VABK 10-K & 10-Q changes, risk factors and insider trading

The Company’s business is subject to risk. The following discussion, along with management’s discussion and analysis, the information contained in “Forward LookingForward-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 future business, financial condition or results of operations, and that investors in the Company’s securities should carefully consider. References to past events in these risk factors are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. 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.

On January 1, 2023, the Company adopted ASC 326, more commonly referred to as "CECL," which replaced prior accounting principles for the recognition of loan losses based on losses that have been incurred with a requirement to record an allowance for credit losses that represents expected credit losses over the lifetime of all loans in the Company’s portfolio. Under ASC 326, the Company’s estimate of expected credit losses is based on reasonable and supportable forecasts of future economic conditions and loan performance. 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. 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.

The level of the ACL reflectedreflects 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 determination of the appropriate level of the ACL inherently involvedinvolves a high degree of subjectivity and requiredrequires the Company to make significant estimates of credit risks and future trends, all of which could undergo material changes. Although the Company believedbelieves the ACL wasis a reasonable estimate of known and inherent losses in the loan portfolio at the time,portfolio, it could notcannot precisely predict such losses or be certain that the ACL wouldwill be adequate in the future. Deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside the Company’s control, may have requiredrequire an increase in the ACL. In addition, bank regulatory agencies and the Company’s auditors periodically reviewedreview its ACL and may have requiredrequire an increase in the provision for loancredit 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.

The Company is directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. As a financial institution, market risk is inherent in the financial instruments associated with the Company’s operations and activities, including loans, deposits, securities, and short-term borrowings. A few of the market conditions that may shift from time-to-time, thereby exposing the Company to market risk, include fluctuations in interest rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or actual credit quality of issuers. The Company’s investment securities portfolio, in particular, may be impacted by market conditions beyond its control, including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and inactivity or instability in the credit markets. Any changes in these conditions, in current accounting principles or interpretations of these principles could impact the Company’s assessment of fair value and thus the determination of other-than-temporarythe impairmentneed offor thean allowance for credit loss on securities in the investment securities portfolio, which could adversely affect the Company’s earnings and capital ratios.

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[.condition.

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. 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. 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. Events in the financial services industry, such as the high-profile bank failures in 2023, may also cause concern 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.]

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. Price-wage inflation may cause the Company to give higher than normal raises to employees and start new employees at a higher wage. Furthermore, the Company’s customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with the Company. As market interest rates rise, the value of the Company’s investment securities generally decreases, although this effect can be less pronounced for floating rate instruments. Higher interest rates reduce the demand for loans and increase the attractiveness of alternative investment and savings products, like U.S. Treasury securities and money market funds, which can make it difficult to attract and retain deposits.

The Company faces strong and growing competition from financial services companiesinstitutions and other companies that offer banking and other financial services, which could negatively affect the Company’s business.

The Company encounters substantial competition from other financial institutions in its market area and competition is increasing. Ultimately, the Company may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that the Company offers in its service area. These competitors include national, regional and community banks. The Company also faces competition from many other types of financial institutions,services companies, including finance companies, mutual and money market fund providers, brokerage firms, insurance companies, credit unions, financial subsidiaries of certain industrial corporations and financial technology companies. Increased competition may result in reduced business for the Company.

In addition, multiple major U.S. retailers have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information and other financial or privileged data. Retailer incursions affect cards issued and deposit accounts maintained by many banks, including Virginia Nationalthe Bank. Although the Company’s systems are not breached in retailer incursions, these events can cause it to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Company and its customers. In some cases, the Company may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within the Company’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers, electronic data security providers, data processing service providers, telecommunications companies, and smart phone manufacturers.

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. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect the Company in substantial and unpredictable ways. Such additionalAdditional regulation and supervision has increased, and may continue to increase, the Company’s costs and limit its ability to pursue business opportunities. Further, the Company’s failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject it to restrictions on its business activities, fines and other penalties, any of which could adversely affect the Company’s results of operations, capital base and the price of its securities. 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.

The Company is a “smaller reporting company” as defined in federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that the market value of its voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of its second fiscal quarter, or its annual revenues are less than $100 million during the most recently completed fiscal year and the market value of its voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last business day of its second fiscal quarter.laws. Smaller reporting companies have reduced disclosure obligations, such as an exemption from providing selected financial data and an ability to provide simplified executive compensation information and only two years of audited financial statements. 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.

The accounting and reporting policies of the Company conform to GAAP and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance. These include adjusted tangible book value per share and the following fully-taxable equivalent measures: net interest income-FTE, efficiency ratio-FTE and net interest margin-FTE. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21% that was applicable for all periods presented.

Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of (1) balances of intangible assets, including goodwill, that vary significantly between institutions and (2) tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered an alternative toto, or more important than, GAAP-basis financial statements, and other banks and bank holding companies may define or calculate these or similar measures differently. Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.”

Net income for the year ended December 31, 20242025 was $19.3 million, or $3.55 per diluted share, a 13.5% increase compared to $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, 2023.2024. This decreaseincrease was the result of a $2.6$5.1 million decreaseincrease in net interest income and a $1.5 million decrease in noninterest income, offset by a $397.0$282.0 thousand decrease in noninterest expense. Each component of such year-over-year changes are described in more detail below.

The efficiency ratio (FTE) (non-GAAP) was 62.0%57.6% for the year ended December 31, 2024,2025, compared to 58.3%62.0% for the same period of 2023,2024, increasing due to the fluctuations in net interest income, noninterest income and noninterest expense noted above.

The Company had threetwo reportable segments during the periods2025 presentedperiod: the Bank and VNB Trust and Estate Services and three in the 2024 period: the Bank, VNB Trust and Estate Services and Masonry Capital.

Masonry Capital (Masonry) - 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 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 CompanyMasonry 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. No expenses have been or will be incurred by the Company related to Masonry Capital subsequent to April 1, 2024.

The Bank segment earned net income of $17.2$19.6 million in 2024,2025, a $2.2$2.3 million decreaseincrease compared to the $19.4$17.2 million netted in 2023.2024. VNB Trust and Estate Services realized a net loss of $275.0$306 thousand in 2024,2025, compared to a net loss of $307.0$275 thousand in 2023.2024. Masonry Capital realized a net loss of $2 thousand in the first quarter of 2024 prior to the sale of the business line, compared to net income of $145 thousand in 2023.2024.

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 interest income represents the principal source of revenue for the Company and accounted for 85.9%89.4% of the total revenue in 2024.2025. Net interest margin (FTE) (non-GAAP) is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest bearing liabilities impact net interest income (FTE) (non-GAAP) and net interest margin (FTE) (non-GAAP).

The following table details the average balance sheet, including an analysis of net interest income (FTE) (non-GAAP) for earning assets and interest bearing liabilities, for the years ended December 31, 2025, 2024, 2023, and 2022.2023.

Consolidated Average Balance Sheets and Analysis of Net Interest Income (FTE) (non-GAAP)

The purpose of the volume and rate analysis below is to describe the impact on the net interest income (FTE) (non-GAAP) of the Company resulting from changes in average balances and average interest rates for the periods indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. Interest income is reported on a tax-equivalent basis.

For 2024,2025, net interest income (FTE) (non-GAAP) of $46.7$51.9 million was recognized, aan decreaseincrease of $2.6$5.1 million over 2023.2024. Net interest income (FTE) (non-GAAP) for 20232024 totaled $49.3$46.7 million, a $4.6$2.6 million decrease over the 20222023 total of $53.9$49.3 million. Average earning assets increased $19.2 million or 1.3% in 2025 compared to 2024 and increased $37.8 million or 2.6% in 2024 compared to 2023 and decreased $212.1 million or 12.6% in 2023 compared to 2022.2023. The increase in the average balance of loans in the real estate and commercial categories werewas the primary driversdriver of the increase in interest income from 2024 to 2025, whereas the 2023 to 2024.2024 change in interest income was primarily driven by interest rate changes. The average balance for loans as a percentage of earnings assets for 20242025 was 77.5%,80.9%, compared to 66.8%77.5% and 58.3%66.8% in 20232024 and 2022,2023, respectively.

The 2025 net interest margin (FTE) (non-GAAP) improved 30 bps to 3.40% from 3.10% in 2024. The 2024 net interest margin (FTE) (non-GAAP) 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. The tax-equivalent yield on average earning assets for 20242025 of 5.07%5.09% was 282 bps higher than the 20232024 yield of 4.79%.5.07%. The 20232024 tax-equivalent yield on average earning assets was 13928 bps higher than the comparable 20222023 yield of 3.40%.4.79%. Loan yields for 20242025 were 5.71%,5.65%, declining only6 1 bpbps from the loan yield of 5.72%5.71% for 2023.2024. Average loans for 20242025 of $1.2 billion were $185.1$66.5 million higher than the 20232024 average of $980.6$1.2 million.billion.

