Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion provides information about the major components of the results of operations and financial condition, liquidity, and capital resources of Virginia National Bankshares Corporation. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Application of Critical Accounting Policies and Critical Accounting Estimates
The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information, and other factors deemed to be relevant, actual results could differ from those estimates.
The Company considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s financial statements. The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of financial condition and results of operations.
Following are the accounting policies and estimates that the Company considers as critical:
Allowance for credit losses - The Company establishes the ACL through charges to earnings in the form of a provision for credit losses. 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. The ACL represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the ACL is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Various national economic variables are utilized in the development of the ACL, including the national unemployment rate and national gross domestic product. In addition, management’s estimate of expected credit losses is based on the remaining life of certain consumer loans held for investment, and changes in expected prepayment behavior may result in changes in the remaining life of loans and expected credit . Management also assesses the risk of credit arising from changes in general market, economic and business conditions; the nature and volume of the loan portfolio; the volume and of and classified loan balances and the value of underlying collateral in determining the recorded balance of the ACL. This evaluation is inherently subjective because it requires estimates that are 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. The level of the ACL is particularly sensitive to changes in the actual and forecasted national rate and changes in current conditions or reasonably expected future conditions affecting the collectability of loans.
Non-GAAP Presentations
The accounting and reporting policies of the Company conform to GAAP and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance. These include tangible book value per share 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 to, or more important than, GAAP-basis financial statements, and other banks and bank holding companies may define or calculate these or similar measures differently. Net income is discussed in Management’s Discussion and Analysis on a GAAP basis unless noted as “non-GAAP.”
A reconcilement of the non-GAAP financial measures used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures is presented below:
(Dollars in thousands, except per share data)
Reconcilement of Non-GAAP Measures:
Year Ended December 31
Fully taxable-equivalent measures
Net interest income (GAAP)
Fully taxable-equivalent adjustment
Net interest income (FTE) 1 (non-GAAP)
Efficiency ratio 2 (GAAP)
Impact of FTE adjustment
Efficiency ratio (FTE) 3 (non-GAAP)
Net interest margin (GAAP)
Fully tax-equivalent adjustment
Net interest margin (FTE) 1 (non-GAAP)
Other financial measures
Book value per share (GAAP)
Impact of intangible assets
Tangible book value per share (non-GAAP)
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.
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:
Return on average assets
Return on average equity
Average equity to average assets
Cash dividend payout ratio
Efficiency ratio (FTE) (non-GAAP)
Net income for the year ended December 31, 2025 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 for the year ended December 31, 2024. This increase was the result of a $5.1 million increase in net interest income and a $1.5 million decrease in noninterest income, offset by a $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 57.6% for the year ended December 31, 2025, compared to 62.0% for the same period of 2024, increasing due to the fluctuations in net interest income, noninterest income and noninterest expense noted above.
The Company had two reportable segments during the 2025 period: the Bank and VNB Trust and Estate Services and three in the 2024 period: the Bank, VNB Trust and Estate Services and Masonry Capital.
Bank - The Bank’s commercial banking activities involve making loans, taking deposits and offering related services to individuals, businesses and charitable organizations. 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. 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) - 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 Masonry 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 subsequent to April 1, 2024.
The Bank segment earned net income of $19.6 million in 2025, a $2.3 million increase compared to the $17.2 million netted in 2024. VNB Trust and Estate Services realized a net loss of $306 thousand in 2025, compared to a net loss of $275 thousand in 2024. Masonry Capital realized a net loss of $2 thousand in 2024.
Details of the changes in the various components of net income are further discussed below.
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 interest income represents the principal source of revenue for the Company and accounted for 89.4% of the total revenue in 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, and 2023.
Consolidated Average Balance Sheets and Analysis of Net Interest Income (FTE) (non-GAAP)
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
Tax exempt securities 1
Total securities 1
Loans:
Real estate
Commercial
Consumer
Total Loans
Fed funds sold
Other interest bearing deposits
Total earning assets
Less: Allowance for credit losses
Total non-earning assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing deposits:
Interest checking
Money market and savings deposits
Time deposits
Total interest bearing deposits
Borrowings
Federal funds purchased
Junior subordinated debt
Total interest bearing liabilities
Non-interest bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities & shareholders'
equity
Net interest income (FTE) (non-GAAP)
Interest rate spread 2
Cost of funds
Interest expense as a percentage of average earning assets
Net interest margin (FTE) 3 (non-GAAP)
Tax-exempt income for investment securities has been adjusted to a fully tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations earlier in this section.
Interest rate spread is the average yield earned on earning assets less the average rate paid on interest bearing liabilities.
Net interest margin (FTE) is net interest income (FTE) expressed as a percentage of average earning assets.
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.
Volume and Rate Analysis
2025 compared to 2024
Change due to:
Increase/
(Dollars in thousands)
Volume
Rate
(Decrease)
Assets:
Securities
Loans:
Real estate
Commercial
Consumer
Total loans
Federal funds sold
Other interest bearing deposits
Total earning assets
Liabilities and Shareholders' equity:
Interest bearing deposits:
Interest checking
Money market and savings
Time deposits
Total interest bearing deposits
Borrowings
Federal funds purchased
Junior subordinated debt
Total interest bearing liabilities
Change in net interest income
2024 compared to 2023
Change due to:
Increase/
(Dollars in thousands)
Volume
Rate
(Decrease)
Assets:
Securities
Loans:
Real estate
Commercial
Consumer
Total loans
Federal funds sold
Other interest bearing deposits:
Total earning assets
Liabilities and Shareholders' equity:
Interest bearing deposits:
Interest checking
Money market and savings
Time deposits
Total interest bearing deposits
Borrowings
Federal funds purchased
Junior subordinated debt
Total interest bearing liabilities
Change in net interest income
For 2025, net interest income (FTE) (non-GAAP) of $51.9 million was recognized, an increase of $5.1 million over 2024. Net interest income (FTE) (non-GAAP) for 2024 totaled $46.7 million, a $2.6 million decrease over the 2023 total of $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. The increase in the average balance of loans in the real estate and commercial categories was the primary driver of the increase in interest income from 2024 to 2025, whereas the 2023 to 2024 change in interest
income was primarily driven by interest rate changes. The average balance for loans as a percentage of earnings assets for 2025 was 80.9%, compared to 77.5% and 66.8% in 2024 and 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 from 3.36% in 2023. The tax-equivalent yield on average earning assets for 2025 of 5.09% was 2 bps higher than the 2024 yield of 5.07%. The 2024 tax-equivalent yield on average earning assets was 28 bps higher than the comparable 2023 yield of 4.79%. Loan yields for 2025 were 5.65%, declining 6 bps from the loan yield of 5.71% for 2024. Average loans for 2025 of $1.2 billion were $66.5 million higher than the 2024 average of $1.2 billion.
The decrease in rates paid on deposits in 2025 compared to 2024 positively impacted net interest income. Interest expense as a percentage of average earning assets decreased to 169 bps for 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.
(Dollars in thousands)
Average
Balance
% of Total
Deposits
Average
Balance
% of Total
Deposits
Non-interest demand deposits
Interest checking accounts
Money market and savings deposit accounts
Total non-interest and low-cost
deposit accounts
Time deposits
Total deposit account balances
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. Additional information concerning management’s methodology in determining the adequacy of the ACL is contained later in this section under allowance for credit losses, in addition to Note 1 – Summary of Significant Accounting Policies and Note 5 – Allowance for Credit Losses of the Notes to Consolidated Financial Statements, found in Item 8. Financial Statements and Supplementary Data.
Based on management's continuing evaluation of the loan portfolio in 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 expense of $600 thousand, which included a $118 thousand provision for unfunded commitments, in 2024. The 2025 individual differences in the balances of various pools as well as changing loss rates have resulted in only nominal changes to the overall 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 total loans fairly steady year-over-year. The decrease in 2024 is primarily the of the impact of declining expected loss rates on most of the pools of loans within the CECL segmentation.
