consumer (501 ) 800 299 Total loans (62 ) 11,884 11,822 Federal funds sold (1,857 ) 976 (881 ) Other interest bearing deposits: (2,220 ) 1,254 (966 ) Total earning assets $ (3,462 ) $ 16,737 $ 13,275 Liabilities and Shareholders' equity: Interest bearing deposits: Interest checking $ (58 ) 174 $ 116 Money market and savings (657 ) 8,233 7,576 Time deposits 513 7,447 7,960 Total interest bearing deposits (202 ) 15,854 15,652 Short term borrowings - 1,934 1,934 Federal funds purchased - 138 138 Junior subordinated debt 3 110 113 Total interest bearing liabilities (199 ) 18,036 17,837 Change in net interest income $ (3,263 ) $ (1,299 ) $ (4,562 ) For 2024, net interest income (FTE) of $46.7 million was recognized, a decrease of $2.6 million over 2023.
Included in this deposit total were reciprocal relationships under CDARS™, whereby depositors can obtain FDIC insurance on deposits up to $50 million. These reciprocal CDARS™ deposits totaled $5.5 million and $4.0 million at December 31, 2023 and 2022, respectively.
Certificates of deposit and other time deposit balances decreased $10.1 million to $308.4 million at December 31, 2024 from the balance of $318.6 million at December 31, 2023. Included in this deposit total were reciprocal relationships under CDARS™, whereby depositors can obtain FDIC insurance on deposits up to $50 million.
(Dollars in thousands) December 31, 2023 December 31, 2022 Amount Percent Amount Percent U.S. treasury securities $ 121,708 29 % $ 242,470 45 % U.S. government agencies 39,581 9 % 28,755 6 % MBS/CMOs 155,144 37 % 167,076 31 % Corporate bonds 19,129 5 % 18,729 3 % Municipal bonds 85,033 20 % 81,156 15 % Total available for sale securities at fair value $ 420,595 100 % $ 538,186 100 % All mortgage-backed securities included in the above tables were issued by U.S. government agencies and corporations.
Government agencies 29,635 11 % 39,581 9 % MBS/CMOs 132,811 50 % 155,144 37 % Corporate bonds 17,591 7 % 19,129 5 % Municipal bonds 82,007 31 % 85,033 20 % Total available for sale securities at fair value $ 263,537 100 % $ 420,595 100 % All mortgage-backed securities included in the above tables were issued by U.S. government agencies and corporations.
Activity for the allowance for credit losses is provided in the following table: As of and for the year ended December 31, 2023 (Dollars in thousands) Commercial Loans Real Estate Construction and Land 1-4 Family Residential Mortgages Real Estate Mortgages Consumer Loans Total Allowance for Credit Losses: Balance as of beginning of year $ 194 $ 221 $ 1,618 $ 2,820 $ 699 $ 5,552 Impact of ASC 326 adoption (11 ) 440 14 1,577 471 2,491 Charge-offs - - - - (721 ) (721 ) Recoveries 168 - 10 42 157 377 Provision for (recovery of) credit losses (158 ) (199 ) (150 ) 822 381 696 Balance at end of year $ 193 $ 462 $ 1,492 $ 5,261 $ 987 $ 8,395 Average loans $ 100,122 $ 35,767 $ 317,355 $ 486,204 $ 41,140 $ 980,588 Net charge-offs (recoveries) to average loans -0.17 % 0.00 % 0.00 % -0.01 % 1.37 % 0.04 % 45 As of and for the year ended December 31, 2022 (Dollars in thousands) Commercial Loans Real Estate Construction and Land 1-4 Family Residential Mortgages Real Estate Mortgages Consumer Loans Total Allowance for Loan Losses: Balance as of beginning of year $ 252 $ 399 $ 1,207 $ 3,271 $ 855 $ 5,984 Charge-offs (600 ) - - - (654 ) (1,254 ) Recoveries 519 9 7 4 178 717 Provision for (recovery of) loan losses 23 (187 ) 404 (455 ) 320 105 Balance at end of year $ 194 $ 221 $ 1,618 $ 2,820 $ 699 $ 5,552 Average loans $ 81,410 $ 59,564 $ 335,169 $ 452,505 $ 49,619 $ 978,267 Net charge-offs (recoveries) to average loans 0.10 % -0.02 % 0.00 % 0.00 % 0.96 % 0.05 % As of December 31, 2023, the ACL was $8.4 million, an increase of $2.8 million from $5.6 million at December 31, 2022, due to the adoption of CECL and increased balances in the loan portfolio.