The increasedecrease in rates paid on deposits in 20242025 compared to 20232024 negativelypositively impacted net interest income. Interest expense as a percentage of average earning assets increaseddecreased to 196169 bps for 2024, compared to 143 bps and 19 bps for 2023 and 2022, respectively.2025. 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. A continuing primary driver of the Company’s low cost of funds compared to peers is the Company’s level of non-interest bearing demand deposits and low-cost deposit accounts. Following is a table illustrating the average balances of deposit accounts as a percentage of total deposit account balances.

Based on management’smanagement's continuing evaluation of the loan portfolio in 2024,2025, the Company recorded a provision for credit losses of $137 thousand, which includes a $75 thousand provision for unfunded commitments, compared to a net recovery of provision for credit lossesexpense of $600 thousand, which is net ofincluded a $118 thousand provision for unfunded commitments, comparedin 2024. The 2025 individual differences in the balances of various pools as well as changing loss rates have resulted in only nominal changes to provisionthe expenseoverall ACL ratio. The proportionate increase in government-guaranteed loans over the respective periods is also a main driver holding the ACL as a percentage of $734total thousand,loans whichfairly includessteady a $38 thousand provision for unfunded commitments, in 2023 and provision expense of $106 thousand in 2022.year-over-year. The decrease in 2024 is primarily the result of the impact of declining expected loss rates on most of the pools of loans within the CECL segmentation. 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 following is a summary of the changes in the ACL for the years ended December 31, 2024, 2023,2025 and 20222024:

Noninterest expense of $33.7$33.4 million for the year ended December 31, 20242025 decreased $397.0$282 thousand from the prior year,year. This decrease was predominantly due to continued$666 efficienciesthousand gainedless in data processing expenses resulting from thecontract Mergernegotiations inwith the areasCompany's ofcore occupancy and data processing. In addition, management reduced the level of marketing, advertising and promotion expense in 2024 compared to 2023.provider. Normal, recurring increases in salaries and employee benefits in the form of merit increases and benefit costs were offset by a reduction in salariesheadcount andduring employee benefits related to Masonry, as that business line was sold effective April 1, 2024.2025. At December 31, 2024,2025, the Company had 146144 full-time equivalent employees compared to 155146 at December 31, 2023.2024.

During the yearsyear ended December 31, 2025, the Company did not sell any securities. During the year ended December 31, 2024, and December 31, 2023, $40.0 million and $49.8 million of securities were sold incurring a pre-tax lossesloss of $4 thousandthousand. and $206 thousand, respectively. All of theseThese sales were part of strategic decisioning to reinvest proceeds into higher yielding assets. Management proactively manages the mix of earning assets and cost of funds to maximize the earning capacity of the Company.

All mortgage-backed securities included in the above tables were issued by U.S. government agencies and corporations. At December 31, 2025, the securities issued by political subdivisions or agencies were highly rated with 98% 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, 2025.The Company’s holdings of restricted securities totaled $6.2 million and $8.4 million at December 31, 20242025 and December 31, 2023, respectively,2024, 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 Bank is required to hold stock in the Federal Reserve Bank and the FHLB as a condition of membership with each of these correspondent banks. The amount of stock required to be held by the Bank is periodically assessed by each bank, and the Bank may be subject to purchase or surrender stock held in these banks, as determined by their respective calculations. 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.

The Company’s objective is to maintain the historically strong credit quality of the loan portfolio by maintaining rigorous underwriting standards. These standards coupled with regular evaluation of the creditworthiness of, and the designation of lending limits for, each borrower has helped the Company achieve this objective. The primary portfolio strategy includes seeking industry and loan size diversification in order to minimize credit exposure and originating loans in markets with which the Company is familiar. The predominant market area for loans includes Charlottesville, Albemarle County, Fauquier County, Prince William County, Winchester, Frederick County, Manassas, and Richmond,the Richmond metropolitan area, as well as other areas in Virginia, Maryland, West Virginia and the District of Columbia.

The following table details the Company's levels of non-owner occupied commercial real estate as of December 31, 2025 and 2024, and along with the average loan size and % of risk ratings for each category:

Total loans at December 31, 20242025 and 20232024 included loans purchased in connection with the Merger. These loans were recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for loan loss. The following table presents the outstanding principal balance and the carrying amount of purchased loans as of December 31, 2025 and 2024:

At December 31, 20242025 and 2023,2024, the Company had loans classified as non-accrual with balances of $2.3$2.2 million and $1.9$2.3 million, respectively. The non-accrual balance as of December 31, 20242025 consists of twelvefourteen loans to eleventwelve borrowers and 100% of such balance is secured by real estate.