The ACL as a percentage of total loans was 0.67% at December 31, 2025 compared to 0.68% at December 31, 2024.
The following is a summary of the changes in the ACL for the years ended December 31, 2025 and 2024:
(Dollars in thousands)
Allowance for credit losses, January 1
Charge-offs
Recoveries
Provision for (recovery of) credit losses
Allowance for credit losses, December 31
Allowance for credit losses as a percentage
of period-end total loans
Noninterest Income
The major components of noninterest income are detailed below. Year-to-year variances are shown for each noninterest income category.
(Dollars in thousands)
For the year ended December 31
Variance
Noninterest income:
Wealth management fees
Deposit account fees
Debit/credit card and ATM fees
Bank owned life insurance income
Gains on sale of assets, net
Gain on early redemption of debt
Losses on sales of AFS, net
Other
Total noninterest income
Noninterest income of $6.1 million for the year ended December 31, 2025 decreased $1.5 million over the prior year, as a result of the following:
Wealth management fees decreased $258 thousand. These fees vary based on the total assets under management portfolio and market changes. Debit/credit card and ATM fees decreased $531 thousand due to decreased debit card usage. Additionally, in 2024 there was a $904 thousand gain on the early redemption of debt but this did not reoccur in 2025.
Noninterest Expense
The major components of noninterest expense are detailed below. Year-over-year variances are shown for each noninterest expense category.
(Dollars in thousands)
For the year ended December 31
Variance
Noninterest expense:
Salaries and employee benefits
Net occupancy
Equipment
Bank franchise tax
Computer software
Data processing
FDIC deposit insurance assessment
Marketing, advertising and promotion
Professional fees
Core deposit intangible amortization
Other
Total noninterest expense
Noninterest expense of $33.4 million for the year ended December 31, 2025 decreased $282 thousand from the prior year. This decrease was predominantly due to $666 thousand less in data processing expenses resulting from contract negotiations with the Company's core provider. Normal, recurring increases in salaries and employee benefits in the form of merit increases and benefit costs were offset by a reduction in headcount during 2025. At December 31, 2025, the Company had 144 full-time equivalent employees compared to 146 at December 31, 2024.
Core deposit intangible amortization expense is a result of the Merger and amounted to $1.1 million in 2025 and $1.3 million in 2024.
Provision for Income Taxes
The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and the income tax bases of assets and liabilities using the applicable enacted marginal tax rate.
For 2025, the Company provided $4.8 million for Federal income taxes, resulting in an effective income tax rate of 20.0%. In 2024, the Company provided $3.9 million for Federal income taxes, resulting in an effective income tax rate of 18.8%. The effective income tax rates for 2025 and 2024 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.
More information on income taxes, including net deferred taxes can be found in Note 11 – Income Taxes of the Notes to Consolidated Financial Statements which is found in Item 8. Financial Statements and Supplementary Data.
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. In addition, a portion of the investment securities portfolio is pledged as collateral for public fund deposits. Changes in deposit and other funding balances and in loan production will impact the overall level of the investment portfolio.
As of December 31, 2025, the Company’s investment portfolio totaled $254.2 million, with obligations of U.S. government corporations and government-sponsored enterprises amounting to $154.8 million, or approximately 61% of the total. The Company’s investment portfolio totaled $269.7 million as of December 31, 2024 .
During the year ended December 31, 2025, the Company did not sell any securities. During the year ended December 31, 2024, $49.8 million of securities were sold incurring a pre-tax loss of $4 thousand. These 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.
In accordance with ASC 320, “Investments - Debt and Equity Securities,” the Company has categorized its unrestricted securities portfolio as Available for Sale. Securities classified as AFS may be sold in the future, prior to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. AFS securities are carried at fair value. 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, 2025. 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, 2025 related to the AFS portfolio. AFS securities included gross unrealized losses of $38.9 million as of December 31, 2025.
(Dollars in thousands)
December 31, 2025
December 31, 2024
Amount
Percent
Amount
Percent
U.S. Treasury securities
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
Total available for sale securities at fair value
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 at December 31, 2025 and 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 table shown below details the amortized cost and fair value of AFS securities at December 31, 2025 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%. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations section earlier in Item 7.
Maturity Distribution and Average Yields
Contractual Maturities of Debt Securities
at December 31, 2025
(Dollars in thousands)
Amortized Cost
Fair Value
Weighted Average Yield (FTE)
% of Debt
Securities
U.S. Government-sponsored agencies:
After one to five years
After five years to ten years
MBS/CMOs
One year or less
After one year to five years
After five years to ten years
Ten years or more
Corporate bonds
One year or less
After one to five years
Municipal bonds
One year or less
After one to five years
After five to ten years
Ten years or more
Total Debt Securities Available for Sale
Weighted average yield is calculated based on the relative amortized cost of the securities. 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, 2025. Management’s investment portfolio strategy is to structure the portfolio so that it is a constant source of liquidity for the balance sheet. In order to achieve greater liquidity in the portfolio, securities that have a monthly flow of principal repayments become a key component. 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, 2025, the weighted average maturity of the fixed rate MBS sector was 14.7 years, and the projected average life for this group of securities is 5.4 years.
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 $26.4 million for 2026, $32.6 million for 2027, and $23.3 million for 2028, based upon rates remaining at current levels. This represents approximately 33% of the investment portfolio’s AFS balance at December 31, 2025 that will be available to support the future liquidity needs of the Company. Cash flow projections are subject to change based upon changes to market interest rates.
Loan Portfolio
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 the Richmond metropolitan area, as well as other areas in Virginia, Maryland, West Virginia and the District of Columbia.
The Company’s loan portfolio totaled $1.2 billion as of December 31, 2025 or 75.0% of total assets. Loan balances increased $1.6 million, or 0.1%, from the balance of $1.2 billion as of December 31, 2024. Note that all loan balances are presented net of credit and other fair value discounts, when applicable. The table below shows the composition of the loan portfolio:
(Dollars in thousands)
As of December 31,
Commercial loans
Real estate mortgage:
Construction and land
1-4 family residential mortgages
Commercial mortgages
Total real estate mortgage
Consumer
Total loans
Less: Allowance for credit losses
Net loans
At December 31, 2025, the loan-to-deposit ratio stood at 86.4%, compared to 86.8% at December 31, 2024.
Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory and real property. The collateral securing any loan may depend on the type of loan and may vary in value based on market conditions.
The Company’s real estate loan portfolio increased by $1.9 million to a balance of $946.0 million at December 31, 2025 from $944.1 million at December 31, 2024. 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. Of this amount, approximately $297.6 million represented loans on 1-4 family residential properties. Commercial real estate loans totaled $613.4 million as of December 31, 2025. Sources of repayment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral. The remaining real estate loans were comprised of construction and land development loans which totaled $35.0 million as of December 31, 2025.
Of the $613.4 million of commercial mortgages held on the balance sheet as of December 31, 2025, $333.7 million consists of non-owner occupied commercial real estate, $127.8 million of multifamily, and $151.9 million of owner occupied CRE. No CRE loans were over 90 days past due as of December 31, 2025.
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:
As of December 31, 2025
Loan Type (dollars in thousands)
Balance
% of Total CRE
Average Loan Size
Special Mention
Sub-
standard
Nonaccrual
Hotels
Office Building
Warehouses/Industrial
Retail
Day Cares / Schools
All Other Commercial Buildings
Total Non-Owner Occupied CRE
As of December 31, 2024
Loan Type (dollars in thousands)
Balance
% of Total CRE
Average Loan Size
Special Mention
Sub-
standard
Nonaccrual
Hotels
Office Building
Warehouses/Industrial
Retail
Day Cares / Schools
All Other Commercial Buildings
Total Non-Owner Occupied CRE
As of December 31, 2025, the Company’s commercial and industrial loan portfolio totaled $265.4 million, a $7.7 million increase from the $257.7 million balance at year-end 2024. This category, representing approximately 21.4% of all loans, includes loans made to individuals and small to medium-sized businesses, as well as loans purchased in the government guaranteed market. As of December 31, 2025 and December 31, 2024, the portfolio of government guaranteed loans, included in the commercial loan balance, was $227.5 million and $218.3 million, respectively.