Financial Statements and Supplementary Data for further details regarding the Company’s loan asset quality measurements. 47 Activity for the ACL is provided in the following table: As of and for the year ended December 31, 2024 (Dollars in thousands) Commercial Loans Real Estate Construction and Land 1-4 Family Residential Mortgages Real Estate Mortgages Consumer Loans Total Allowance for Credit Losses: Balance as of beginning of year $ 193 $ 462 $ 1,492 $ 5,261 $ 987 $ 8,395 Charge-offs (288 ) - - - (471 ) (759 ) Recoveries 723 - 11 573 230 1,537 Provision for (recovery of) credit losses 132 275 1,048 (2,301 ) 128 (718 ) Balance at end of year $ 760 $ 737 $ 2,551 $ 3,533 $ 874 $ 8,455 Average loans $ 220,276 $ 36,757 $ 312,533 $ 559,066 $ 37,013 $ 1,165,645 Net charge-offs (recoveries) to average loans -0.20 % 0.00 % 0.00 % -0.10 % 0.65 % -0.07 % As of and for the year ended December 31, 2023 (Dollars in thousands) Commercial Loans Real Estate Construction and Land 1-4 Family Residential Mortgages Real Estate Mortgages Consumer Loans Total Allowance for Loan Losses: Balance as of beginning of year $ 194 $ 221 $ 1,618 $ 2,820 $ 699 $ 5,552 Impact of ASC 326 adoption (11 ) 440 14 1,577 471 2,491 Charge-offs - - - - (721 ) (721 ) Recoveries 168 - 10 42 157 377 Provision for (recovery of) loan losses (158 ) (199 ) (150 ) 822 381 696 Balance at end of year $ 193 $ 462 $ 1,492 $ 5,261 $ 987 $ 8,395 Average loans $ 100,122 $ 35,767 $ 317,355 $ 486,204 $ 41,140 $ 980,588 Net charge-offs (recoveries) to average loans -0.17 % 0.00 % 0.00 % -0.01 % 1.37 % 0.04 % As of December 31, 2024, the ACL was $8.5 million, an increase of $60 thousand from $8.4 million at December 31, 2023, due to the increased balances in the loan portfolio and also impacted by net recoveries of previously charged-off loans due to strong and successful collection efforts.
(Dollars in thousands) December 31, December 31, Variance 2023 2022 $ % Noninterest expense: Salaries and employee benefits $ 15,900 $ 17,260 $ (1,360 ) -7.9 % Net occupancy 4,017 4,526 (509 ) -11.2 % Equipment 762 897 (135 ) -15.1 % Bank franchise tax 1,220 1,216 4 0.3 % Computer software 778 1,136 (358 ) -31.5 % Data processing 2,799 2,727 72 2.6 % FDIC deposit insurance assessment 710 511 199 38.9 % Marketing, advertising and promotion 1,098 1,224 (126 ) -10.3 % Plastics expense 177 394 (217 ) -55.1 % Professional fees 674 1,357 (683 ) -50.3 % Core deposit intangible amortization 1,493 1,684 (191 ) -11.3 % Impairment on assets held for sale - 242 (242 ) - Other 4,435 5,382 (947 ) -17.6 % Total noninterest expense $ 34,063 $ 38,556 $ (4,493 ) -11.7 % Noninterest expense of $34.1 million for the year ended December 31, 2023 decreased $4.5 million from the prior year, predominantly due to continued efficiencies gained from the Merger in the areas of salaries and employee benefits, occupancy and professional fees.
(Dollars in thousands) December 31, December 31, Variance 2024 2023 $ % Noninterest expense: Salaries and employee benefits $ 15,933 $ 15,900 $ 33 0.2 % Net occupancy 3,662 4,017 (355 ) -8.8 % Equipment 720 762 (42 ) -5.5 % Bank franchise tax 1,452 1,220 232 19.0 % Computer software 917 778 139 17.9 % Data processing 2,647 2,799 (152 ) -5.4 % FDIC deposit insurance assessment 700 710 (10 ) -1.4 % Marketing, advertising and promotion 730 1,098 (368 ) -33.5 % Professional fees 894 674 220 32.6 % Core deposit intangible amortization 1,301 1,493 (192 ) -12.9 % Other 4,710 4,612 98 2.1 % Total noninterest expense $ 33,666 $ 34,063 $ (397 ) -1.2 % Noninterest expense of $33.7 million for the year ended December 31, 2024 decreased $397.0 thousand from the prior year, predominantly due to continued efficiencies gained from the Merger in the areas of occupancy and data processing.
(Dollars in thousands) Change in Net Interest Income Change in Yield Curve Percentage Amount +400 bps 27.34 % $ 25,452 +300 bps 19.93 % 18,558 +200 bps 12.91 % 12,016 +100 bps 5.95 % 5,542 Base case 0.00 % - -100 bps -2.25 % (2,096 ) -200 bps -5.04 % (4,694 ) -300 bps -8.16 % (7,597 ) -400 bps -8.90 % (8,284 ) In addition to monitoring the effects to interest income, the model computes the effects to the economic value of equity using the same “static” balance sheet with immediate and parallel rate changes for the same rate change horizons.
(Dollars in thousands) Change in Net Interest Income Change in Yield Curve Percentage Amount +400 bps -3.73 % $ (3,975 ) +300 bps -3.12 % (3,332 ) +200 bps -2.48 % (2,646 ) +100 bps -1.89 % (2,012 ) Base case 0.00 % - -100 bps 0.89 % 944 -200 bps 0.71 % 754 -300 bps 2.66 % 2,842 -400 bps 1.88 % 2,006 In addition to monitoring the effects to interest income, the model computes the effects to the economic value of equity using the same “static” balance sheet with immediate and parallel rate changes for the same rate change horizons.
The increase in rates in all categories of loans were the primary drivers of the increase in interest income from 2022 to 2023. The increase in the average balance of commercial loans as well as the increases in volume and rate of the securities portfolio from 2022 to 2023 also contributed to the increase in net interest income.
The increase in the average balance of loans in the real estate and commercial categories were the primary drivers of the increase in interest income from 2023 to 2024.

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