Loans 90 days or more past due and still accruing interest amounted to $7.0 million as of December 31, 2025, compared to $754 thousand as of December 31, 2024, compared to $879 thousand as of December 31, 2023.2024. The 20242025 balance includes threeseven loans totaling $705$6.6 thousandmillion which are 100% government-guaranteed, one loan for $391 thousand fully secured by residential real estate, and three student loans totaling $49$86 thousand. No CRE loans were 90 days or more past due as of December 31, 2024.2025.

As of December 31, 2024,2025, the ACL was $8.5$8.3 million, ana increasedecrease of $60$185 thousand from $8.4 million at December 31, 2023,2024, due to theindividual increased balancesdifferences in the loan portfolio and also impacted by net recoveriesbalances of previouslyvarious charged-offpools loansas duewell toas strongchanging andloss successful collection efforts.rates. Management’s estimates for the ACL resulted in nominal changes to the Company’s ACL to total loans outstanding ratio of 0.67% at December 31, 2025, compared to 0.68% at December 31, 2024,2024. comparedThe togovernment-guaranteed 0.77%loans atdo Decembernot 31,require 2023.an ACL as they are 100% guaranteed.

During 2025, there were $453 thousand in loan balances charged off, with a total of $206 thousand in recoveries of previously charged-off balances, resulting in net charge-offs of negative $247 thousand. 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. 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%0.02% and -0.07% (net recovery) and 0.04% for 20242025 and 2023,2024, respectively.

At December 31, 2024,2025, the balances of non-interest bearing demand deposits were $374.1$362.3 million or 26.3%25.3% of total deposits, a 0.3%3.1% increasedecrease from $372.9$374.1 million at December 31, 2023.2024. Interest bearing transaction and money market accounts totaled $778.1 million at December 31, 2025, an increase of $37.1 million compared to $741.0 million at December 31, 2024, an increase of $23.4 million compared to $717.7 million at December 31, 2023.2024. 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, 2024,2025, the reciprocal ICS® balances included in demand deposit and money market accounts were $44.5$60.8 million and $122.1$139.6 million, respectively. The Company’s low-cost deposit accounts, which include both non-interest and interest bearing checking accounts as well as money market accounts, represented 79.7% of total deposit account balances at December 31, 2025 compared to 78.3% of total deposit account balances at December 31, 2024 compared to 77.4% of total deposit account balances at December 31, 2023.2024.

The Company has a collateral dependent line of credit with the FHLB. As of December 31, 2025 and 2024, the Company had $20.0 million in outstanding advances from the FHLB, compared to $66.5 million in outstanding advances as of December 31, 2023.FHLB.

Additional borrowing arrangements maintained by the Bank include formal federal funds lines with five correspondent banks. The Company had $236 thousand inno federal funds purchased as of December 31, 20242025 compared to $3.5$236 million at of December 31, 2023 and no outstanding balancethousand at December 31, 2022.2024.

Borrowings, excluding federal funds purchased,Borrowings consist of the following as of December 31, 2024, 2023,2025 and 2022:2024.

Any excess funds are sold on a daily basis in the federal funds market or maintained on account at the Federal Reserve. The Company maintained an average of $14.7$20.0 million outstanding in federal funds sold, and an average of $8.2$7.8 million at the Federal Reserve during 2024.2025. On the liability side of the balance sheet, the Company maintained an average of $36.1$40.0 million in FHLB advances and $489$569 thousand in federal funds purchased during 2024.2025. On December 31, 20242025 the Company had a $20 million balance in FHLB advances and a $236 thousandno balance outstanding in federal funds purchased. The Company intends to maintain sufficient liquidity at all times to meet its funding commitments.

In the normal course of business, the Company and its subsidiaries enter into contractual obligations, including obligations on lease arrangements, contractual commitments for capital expenditures, and service contracts. The significant contractual obligations include the leasing of certain of its banking and operations offices under operating lease agreements on terms ranging from 1 to 10 years, most with renewal options. During the second quarter of 2025, the Company extended the ground lease associated with the Pantops headquarters for an additional five-year period.

During the quarter ended MarchJune 31,30, 2026, there have been no material changes from the risk factors described in the Company’s Form 10-K for the year ended December 31, 2025. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered not to be material also may materially adversely affect our business, financial condition and/or operating results.

The following discussion should be read in conjunction with the unaudited consolidated financial statements, and notes thereto, of Virginia National Bankshares Corporation included in this report and the audited consolidated financial statements, and notes thereto, of the Company included in the Company’s Form 10-K for the year ended December 31, 2025. Operating results for the three and six months ended MarchJune 31,30, 2026 are not necessarily indicative of the results for the year ending December 31, 2026 or any future period.