Consumer loans, comprised of student loans purchased, revolving credit, and other fixed payment loans, totaled $26.2 million as of December 31, 2025 or 2.1% of all loans. Consumer loans ended 2025 with balances $8.1 million lower than the prior year-end, primarily due to normal amortization within the student loan portfolio.
The following table presents the maturity/repricing distribution of the Company’s loans at December 31, 2025. 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.
Maturities and Sensitivities of Loans to Changes in Interest Rates
(Dollars in thousands)
As of December 31, 2025
One Year
or Less
After One to
Five Years
After Five to
15 Years
After
15 Years
Total
Fixed Rate:
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total fixed rate loans
Variable Rate:
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total variable rate loans
Total loans
Total loans at December 31, 2025 and 2024 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:
(Dollars in thousands)
December 31, 2025
Acquired Loans -
Purchased
Credit Deteriorated
Acquired Loans - Non-Purchased Credit Deteriorated
Acquired
Loans -
Total
Outstanding principal balance
Carrying amount:
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total acquired loans
(Dollars in thousands)
December 31, 2024
Acquired Loans -
Purchased
Credit Deteriorated
Acquired Loans - Non-Purchased Credit Deteriorated
Acquired
Loans -
Total
Outstanding principal balance
Carrying amount:
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total acquired loans
Loan Asset Quality
Intrinsic to the lending process is the possibility of loss. While management endeavors to minimize this risk, it recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio, which in turn depend on current and future economic conditions, the financial condition of borrowers, the realization of collateral, and the credit management process.
Generally, loans are placed on non-accrual status when management believes, after considering economic and business conditions and collections efforts, that it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, or when the loan is past due for 90 days or more, unless the debt is both well-secured and in the process of collection.
At December 31, 2025 and 2024, the Company had loans classified as non-accrual with balances of $2.2 million and $2.3 million, respectively. The non-accrual balance as of December 31, 2025 consists of fourteen loans to twelve 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. The 2025 balance includes seven loans totaling $6.6 million which are 100% government-guaranteed, one loan for $391 thousand fully secured by residential real estate, and three student loans totaling $86 thousand. No CRE loans were 90 days or more past due as of December 31, 2025.
Allowance for Credit Losses
The relationship of the ACL to total loans and nonaccrual loans appears below:
(Dollars in thousands)
Total loans
Nonaccrual loans
Allowance for credit losses
Nonaccrual loans to total loans
ACL to total loans
ACL to nonaccrual loans
See Note 4 – Loans and Note 5 – Allowance for Credit Losses in the accompanying Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for further details regarding the Company’s loan asset quality measurements.
Activity for the ACL is provided in the following table:
As of and for the year ended December 31, 2025
(Dollars in thousands)
Commercial
Loans
Real Estate
Construction
and Land
1-4 Family Residential Mortgages
Commercial Mortgages
Consumer
Loans
Total
Allowance for Credit Losses:
Balance as of beginning of year
Charge-offs
Recoveries
Provision for (recovery of) credit losses
Balance at end of year
Average loans
Net charge-offs (recoveries) to average loans
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
Commercial Mortgages
Consumer
Loans
Total
Allowance for Credit Losses:
Balance as of beginning of year
Charge-offs
Recoveries
Provision for (recovery of) loan losses
Balance at end of year
Average loans
Net charge-offs (recoveries) to average loans
As of December 31, 2025, the ACL was $8.3 million, a decrease of $185 thousand from $8.4 million at December 31, 2024, due to individual differences in the balances of various pools as well as changing loss 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. The government-guaranteed loans do not require 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. The ratio of net charge-offs to average loans was 0.02% and -0.07% (net recovery) for 2025 and 2024, respectively.
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.
Allocation of the Allowance for Credit Losses
December 31, 2025
(Dollars in thousands)
Allowance
Percentage of loans
in each category to
total loans
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total
December 31, 2024
(Dollars in thousands)
Allowance
Percentage of loans
in each category to
total loans
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total
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. These deposits have been provided predominantly by individuals, businesses and charitable organizations in the Charlottesville/Albemarle County, Fauquier County, Manassas, Prince William County, Richmond and Winchester market areas.
Depository accounts held by the Company as of December 31, 2025, totaled $1.4 billion, an increase of $8.2 million or 0.6% compared to the December 31, 2024 balance.
At December 31, 2025, the balances of non-interest bearing demand deposits were $362.3 million or 25.3% of total deposits, a 3.1% decrease from $374.1 million at December 31, 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. 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, 2025, the reciprocal ICS ® balances included in demand deposit and money market acc ounts were $60.8 million and $139.6 million, r espectively. 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.
Certificates of deposit and other time deposit balances decreased $17.1 million to $291.3 million at December 31, 2025 from the balance of $308.4 million at December 31, 2024. 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 $5.8 million and $4.9 million at December 31, 2025 and 2024, respectively.
Deposits
Average Balances and Rates Paid
Years Ended December 31
Average
Average
Average
Average
(Dollars in thousands)
Balance
Rate
Balance
Rate
Non-interest bearing demand
deposits
Interest bearing deposits:
Interest checking
Money market and savings deposits
Time deposits
Total interest bearing deposits
Total deposits
As of December 31, 2025 and 2024, the estimated amounts of total uninsured deposits were $392.0 million and $389.6 million, respectively.
Maturities of time deposits in excess of FDIC insurance limits as of December 31, 2025 were as follows:
(Dollars in thousands)
Amount
Percentage
Three months or less
Over three months to six months
Over six months to one year
Over one year
Totals
Borrowings
Borrowings, consisting primarily of FHLB advances and federal funds purchased, are additional sources of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company's ability to earn a favorable spread on the funds obtained.
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 .
Additional borrowing arrangements maintained by the Bank include formal federal funds lines with five correspondent banks. The Company had no federal funds purchased as of December 31, 2025 compared to $236 thousand at December 31, 2024.
Borrowings consist of the following as of December 31, 2025 and 2024.
(Dollars in thousands)
Federal funds purchased
FHLB advances
Total borrowings
Maximum amount at any month-end during the
year
Annual average balance outstanding
Annual average interest rate paid
Annual interest rate at end of period
Details on available borrowing lines can be found later under Liquidity in the Asset/Liability Management section.
Junior Subordinated Debt
In 2006, a subsidiary of Fauquier, Fauquier Statutory Trust II, privately issued $4.0 million face amount of the trust’s Floating Rate Capital Securities in a pooled capital securities offering. Simultaneously, the trust used the proceeds of that sale to purchase $4.0 million principal amount of the Fauquier’s Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of December 31, 2025, total capital securities were $3.6 million, as adjusted to fair value as of the date of the Merger. 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. The subordinated debentures are an unsecured obligation of the Company and are junior in right of payment to all present and future senior indebtedness of the Company. The capital securities are guaranteed by the Company on a subordinated basis.
ASSET/LIABILITY MANAGEMENT
The Company’s primary earnings source is its net interest income; therefore, the Company devotes significant time and resources to assist in the management of interest rate risk and asset quality. The Company’s net interest income is affected by changes in market interest rates and by the level and composition of interest-earning assets and interest bearing liabilities. The Company’s objectives in its asset/liability management are to utilize its capital effectively, to provide adequate liquidity and to enhance net interest income, without taking undue risks or subjecting the Company unduly to interest rate fluctuations. The Company takes a coordinated approach to the management of its liquidity, capital and interest rate risk. This risk management process is governed by policies and limits established by the Bank’s Asset/Liability Committee, which are reviewed and approved by the Bank’s Board of Directors. This committee, which is comprised of directors and members of management, meets to review, among other things, economic conditions, interest rates, yield curves, cash flow projections, expected customer actions, liquidity levels, capital ratios and repricing characteristics of assets, liabilities and financial instruments.