Certain statements in this report may containbe “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements concerning future results of operations or financial position, borrowing capacity and future liquidity, future investment results, future credit exposure, future loan losses, plans and objectives for future operations, changes in laws and regulations applicable to the Company and its subsidiaries, adequacy of funding sources, actuarial expected benefit payments, valuation of foreclosed assets, regulatory requirements, economic environment and other statements contained herein regarding matters that are not historical facts. Such statements are often characterized by use of qualified words such as “expect,” “believe,” “estimate,” “project,” “anticipate,” “intend,” “will,” “should,” or words of similar meaning or their derivatives, or other statements concerning the opinions or judgment of the Company and its management about future events. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only management’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside management’s control. Although the Company believes that management’s expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of the Company’s business and operations, there can be no assurance that actual future results, performance, or achievements of, or trends affecting, the Company will not differ materially from any projected future results, performance, achievements or trends expressed in or implied by such forward-looking statements. Any forward-looking statements made by the Company speak only as of the date on which such statements are made, and the Company does not undertake to update any forward-looking statements to reflect changes or events that may occur after the date of this report. The Company’s actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements.

Factors that could cause the Company's actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; liquidity and capital requirements; market disruptions including trade restrictions, tariffs, pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crisis,crises, political crises, war and other military conflicts or other major events, the governmental and societal responses thereto, or the prospect of these events; changes, particularly declines, in general economic and market conditions in the local economies in which the Company operates, including the effects of declines in real estate values; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve; the impact of changes in laws, regulations and guidance related to financial services, including, but not limited to, taxes, banking, securities and insurance; changes in accounting principles, standards, policies and guidelines; the financial condition of the Company’s borrowers; the Company's ability to attract, hire, train and retain qualified employees; an increase in unemployment levels; competitive pressures on loan and deposit pricing and demand; fluctuation in asset quality; assumptions that underlie the Company’s ACL; the value of securities held in the Company's investment portfolio; performance of assets under management; cybersecurity threats or attacks and the development and maintenance of reliable electronic systems; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the risks and uncertainties described from time-to-time in the Company’s press releases and filings with the SEC; and the Company’s performance in managing the risks involved in any of the foregoing.

ROAE for the three months ended MarchJune 31,30, 2026 was 11.34%18.81% compared to 11.05% realized10.05% in the same period in the prior year. ROAE for the six months ended June 30, 2026 was 15.14% compared to 10.54% realized in the same period in the prior year.

Net income per diluted share was $0.97$1.65 for the three months ended MarchJune 31,30, 2026, compared to $0.83$0.78 for the same period in the prior year. TheNet income per diluted share was $2.62 for the six months ended June 30, 2026 compared to $1.61 for the same period over period increases were due toin the riseprior in net income, as described below.year.

Tangible book value per share (non-GAAP) increased to $32.51$34.05 as of MarchJune 31,30, 2026, compared to $28.84$29.63 as of MarchJune 31,30, 2025. The increase isreflects the result of total equity increasing period over period, coupled with the offsetting impact of intangiblethe assetsCompany's decliningearnings overperformance that the sameCompany period.posts as well as the gain from the Bearing transaction in the second quarter of 2026.

For additional information regarding critical accounting policies, refer to the Application of Critical Accounting Policies and Critical Accounting Estimates section under Item 8 in the Company’s 2025 Form 10-K.10-K, there have been no changes since that time.

The total assets of the Company as of MarchJune 31,30, 2026 were $1.6 billion. This is a $1.6$11.5 million, or 0.1%,0.7%, decrease from total assets reported at December 31, 2025.

The Company’s investment securities portfolio as of MarchJune 31,30, 2026 totaled $246.6$241.0 million, a decrease of $7.5$13.2 million compared with the $254.2 million reported at December 31, 2025. The decrease from year-end was the result of maturities and normal cash flow.flow from paydowns. Paydowns within the securities portfolio areprovide beingadditional heldliquidity inallowing overnightthe investmentsCompany to fundtake loanadvantage of investment opportunities that complement its growth asand demandsearnings arise.strategies. At MarchJune 31,30, 2026 and December 31, 2025, the investment securities holdings represented 15.0%14.7% and 15.4% of the Company’s total assets, respectively.

The Company’s investment securities portfolio included restricted securities totaling $6.2 million as of MarchJune 31,30, 2026 and December 31, 2025. These securities represent stock in the FRB, the FHLB, CBB Financial Corporation (the holding company for Community Bankers' Bank), and an investment in an SBA loan fund. The level of FRB and FHLB stock that the Company is required to hold is determined in accordance with membership guidelines provided by the Federal Reserve and the FHLB, respectively. Stock ownership in CBB Financial Corporation provides the Company with several benefits that are not available to non-shareholder correspondent banks. None of these restricted securities are traded on the open market and can only be redeemed by the respective issuer.

At MarchJune 31,30, 2026, the unrestricted securities portfolio totaled $240.4$234.8 million. The following table summarizes the Company's AFS securities by type as of MarchJune 31,30, 2026, and December 31, 2025 (dollars in thousands):

A management objective is to grow loan balances while maintaining the asset quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of, and the designation of lending limits for, each borrowing relationship. The portfolio strategies include seeking industry, loan size, and loan type diversification to minimize credit exposure and originating loans in markets with which the Company is familiar. The Company's geographical trade area includes localities in Virginia, Maryland andMaryland, the District of Columbia and West Virginia.

Total loans were $1.2 billion as of MarchJune 31,30, 2026 and December 31, 2025. Loans as a percentage of total assets at MarchJune 31,30, 2026 were 75.1%,75.3%, compared to 75.0% as of December 31, 2025.

The following table summarizes the Company's loan portfolio by type of loan as of MarchJune 31,30, 2026 and December 31, 2025 (dollars in thousands):

Despite strong loan originations in the first quarterhalf of 2026, loan balances remaineddeclined flat$3.6 whenmillion compared tofrom December 31, 2025.2025 to June 30, 2026. During the first three monthshalf of 2026, the Company funded $39.0$85 million in loans, which was comprised of $28.0$64 million in organic loan production and $11.0$21 million of purchased government guaranteed loans. PaydownsPayoffs and normal amortization offset the loans funded during the first quarter.half of 2026.

The following table details the Company's levels of non-owner occupied commercial real estate as of MarchJune 31,30, 2026, along with the average loan size and percentage of risk ratings for each category (dollars in thousands):

Nonaccruals - Nonaccrual loans, comprised of fourteen loans to twelve borrowers, totaled $2.1 million at MarchJune 31,30, 2026, compared to $2.2 million reported at December 31, 2025.

Past Due Loans - The Company had loans in its portfolio totaling $3.8$3.7 million, and $7.0 million as of MarchJune 31,30, 2026, and December 31, 2025, respectively, that were 90 or more days past due and still accruing interest as the Company deemed them to be collectible. The past due balance as of MarchJune 31,30, 2026 is comprised of four loans totaling $3.7$3.6 million which are 100% government-guaranteed, and sevensix student loans totaling $92$66 thousand.

Troubled Loan Modifications - No loans were modified during the three and six months ended MarchJune 31,30, 2026 or 2025.

The ACL on loans as a percentage of loans was 0.64%0.66% as of MarchJune 31,30, 2026 and 0.67% as of December 31, 2025, and the fair value mark that was allocated to the acquired loans was $4.3$3.9 million as of MarchJune 30, 2026 and $4.7 million as of December 31, 2026.2025.

Recoveries of credit losses on loans totaling $281$144 thousand and $105$15 thousand were recorded in the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. The following is a summary of the changes (dollars in thousands):

Management has elected to perform an individual evaluation on all loans in nonaccrual status. As of MarchJune 31,30, 2026 and 2025, after reviewing each loan no specific reserve was deemed necessary.

The primary driver in the $281$144 thousand provision release from December 31, 2025 to MarchJune 31,30, 2026 was the migrationresult of loansa to pools requiring lower reserve rates such as the conversioncombination of constructionsevents. loansThe to permanent loan pools. Improvement in theimproved economic forecast in the first quarter of 2026 resulteddrove improvement in reductionsfactors and thus overall lower reserves. During the first quarter, a significant number of construction loans converted to permanent financing into pools with lower reserve rates. Even though second quarter origination activity was brisk, it did not overtake the releases warranted due to the lossbalance factors associated with the organic loan portfolio.decrease. These changes led to the reduction in the ACL on loans as a percentage of loans of 31 bps from 0.67% to 0.64% in the first quarter of 2026 fromat December 31, 2025.2025 to 0.66% at June 30, 2026. The provision for unfunded commitments decreasedincreased by $55$36 thousand from December 31, 2025 to MarchJune 31,30, 2026 due to a declinesecond quarter increase in unfunded commitments.