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market indices such as interest rates. The Company’s principal market risk exposure is interest rate risk. Interest rate risk is the exposure to changes in market interest rates. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the repricing characteristics of assets and liabilities. The Company monitors the interest rate sensitivity of its balance sheet positions by examining its near-term sensitivity and its longer-term gap position. In its management of interest rate risk, the Company utilizes several financial and statistical tools including traditional gap analysis and sophisticated income simulation models.
A traditional gap analysis is prepared based on the maturity and repricing characteristics of interest-earning assets and interest bearing liabilities for selected time bands. The mismatch between repricings or maturities within a time band is commonly referred to as the “gap” for that period. A positive gap (asset sensitive) where interest rate sensitive assets exceed interest rate sensitive liabilities generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite result on the net interest margin. The Company’s balance sheet structure is primarily short-term in nature with a substantial portion of rate-sensitive assets and rate-sensitive liabilities repricing or maturing within one year, as shown in the Gap Interest Sensitivity Analysis table below.
Gap Interest Sensitivity Analysis
As of December 31, 2025
Within
One to Four
Over
Non Rate
(Dollars in thousands)
90 Days
Days
Years
Four Years
Sensitive
Total
Assets
Loans
Investment securities
Interest bearing deposits in other banks
Non-interest-earning assets and
allowance for loan losses
Total assets
Liabilities and Shareholders' Equity
Interest checking
Money market and savings deposits
Time deposits
Borrowings
Junior subordinated debt
Non-interest bearing liabilities and
shareholders' equity
Total liabilities and shareholders' equity
Period gap
Cumulative gap
Ratio of cumulative gap to cumulative
earning assets
The Company utilizes the gap analysis to complement its income simulations modeling. However, the traditional gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates and other factors that could have an impact on interest rate sensitivity or net interest income.
ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year horizon. It also utilizes additional tools to monitor potential longer-term interest rate risk. The income simulation models measure the Company’s net interest income volatility or sensitivity to interest rate changes utilizing statistical techniques that allow the Company to consider various factors which impact net interest income. These factors include actual maturities, estimated cash flows, repricing characteristics, deposit growth/retention and, most importantly, the relative sensitivity of the Company’s assets and liabilities to changes in market interest rates. This relative sensitivity is important to consider as the Company’s core deposit base has not been subject to the same degree of interest rate sensitivity as its assets. The core deposit costs are internally managed and tend to exhibit less sensitivity to changes in interest rates than the Company’s adjustable rate assets whose yields are based on external indices and generally change in concert with market interest rates. The Company’s interest rate sensitivity is determined by identifying the probable impact of changes in market interest rates on the yields on the Company’s assets and the rates that would be paid on its liabilities. This modeling technique involves a degree of estimation based on certain assumptions that management believes to be reasonable. Utilizing this process, management projects the impact of changes in interest rates on net interest margin. The Company has established certain policy limits for the potential volatility of its net interest margin assuming certain levels of changes in market interest rates with the objective of maintaining a net interest margin under various probable rate scenarios. Management generally has maintained a risk position well within the policy limits.
As market conditions vary from those assumed in the income simulation models, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other variables. Furthermore, this sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates.
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. Similarly, the base case simulation performed assumes interest rates on the measurement date are unchanged for the next 24 months. Then the simulation assumes all rate indices are instantaneously shocked upward and downward by 100 bps to 400 basis points, in 100 basis point increments.
(Dollars in thousands)
Change in Net Interest Income
Change in Yield Curve
Percentage
Amount
+400 bps
+300 bps
+200 bps
+100 bps
Base case
-100 bps
-200 bps
-300 bps
-400 bps
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 Asset/Liability Committee monitors the results compared to policy limits that have been established.
As individual rate indices have not historically moved to the same degree, non-parallel rate shocks are also performed to add a degree of sophistication over the parallel rate shocks. In these analyses, the effects to net interest income and market value of equity are computed using eight different scenarios. Changing slopes and twists of the yield curve are achieved by incorporating both likely and unlikely change across different tenors. Since Federal funds rates may not change to the same degree or direction that longer term Treasury bonds may move, the different scenarios are analyzed so that management and the Asset/Liability Committee can monitor risks as they more severely stress the Company’s balance sheet.
The shape of the yield curve can cause downward pressure on net interest income. In general, if and to the extent that the yield curve is flatter (i.e., the differences between interest rates for different maturities are relatively smaller) than previously anticipated, then the yield on the Company’s interest earning assets and its cash flows will tend to be lower. Management believes that the current interest rate exposure is manageable and within the Company's current interest rate risk guidelines.
Liquidity
Liquidity represents the Company’s ability to provide funds to meet customer demand for loan and deposit withdrawals without impairing profitability. Effective management of balance sheet liquidity is necessary to fund growth in earning assets and to pay liability maturities and depository customers’ withdrawal requirements. The Company maintains a Liquidity Management Policy that is approved by the Board of Directors. The policy sets limits in a number of areas, including limits on the amount of non-core liabilities, and funding long-term assets with non-core liabilities.
The Bank’s customer base has provided a stable source of funds and liquidity. Limits contained within the Bank’s Investment Policy also provides for appropriate levels of liquidity through maturities and cash flows within the securities portfolio. Other sources of balance sheet liquidity are obtained from the repayment of loan proceeds and overnight investments. The Bank has numerous secondary sources of liquidity including access to borrowing arrangements from a number of correspondent banks. 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. As of December 31, 2025, the Bank has pledged investment securities with an amortized cost of $4.0 million and a fair value of $3.3 million.
Borrowing Lines
As of December 31, 2025
(Dollars in thousands)
Correspondent Banks
Federal Home Loan Bank of Atlanta
Total Available
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 $20.0 million outstanding in federal funds sold, and an average of $7.8 million at the Federal Reserve during 2025. On the liability side of the balance sheet, the Company maintained an average of $40.0 million in FHLB advances and $569 thousand in federal funds purchased during 2025. On December 31, 2025 the Company had a $20 million balance in FHLB advances and no balance outstanding in federal funds purchased. The Company intends to maintain sufficient liquidity at all times to meet its funding commitments.
Capital
The Basel III Capital Rules require banks and bank holding companies to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%); and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).
The Tier 1, common equity Tier 1, total capital to risk-weighted assets, and leverage ratios of the Bank were 19.36%, 19.36%, 20.19% and 12.36%, respectively, as of December 31, 2025, exceeding the minimum requirements.
With respect to the Bank, to be “well capitalized” under the PCA regulations, a bank must have the following minimum capital ratios: (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%. The Bank exceeds the thresholds to be considered well capitalized as of December 31, 2025.
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 CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
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. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the PCA regulations and will not be required to report or calculate risk-based capital.
The CBLR framework was made available for community banking organizations to use in their March 31, 2020 Call Report. The Company has not opted into the CBLR framework.
The Basel III capital regulations and CBLR framework are discussed in greater detail under the caption “Supervision and Regulation,” found earlier in this report under “Item 1. Business.” In addition, information regarding the Company’s risk-based capital at December 31, 2025 and December 31, 2024 is presented in Note 15 – Capital Requirements of the Notes to Consolidated Financial Statements, contained in Item 8. Financial Statements and Supplementary Data. 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, 2025.
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. Inflation affects the Company’s results of operations mainly through increased operating costs, but since nearly all of the Company’s assets and liabilities are monetary in nature, changes in interest rates affect the financial condition of the Company to a greater degree than changes in the rate of inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. The Company’s management reviews pricing of its products and services, in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance.
Off-Balance Sheet Arrangements
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Additional information concerning the Company’s off-balance sheet arrangements is contained in Note 13 of the Notes to Consolidated Financial Statements , found in Item 8. Financial Statements and Supplementary Data.
Related Party Transactions
The Company and its subsidiaries have business dealings with companies owned by directors and beneficial shareholders of the Company . In 2025 and 2024, leasing/rental expenditures of $595 thousand and $5 62 thousand respectively, (including reimbursements for taxes, insurance, and other expenses) were paid to an entity indirectly owned by a director of the Company.