The balance in government-guaranteed loans, which do not require an ACL, decreased $741$2.3 thousandmillion from December 31, 2025 to MarchJune 31,30, 2026, from $227.5 million to $226.8$225.2 million.

Management reviews the ACL on a quarterly basis to ensure it is adequate based upon the calculated probable losses inherent in the portfolio. Management believes the ACL was adequately provided for as of MarchJune 31,30, 2026 and acknowledges that the ACL may increase throughout the year as loan growth and economic conditions may change in the foreseeable future.

The Company’s premises and equipment, net of depreciation, totaled $11.6 million and $11.7 million as of MarchJune 31,30, 2026 and December 31, 2025.2025, respectively. Depreciation expense is computed by the straight-line method based on the estimated useful lives of assets. Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon disposition, assets and related accumulated depreciation are removed from the books, and any resulting gain or loss is charged to income.

As of MarchJune 31,30, 2026, the Company occupied thirteen banking facilities throughout Albemarle, Fauquier and Prince William counties and the cities of Charlottesville, Richmond, Manassas and Winchester, Virginia. The Company operates a drive-through location, at 301 East Water Street, Charlottesville, Virginia, which is included in the thirteen.

As of MarchJune 31,30, 2026, the Company has recorded $5.9$5.6 million of right-of-use assets and $5.8$5.5 million of lease liabilities. As of December 31, 2025, $6.3 million of right-of-use assets and $6.2 million of lease liabilities were included on the balance sheet. Right-of-use assets are assets that represent the Company’s right to use, or control the use of, a specified asset for the lease term, offset by the lease liability, which is the Company’s obligation to make lease payments arising from a lease, measured on a discounted basis. During the second quarter of 2025, the Company extended the ground lease associated with the Pantops headquarters for an additional five-year period. In July 2026, the Company further extended the term of such ground lease. The amended lease has a 20-year term which will begin on November 1, 2026. The extension increases both the right-of-use asset and the lease liability by $5.2 million. This change reflects the present value of additional lease payments over the new term.

Total deposits as of MarchJune 31,30, 2026 were $1.4 billion, a decrease of $5.0$22.5 million, or 0.3%,1.6%, compared to December 31, 2025 (dollars in thousands).

Noninterest-bearing demand deposits on MarchJune 31,30, 2026 were $355.5$367.3 million, representing 24.9%26.1% of total deposits. Interest-bearing transaction, money market, and savings accounts totaled $784.8$761.0 million, and represented 55.0%54.0% of total deposits at MarchJune 31,30, 2026. Collectively, noninterest-bearing and interest-bearing transaction, money market and savings accounts represented 79.9%80.1% of total deposit accounts at MarchJune 31,30, 2026. These account types are an excellent source of low-cost funding for the Company.

The Company also offers insured cash sweep deposit products. ICS® deposit balances of $34.3$51.3 million and $153.0$145.1 million are included in the interest checking accounts and in the money market and savings deposit accounts balances, respectively, in the table above, as of MarchJune 31,30, 2026. As of December 31, 2025, ICS® deposit balances of $60.8 million and $139.6 million are included in the interest checking accounts and in the money market and savings deposit account balances, respectively. All ICS® accounts consist of reciprocal balances for the Company’s customers. The Company currently holds no brokered or specialty certificates of deposit.

The remaining 20.1%19.9% of total deposits consisted of certificates of deposit and other time deposit accounts totaling $286.5$280.8 million at MarchJune 31,30, 2026, decreasing from $291.3 million as of December 31, 2025. Included in these deposit totals are CDARSTM, whereby depositors can obtain FDIC deposit insurance on account balances of up to $50 million. CDARSTM deposits totaled $8.9$10.1 million as of MarchJune 31,30, 2026 and $5.8 million as of December 31, 2025, all of which were reciprocal balances for the Company’s customers.

As of MarchJune 31,30, 2026 and December 31, 2025, the estimated amounts of uninsured deposits were $378.4$333.6 million, or 26.5%23.7% of total deposits and $392.0 million, or 27.4% of total deposits, respectively.

As of MarchJune 31,30, 2026, based on the FHLB’s evaluation, the Company has an available credit position of $494.0 million, for which access can be negotiated based on multiple factors. The Company currently has a collateral dependent line of credit with the FHLB for $125.1$133.5 million, secured by commercial mortgages, with borrowings of $20.0 million as of MarchJune 31,30, 2026 and December 31, 2025.

In 2006, a subsidiary of Fauquier, Fauquier Statutory Trust II, privately issued $4.0 million face amount of the trust’s Floating Rate Capital Securities in a pooled capital securities offering. Simultaneously, the trust used the proceeds of that sale to purchase $4.0 million principal amount of the Fauquier’s Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of MarchJune 31,30, 2026 and December 31, 2025, total capital securities were $3.6 million, as adjusted to fair value as of the date of the Merger. The rate is a spread adjustment of 0.03% plus a margin of 1.70% above the three-month CME Term SOFR.

The following table displays the changes in shareholders' equity for the Company from December 31, 2025 to MarchJune 31,30, 2026 (dollars in thousands):

The Company’s Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 20.00%,20.77%, 20.00%,20.77%, 20.80%,21.59%, and 12.70%13.38% respectively, as of MarchJune 31,30, 2026, thus exceeding the minimum requirements. The Bank’s Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios were 19.73%,20.52%, 19.73%,20.52%, 20.53%,21.35%, and 12.52%,13.21%, respectively, as of MarchJune 31,30, 2026, also exceeding the minimum requirements.

As of MarchJune 31,30, 2026, the Bank exceeded all of the following minimum capital ratios in order to be considered “well capitalized” under the PCA regulations, as revised: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage ratio of at least 5.0%.

Management of the Company continually monitors the impact of various global and national events on the Company's results of operations and financial condition, including inflation and economic recessionary conditions, changes in interest rates, the political environment, geopolitical conflicts, competition, liquidity matters, changes in legislative or regulatory requirements and changes in government policy, such as the imposition of tariffs and potential trade barriers. The timing and impact of inflation, fluctuations in and volatility of interest rates, and the competitive landscape of loans and deposits on our business and results of operations will depend on future developments, which are uncertain and unpredictable. In July 2025, the One Big Beautiful Bill Act was signed into law, which includes a wide variety of tax reform provisions affecting individuals as well as businesses, including extending and modifying certain key provisions from the Tax Cuts and Jobs Act of 2017 and expanding certain incentives from the Inflation Reduction Act of 2022 while accelerating the phase-out of others.

Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of (1) items that do not reflect ongoing operating performance, (2) balances of intangible assets, including goodwill, that vary significantly between institutions, and (32) tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered an alternative to, or more important than, GAAP-basis financial statements, and other banks and bank holding companies may define or calculate these or similar measures differently. Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.”

Net income for the three months ended MarchJune 31,30, 2026 was $5.3$9.0 million, a $770.0$4.8 thousandmillion increase compared to $4.5$4.2 million reported for the three months ended MarchJune 31,30, 2025. Net income per diluted share was $0.97$1.65 for the three months ended MarchJune 31,30, 2026 compared to $0.83$0.78 per diluted share for the same period in the prior year.

The increase in net income in 2026 is primarily the result of the increase in noninterest income, continued decreases in the cost of funds,funds and increases in earning asset yields despite some contraction in loan balances, along with decreases in noninterest expense, particularly in net occupancy, data processing and other expenses. The gain from the sale of the Bearing limited partnership investment augmented noninterest income.

Quarterly overview - Net interest income (FTE) for the three months ended MarchJune 31,30, 2026 was $13.0$13.8 million, a $611$954 thousand increase compared to net interest income (FTE) of $12.4$12.9 million for the three months ended MarchJune 31,30, 2025. The net interest margin (FTE) of 3.40%3.65% for the three months ended MarchJune 31,30, 2026 was 1225 bps higher than the 3.28%3.40% realized during the three months ended MarchJune 31,30, 2025. Interest expense decreased by $741$590 thousand, positively impacting net interest income (FTE) and net interest margin (FTE), compared to the same period in the prior year. Overall, the cost of interest-bearing deposits decreased 2011 bps period over period, from 2.38%2.23% to 2.18%.2.12%. A $14.9$3.3 million decrease in average balances of time deposit products contributed to the reduced interest expense during the three months ended MarchJune 31,30, 2026 compared to 2025. Average loan balances of $1.2 billion for the three months ended MarchJune 31,30, 2025 were flat compared to average loan balances for the three months ended MarchJune 31,30, 2026. Earning assets were negatively impacted by the decrease in the average balances of securities, decreasing from $271.5$266.9 million in the three months ended MarchJune 31,30, 2025 to $253.6$243.9 million in the three months ended MarchJune 31,30, 2026; however, an increase of $37.8$25.9 million in Federal funds sold during the same periods helped to offset the decreased securities balances. The primary contributor to the margin improvement was the decreased funding costs with a $525$590 thousand expense reduction due to the control of interest rates paid withand adecreased $741 thousand decrease in the costs of interest bearing liabilities as a whole.borrowings.