Contractual 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.
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, 2025:
(Dollars in thousands)
1 year or less
1-3 years
3-5 years
After 5 years
Total
Operating lease obligations
Item 7A. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting company.
Item 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Virginia National Bankshares Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Virginia National Bankshares Corporation and Subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses (ACL) – Loans Collectively Evaluated for Credit Losses
Description of the Matter
As discussed in Note 1 (Summary of Significant Accounting Policies), and Note 5 (Allowance for Credit Losses) to the financial statements, the allowance for credit losses on loans (ACL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACL related to collectively evaluated loans represented all of the total recorded ACL of $8.3 million as of December 31, 2025. The collectively evaluated ACL consists of quantitative and qualitative components.
Loans are segmented into pools based upon similar characteristics and risk profiles and based on the degree of correlation of how loans within each pool respond to various economic conditions. To determine the quantitative component of the ACL, the Company uses the discounted cash flow method to estimate expected credit losses for the identified loan pools
other than student and Minute Lender loans, which use the remaining life method. The discounted cash flow method estimates the difference between the amortized cost of the loans and present value of expected cash flows. The remaining life method applied to the student and Minute Lender loans, determines a quantitative ACL by utilizing historical information to determine a quarterly expected loss rate and applying it to an expected remaining balance for each period to determine the expected loss for the segment.
In addition to the quantitative component, the collectively evaluated ACL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. The qualitative factors considered by management include changes in lending policies and procedures; nature and volume of the portfolio; experience, depth and ability of lending personnel; trends in credit quality; quality of the loan review system; value of underlying collateral; volume and concentrations of credit; and the effects of other external factors. A qualitative factor for reasonable and supportable forecasts of economic conditions is also determined for those segments utilizing the remaining life method as it is not already incorporated into the quantitative component. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
Management exercised significant judgment when assessing the qualitive factors in estimating the ACL for collectively evaluated loans. We identified the measurement of the ACL for collectively evaluated loans as a critical audit matter as auditing this estimate involved especially complex and subjective auditor judgment in evaluating and testing management’s assertions over an inherently complex estimation process that requires significant management judgment.
The primary audit procedures we performed to address this critical audit matter included:
Obtaining an understanding of the Company’s ACL methodology and internal controls related to collectively evaluated loans, including the process of:
The continued usage of the discounted cashflow method as the primary expected loss model, including assessment and reasonableness of loan pools, model validation, monitoring, and the completeness and accuracy of key data inputs and assumptions.
Qualitative factors, including sources of reasonable and supportable economic forecasts and other key inputs.
Governance and management review processes.
Substantively testing management’s process for measuring the ACL related to collectively evaluated loans including:
Testing the completeness and accuracy of the underlying internal data utilized to prepare the calculation.
Performing an analysis of the overall allowance for credit loss ratio compared to a relevant peer group.
Evaluating the relevance and reliability of the underlying external data utilized to prepare the calculation.
Testing mathematical accuracy, including the transfer, aggregation, and processing of data and the application of assumptions, used in the ACL calculation.
Developing an independent expectation for relevant qualitative factors, which included consideration of certain alternative assumptions as well as metrics for comparison to the Company’s qualitative allowance for credit losses to determine whether this information supported or contradicted the Company’s conclusions.
Evaluating the reasonableness of the significant judgements and assumptions utilized within the ACL calculation, including both quantitative and qualitative assessments.
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company’s auditor since 1998.
Roanoke, Virginia
March 27, 2026
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED B ALANCE SHEETS
(dollars in thousands, except per share data)
December 31, 2025
December 31, 2024
ASSETS
Cash and due from banks
Interest bearing deposits in other banks
Federal funds sold
Securities:
Available for sale, at fair value
Restricted securities, at cost
Total securities
Loans
Allowance for credit losses
Loans, net
Premises and equipment, net
Bank owned life insurance
Goodwill
Core deposit intangible, net
Right-of-use asset, net
Deferred tax asset, net
Accrued interest receivable and other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest bearing
Interest bearing
Money market and savings deposit accounts
Certificates of deposit and other time deposits
Total deposits
Federal funds purchased
Borrowings
Junior subordinated debt
Lease liability
Accrued interest payable and other liabilities
Total liabilities
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $ 2.50 par value
Common stock, $ 2.50 par value
Capital surplus
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
Common shares outstanding
Common shares authorized
Preferred shares outstanding
Preferred shares authorized
See Notes to Consolidated Financial Statements
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STAT EMENTS OF INCOME
(dollars in thousands, except per share data)
For the years ended December 31,
Interest and dividend income:
Loans, including fees
Federal funds sold
Other interest bearing deposits
Investment securities:
Taxable
Tax exempt
Dividends
Total interest and dividend income
Interest expense:
Demand deposits
Money market and savings deposits
Certificates and other time deposits
Borrowings
Federal funds purchased
Junior subordinated debt
Total interest expense
Net interest income
Provision for (recovery of) credit losses
Net interest income after provision for (recovery of) credit losses
Noninterest income:
Wealth management fees
Deposit account fees
Debit/credit card and ATM fees
Bank owned life insurance income
Gains on sale of assets, net
Gains on early redemption of debt
Losses on sales of AFS, net
Other
Total noninterest income
Noninterest expense:
Salaries and employee benefits
Net occupancy
Equipment
Bank franchise tax
Computer software
Data processing
FDIC deposit insurance assessment
Marketing, advertising and promotion
Professional fees
Core deposit intangible amortization
Other
Total noninterest expense
Income before income taxes
Provision for income taxes
Net income
Net income per common share, basic
Net income per common share, diluted
See Notes to the Consolidated Financial Statements
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
For the years ended
December 31,
Net income
Other comprehensive income (loss), net of tax:
Securities available for sale
Reclassification adjustment for realized losses on securities
Total other comprehensive income (loss)
Total comprehensive income
See Notes to Consolidated Financial Statements
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHA NGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
Accumulated
Other
Common
Capital
Retained
Comprehensive
Stock
Surplus
Earnings
Loss
Total
Balance, December 31, 2023
Stock option expense
Restricted stock grant expense
Vested stock grants
Shares repurchased
Cash dividends declared ($ 1.32 per share)
Impact of adoption of proportional amortization method
Adjustment for Masonry Capital distribution
Net income
Other comprehensive loss
Balance, December 31, 2024
Exercise of stock options
Stock option expense
Restricted stock grant expense
Vested stock grants
Cash dividends declared ($ 1.41 per share)
Net income
Other comprehensive income
Balance, December 31, 2025
See Notes to Consolidated Financial Statements
VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEM ENTS OF CASH FLOWS
(dollars in thousands)
For the years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) credit losses
Net accretion of certain acquisition-related adjustments
Amortization of intangible assets
Net amortization of securities
Net losses on sale of AFS
Net gain on early redemption of FHLB advances
Net gains on sales of other assets
Bank owned life insurance income
Depreciation and other amortization
Deferred tax expense (benefit)
Stock option expense
Restricted stock expense
Net change in:
Accrued interest receivable and other assets
Accrued interest payable and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in restricted investments
Proceeds from maturities, calls and principal payments of available for sale securities
Net decrease (increase) in loans
Proceeds from sale of premises and equipment
Purchase of bank premises and equipment, net
Net cash provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts, and money market accounts
Net decrease in certificates of deposit and other time deposits
Net decrease in Federal funds purchased
Net decrease in other borrowings
Proceeds from stock options exercised
Repurchases of common stock
Cash dividends paid
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period
End of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest
Taxes
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gains (losses) on available for sale securities, net of tax
Initial right-of-use assets obtained in exchange for new operating lease liabilities
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
The Company - Headquartered in Charlottesville, Virginia, Virginia National Bankshares Corporation (the Company) (NASDAQ: VABK) is a bank holding company incorporated under the laws of the Commonwealth of Virginia. The Company is authorized to issue (a) 10,000,000 shares of common stock with a par value of $ 2.50 per share and (b) 2,000,000 shares of preferred stock at a par value $ 2.50 per share. There is currently no preferred stock outstanding. The Company is regulated under the Bank Holding Company Act of 1956, as amended and is subject to inspection, examination, and supervision by the Federal Reserve Board.
Virginia National Bank (the Bank) is a wholly-owned subsidiary of the Company and was organized in 1998 under federal law as a national banking association to engage in a general commercial and retail banking business. The Bank is also headquartered in Charlottesville, Virginia and 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. As a national bank, the Bank is subject to the supervision, examination and regulation of the OCC.
The Bank offers a full range of banking and related financial services to meet the needs of individuals, businesses and charitable organizations, including the fiduciary services of VNB Trust and Estate Services. Investment management services were offered through Masonry Capital Management, LLC, a registered investment adviser and wholly-owned subsidiary of the Company, prior to the sale of the business to an officer of the Company effective April 1, 2024.
The Bank, through its financial subsidiary Fauquier Bank Services, Inc., has equity ownership interests in Bankers Insurance, LLC, a Virginia independent insurance company, and Bankers Title Shenandoah, LLC, a title insurance company, both of which are owned by a consortium of Virginia community banks.
The Bank has another subsidiary, Special Properties Acquisition - VA, LLC, which was originally formed by Fauquier to hold other real estate owned; however, there are no assets currently held by this subsidiary.
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.
Basis of Financial Information – The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to the reporting guidelines prescribed by regulatory authorities. The following is a description of the more significant of those policies and practices.
Principles of consolidation – The Consolidated Financial Statements include the accounts of the Company, and its wholly-owned subsidiaries, the Bank and Masonry Capital. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relates to the determination of the ACL (including individually evaluated loans).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flow reporting – For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on hand, funds due from banks, interest bearing deposits in other banks and federal funds sold.
Securities – Unrestricted investments are classified in two categories as described below.
Securities held to maturity – Securities classified as held to maturity are those debt securities the Company has both the positive intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. Currently the Company has no securities classified as held to maturity because of Management’s desire to have more flexibility in managing the investment portfolio.
Securities available for sale – Securities classified as AFS are those debt securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. AFS securities are carried at fair value. Unrealized gains or losses are reported as a separate component of other comprehensive income. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities or to “call” dates, whichever occurs first. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
For AFS securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an ACL, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income.
Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes an AFS security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2025 and 2024, there was no ACL related to the AFS securities portfolio.
Restricted securities – As members of the FRB and the FHLB, the Company is required to maintain certain minimum investments in the common stock of the FRB and FHLB. Required levels of investments are based upon the Bank’s capital and a percentage of qualifying assets. Additionally, the Company has purchased common stock in CBBFC, the holding company for Community Bankers’ Bank and an investment in an SBA loan fund. These restricted securities are carried at cost.
Loans – Loans are reported at the principal balance outstanding net of unearned discounts and of the ACL. Interest income on loans is reported on the level-yield method and includes amortization of deferred loan fees and costs over the loan term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans acquired in a business combination are recorded at estimated fair value on the date of acquisition. In the case of loans that have experienced more than insignificant deterioration in credit quality since origination as of the acquisition date, the loan’s amortized cost basis is increased above estimated fair value by the amount of expected credit losses as of the acquisition date, and a corresponding ACL is also recorded. Any remaining non-credit discount or premium for such purchased loans with credit deterioration (or PCD loans) and any fair value discount or premium for non-PCD loans is accreted or amortized as an adjustment to yield over the estimated lives of the loans using the level-yield method. There is no ACL established for non-PCD loans as part of a business combination.
Further information regarding the Company’s accounting policies related to past due loans, non-accrual loans and individually evaluated loans is presented in Note 4 - Loans.
Allowance for credit losses – The ACL on loans is established through charges to earnings in the form of a provision for credit losses. 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.
The ACL represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. No ACL is recorded on accrued interest receivable and amounts written-off are reversed by an adjustment to interest income. Management’s judgment in determining the level of the ACL is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a discounted cash flow approach for all loans except for student loans and Minute Lender loans, which are evaluated using a remaining life methodology. The discounted cash flow approach used by the Company utilizes loan-level cash flow projections and pool-level assumptions. Further information regarding the Company’s policies and methodology used to estimate the ACL is presented in Note 5 – Allowance for Credit Losses.
Management’s estimate of the ACL on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the loss estimation process. Factors considered by management include changes in lending policies and procedures and underwriting practices; changes in national, regional and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; changes in the experience, depth and ability of credit and loan operations staff; changes in the volume and severity of past due, special mention and substandard loans; changes in the quality of the loan review system; changes in the value of underlying collateral for loans that are not collateral dependent; the existence and effect of any concentrations of credit and changes in the levels of such concentrations, and the effect of other external factors such as competition, legal and regulatory requirements, on the level of estimated credit losses.
The ACL represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The ACL is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified ten portfolio segments and calculates the ACL for each using the methodology specified below (with the major classification noted in italics) :
Discounted cash flow methodology:
Commercial and industrial (Commercial)
Construction (Real estate construction and land)
Consumer (Consumer)
Commercial real estate, non-owner occupied (Commercial mortgage)
Commercial real estate, owner occupied (Commercial mortgage)
Home equity and junior liens (1-4 family residential mortgage)
Multifamily (Commercial mortgage)
Residential first lien (1-4 family residential mortgage)
Remaining life methodology:
Minute lender (Consumer/Commercial)
Student loans (Consumer)
Additionally, the ACL calculation includes adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase reserve levels and include: adjustments for changes in lending policies and procedures and underwriting practices; changes in national, regional and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; changes in the experience, depth and ability of credit and loan operations staff; changes in the volume and severity of past due, special mention and substandard loans; changes in the quality of the loan review system; changes in the value of underlying collateral for loans that are not collateral dependent; the existence and effect of any concentrations of credit and changes in the levels of such concentrations, and the effect of other external factors such as competition, legal and regulatory requirements, on the level of estimated credit losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective analysis. The ACL on loans that are individually evaluated may be estimated based on their expected cash flows, or in the case of loans for which repayment is expected substantially through the sale of collateral, the expected credit losses are based on the fair value of collateral at the reporting dated adjusted for selling costs as appropriate.
Allowance for Credit Losses – Reserve for Unfunded Commitments - The Company records an ACL for off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s Consolidated Statements of Income. The ACL for off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in Accrued interest payable and other liabilities on the Company’s Consolidated Balance Sheets.
Accrued Interest Receivable – The Company elected not to measure an ACL for accrued interest receivable and instead elected to reverse interest income on loans that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transfers of financial assets – Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company or its subsidiaries – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company or its subsidiaries does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Premises and equipment – Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method based on the estimated useful lives of assets, which range from 3 to 40 years. 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, the asset and related accumulated depreciation are removed from the books and any resulting gain or loss is charged to income. More information regarding premises and equipment is presented in Note 6 – Premises and Equipment.
Leases – The Company recognizes a lease liability and a right-of-use asset in connection with leases in which it is a lessee, except for leases with a term of twelve months or less. A lease liability represents the Company’s obligation to make future payments under lease contracts, and a right-of-use asset represents the Company’s right to control the use of the underlying property during the lease term. Lease liabilities and right-of-use assets are recognized upon commencement of a lease and measured as the present value of lease payments over the lease term, discounted at the incremental borrowing rate of the lessee. Further information regarding leases is presented in Note 7 – Leases.
Intangible assets – Goodwill is determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and other intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually, or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company performs the test as of December 31 of each year whereby the estimated fair value is compared to the carrying value. 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 included on the Company’s Consolidated Balance Sheets. Management has concluded that no impairment of these assets existed as of the balance sheet date. More information regarding intangible assets is presented in Note 8 – Goodwill and Other Intangible Assets.
BOLI – The Company has purchased life insurance on certain key employees and acquired BOLI policies as part of the Merger. These policies are recorded at their cash surrender value on the Consolidated Balance Sheets. Income generated from polices is recorded as noninterest income.
Fair value measurements – ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon internally developed models that primarily use, as inputs, observable market-based parameters. Any such valuation adjustments are applied consistently over time. Additional information on fair value measurements is presented in Note 17 – Fair Value Measurements.
Stock-based compensation – The Company accounts for all plans under recognition and measurement accounting principles which require that the compensation cost relating to stock-based payment transactions be recognized in the financial statements. Stock-based compensation arrangements include stock options and unrestricted or restricted stock grants. For stock options, compensation is estimated at
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the date of grant, using the Black-Scholes option valuation model for determining fair value. The model employs the following assumptions:
Dividend yield - calculated as the ratio of historical cash dividends paid per share of common stock to the stock price on the date of grant;
Expected life (term of the option) - based on the average of the contractual life and vesting schedule for the respective option;
Expected volatility - based on the monthly historical volatility of the Company’s stock price over the expected life of the options;
Risk-free interest rate - based upon the U.S. Treasury bill yield curve, for periods within the contractual life of the option, in effect at the time of grant.
The Company has elected to estimate forfeitures when recognizing compensation expense, and this estimate of forfeitures is adjusted over the requisite service period or vesting schedule based on the extent to which actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and also will impact the amount of estimated unamortized compensation expense to be recognized in future periods. Further information on stock-based compensation is presented in Note 19 – Stock Incentive Plans.
Net income per common share – Basic net income per share, commonly referred to as earnings per share, represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period, including restricted shares that have not yet vested as these are considered participating securities during the vesting period. Diluted net income per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. Additional information on net income per share is presented i n Note 20 – Net Income per Share.
Comprehensive income – Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on AFS securities and interest rate swaps, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income (loss). Further information on the Company’s other comprehensive income (loss) is presented in the Consolidated Statements of Comprehensive Income.
Advertising costs – The Company follows the policy of charging the costs of advertising to expense as they are incurred.
Income taxes – Deferred taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, operating loss carry forwards, and tax credit carry forwards. Deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
When tax returns are filed, it is highly probable that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company acquired as a result of the Merger certain limited partnership investments in affordable housing projects located in the Commonwealth of Virginia. During 2024, the Company adopted the proportional amortization method of accounting for all qualifying equity investments within these limited partnerships. These investments are included in other assets on the Consolidated Balance Sheets. These partnership investments generate a return through the realization of federal income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. The investments are accounted for under the proportional amortization method, with the expense included within income tax provision on the Consolidated Statements of Income. All of the Company's tax credit investments are evaluated for impairment at the end of each reporting period.
Interest and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statements of income. For the years ended December 31, 2025 and 2024 , there were no such interest or penalties recognized. Further information on the Company’s accounting policies for income taxes is presented in Note 11 – Income Taxes.
Securities and other property held in a fiduciary capacity – Securities and other property held by VNB Trust and Estate Services in a fiduciary or agency capacity are not assets of the Company and are not included in the accompanying Consolidated Financial Statements.
Revenue Recognition – ASC Topic 606, "Revenue from Contracts with Customers", creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Company’s revenue is from interest income, including loans and securities, which are outside the scope of the standard. The services that fall within the scope of the standard are presented within noninterest income on the consolidated statement of income and are recognized as revenue as the Company satisfies its obligations to the customer. The revenue that falls within the scope of Topic 606 is primarily related to service charges on deposit accounts, debit/credit card and ATM fees, asset management fees and sales of other real estate owned, when applicable.
Reclassifications – Certain reclassifications have been made to the prior year financial statements to conform to current year presentation. The results of the reclassifications are not considered material to shareholders' equity and net income.
Recent Significant Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Adoption of New Accounting Standards
On January 1, 2025 , the Company adopted ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The amendments were applied retrospectively to all prior periods presented and did not have a material effect on the Company’s consolidated financial statements. Refer to Note 11 for more information.
On December 1, 2025, the Company adopted ASU 2025-08 "Financial Instruments—Credit Losses (Topic 326) Purchased Loans". The amendments in this ASU 2025-08 expand the population of acquired financial assets subject to the gross-up approach in Topic 326, with loans (excluding credit cards) acquired without credit deterioration and deemed "seasoned" to be considered purchased seasoned loans and accounted for using the gross-up approach at acquisition. Specifically, after an entity determines that a loan is a non-PCD asset based on its assessment of credit deterioration experienced since origination, the entity should apply the guidance described in the amendment to determine whether the loan is seasoned and therefore should be accounted for by grossing-up the loan, or increasing the amortized cost basis of the loan. This eliminates the day-one provision for credit losses for such loans with subsequent changes in the allowance for credit losses reported in earnings through the provision for credit losses All non-PCD loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-PCD loans (excluding credit cards) are seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. The adoption of ASU 2025-08 is expected to affect the accounting for loans acquired in future acquisition activity, however, the Company made no purchases of loans during the year ended December 31, 2025.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Securities
The amortized cost and fair values of securities available for sale as of December 31, 2025 and December 31, 2024 are as follows:
December 31, 2025
Amortized
Gross
Unrealized
Gross
Unrealized
Fair
(Dollars in thousands)
Cost
Gains
(Losses)
Value
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
Total Securities Available for Sale
December 31, 2024
Amortized
Gross
Unrealized
Gross
Unrealized
Fair
(Dollars in thousands)
Cost
Gains
(Losses)
Value
U.S. Treasury securities
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
Total Securities Available for Sale
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marketable equity securities consist of nominal investments made by the Company in equity positions of various community banks and bank holding companies and are reported in other assets at fair value on the Consolidated Balance Sheets. Unrealized gains and losses are recorded in the Consolidated Statements of Income.
There were no unrestricted securities classified as held to maturity as of December 31, 2025 or December 31, 2024.
Restricted securities are securities with limited marketability and consist of stock in the FRB, FHLB, CBBFC and an investment in an SBA loan fund. These restricted securities, totaling $ 6.2 million as of December 31, 2025 and December 31, 2024 are carried at cost.
During the year ended December 31, 2025 no securities were sold. During the year ended December 31, 2024, $ 39.6 million of securities were sold incurring pre-tax losses of $ 4 thousand. These sales were part of strategic decisioning to reinvest proceeds into higher yielding assets.
Securities pledged to secure deposits and for other purposes and to facilitate borrowing from the FRB , had carrying values of $ 23.3 million at December 31, 2025 and $ 21.9 million at December 31, 2024.
Year-end securities with unrealized losses, segregated by length of time in a continuous unrealized loss position, were as follows:
December 31, 2025
(Dollars in thousands)
Less than 12 Months
12 Months or more
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
December 31, 2024
(Dollars in thousands)
Less than 12 Months
12 Months or more
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
U.S. Treasury Securities
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
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 with issuers that are geographically diverse.
As of December 31, 2025, there were $ 236.7 million , or 256 issues, of individual securities in a loss position. These securities had an unrealized loss of $ 38.9 million and consisted of 19 Agency securities, 115 mortgage-backed/CMOs, 121 municipal bonds, and 1 corporate security.
The Company’s securities portfolio is primarily made up of fixed rate bonds, whose prices move inversely with interest rates. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as the bonds approach their maturity date or repricing date or if market yields for such investments decline. At the end of any accounting period, the portfolio may have both unrealized gains and losses. Management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an ACL, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income.
Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes an AFS security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2025 and 2024 , there was no ACL related to the AFS securities portfolio.
The amortized cost and fair value of AFS debt securities at December 31, 2025 are presented below 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.
(Dollars in thousands)
Amortized Cost
Fair Value
U.S. Government agencies
After one to five years
After five years to ten years
MBS/CMOs
One year or less
After one year to five years
After five years to ten years
Ten years or more
Corporate bonds
One year or less
After one year to five years
Municipal bonds
One year or less
After one year to five years
After five years to ten years
Ten years or more
Total Debt Securities Available for Sale
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans
The composition of the loan portfolio by major loan classification appears below. Note that all loan balances are presented net of credit and other fair value discounts, when applicable.
(Dollars in thousands)
December 31,
December 31,
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total loans
Less: Allowance for credit losses
Net loans
The balances in the table above include unamortized premiums and net deferred loan costs and fees. Unamortized premiums on loans purchased (excluding loans acquired during the Merger) were $ 11.6 and $1 0.3 million as of December 31, 2025 and December 31, 2024 , respectively, increasing primarily due to the increased volume of purchases of government-guaranteed loans in 2024 and 2025. Net deferred loan fees totaled $ 2.9 million and $ 3.1 million as of December 31, 2025 and 2024, respectively.
Commercial loans reported above include (i) organic loans originated by the Bank’s commercial lenders, (ii) the government guaranteed portion of loans which the Company purchased that are 100 % guaranteed by either the United States Department of Agriculture (USDA) or the SBA, and (iii) PPP loans through the SBA. The government guaranteed loans are typically purchased at a premium. In the event of early prepayment, the Bank may need to write off any unamortized premium. As of December 31, 2025 and December 31, 2024 , the portfolio of government guaranteed loans, included in the commercial loan balance in the table above, was $ 227.5 million and $ 218.3 million, respectively. Since these loans are fully guaranteed, there is no impact to the ACL.
Real estate construction and land loans consist primarily of loans for the purchase or refinance of unimproved lots or raw land. Additionally, the Company finances the construction of real estate projects typically where the permanent mortgage will remain with the Company.
1-4 family residential mortgages include consumer purpose 1-4 family residential properties and home equity loans, as well as investor-owned residential real estate. The Company typically originates residential mortgages with the intention of retaining in its portfolio adjustable-rate mortgages and shorter-term, fixed-rate loans. Currently, the Company only originates investor-owned residential mortgage loans.
In addition, residential mortgages include packages of 1-4 family residential mortgages that have been purchased, with each purchased loan individually underwritten by the Company prior to the closing of the sale. The balance in these purchased loan packages totaled approximately $ 5.2 million and $ 5.7 million as of December 31, 2025 and December 31, 2024, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial mortgages are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.
Consumer loans are generally small loans spread across many borrowers and are underwritten after determining the ability of the consumer borrower to repay their obligations as agreed. Consumer loans may be secured or unsecured and are comprised of revolving lines, installment loans and other consumer loans. Included in consumer loans are private student loan packages that were purchased beginning in 2015. As of December 31, 2025 , the balance in these purchased student loan packages totaled approximately $ 12.9 million compared to $ 16.2 million at December 31, 2024 . Deposit account overdrafts are included in the consumer loan balances and totaled $ 82 thousand and $ 36 thousand at December 31, 2025 and December 31, 2024, respectively.
Acquired loans - Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The table above includes a net fair value mark of $ 3.2 million and $ 4.4 million on the purchased credit deteriorated loans and $ 1.5 million and $ 2.4 million on the non-purchased credit deteriorated loans as of December 31, 2025 and December 31, 2024, respectively, on the Acquired Loans.
Loan origination/risk management - The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and the Board of Directors approves lending policies on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.
Independent loan review on a portion of the loan portfolio is performed by an independent loan review firm that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the Audit and Compliance Committee of the Board. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
Concentrations of credit - Most of the Company’s lending activity occurs within the Commonwealth of Virginia, predominantly in the Company’s primary markets and surrounding areas. The majority of the Company’s loan portfolio consists of commercial real estate loans. The Company manages this risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry. Of the $ 613.4 million of commercial mortgages held on the balance sheet as of December 31, 2025, $ 333.7 million consists of non-owner occupied commercial real estate, $ 127.8 million of multifamily, and $ 151.9 million of owner occupied CRE. No CRE loans were over 90 days past due or on non-accrual as of December 31, 2025 or 2024.
Related party loans - In the ordinary course of business, the Company has granted loans to certain directors, principal officers and their affiliates (collectively referred to as “related party loans”). Activity in related party loans during 2025 and 2024 is presented in the following table.
(Dollars in thousands)
Balance outstanding at beginning of year
Principal additions
Principal reductions
Balance outstanding at end of year
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Past due, non-accrual and charged-off loans - Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.
Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, the Company considers the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to the Company’s collateral position. Regulatory provisions generally require a loan to be placed on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
Loans are charged off when 120 days past due or when management deems collection to be unlikely. Smaller, unsecured consumer loans, including the student loan portfolio, are typically charged-off when management judges such loans to be uncollectible or the borrowers file for bankruptcy; these loans are generally not placed in non-accrual status prior to charge-off. The Company has contracted with a third party to proactively manage the collections of past due student loans; this third party has extensive experience and specializes in this type of asset management.
The following table shows the aging of the Company's loan portfolio, by class, at December 31, 2025 and December 31, 2024:
(dollars in thousands)
Days
Days
90 Days
or More
Past
Due and Still Accruing
Nonaccrual Loans
Current
Total
Loans
December 31, 2025
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer loans
Total Loans
December 31, 2024
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer loans
Total Loans
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables shows the Company's amortized cost basis of loans on nonaccrual status as of December 31, 2025 and December 31, 2024 . All nonaccrual loans are evaluated for an ACL on an individual basis. Only one nonaccrual loan required an ACL as of December 31, 2024 in the amount of $ 28 thousand due to collateral value shortfall. As of December 31, 2025, no non-accrual loans required an ACL.
December 31, 2025
(Dollars in thousands)
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total Loans
December 31, 2024
(Dollars in thousands)
Nonaccrual Loans with No Allowance
Nonaccrual Loans with an Allowance
Total Nonaccrual Loans
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total Loans
From time-to-time, the Company modifies loans to borrowers who are experiencing financial difficulties by providing term extensions, interest rate reductions or other-than-insignificant payment delays. As the effect of most modifications is already included in the ACL due to the measurement methodologies used in its estimate, the ACL is typically not adjusted upon modification. During the twelve months ended December 31, 2025 and 2024, no loans were modified for borrowers experiencing financial difficulties.
The Company closely monitors the performance of all modified loans to understand the effectiveness of its modification efforts. Upon determination, if applicable, that all or a portion of a modified loan is uncollectible, that amount is charged against the ACL. There were no payment defaults during the twelve months ended December 31, 2025 of modified loans that were modified during the previous twelve months.
There were no loans secured by 1-4 family residential property that were in the process of foreclosure at either December 31, 2025 or December 31, 2024.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The outstanding principal balance of loans acquired in business combinations as of December 31, 2025 and December 31, 2024 are as follows:
(Dollars in thousands)
December 31, 2025
Acquired Loans -
Purchased
Credit Deteriorated
Acquired Loans - Non-Purchased Credit Deteriorated
Acquired
Loans -
Total
Outstanding principal balance
Carrying amount:
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total acquired loans
(Dollars in thousands)
December 31, 2024
Acquired Loans -
Purchased
Credit Deteriorated
Acquired Loans - Non-Purchased Credit Deteriorated
Acquired
Loans -
Total
Outstanding principal balance
Carrying amount:
Commercial loans
Real estate construction and land
1-4 family residential mortgages
Commercial mortgages
Consumer
Total acquired loans
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Allowance for Credit Losses
The ACL on the loan portfolio is a material estimate for the Company. The Company estimates is ACL on its loan portfolio on a quarterly basis. The Company utilizes two methodologies in its development of the ACL, discounted cash flow and remaining life.
Discounted Cash Flow
DCF models, being periodic in nature, allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner.
The analysis aligns well with other calculations/actions outside the ACL estimation, which will mitigate model risk in other areas and allow for symmetrical application. For example, fair value (exit price notion), profitability analysis, IRR calculations, ALM, stress testing, and other forms of cash flow analysis.
Peer data is available for certain inputs (Probability of Default and Loss Given Default) if first-party data is not available or meaningful. This is made possible by the periodic nature of the model.
The DCF methodology is utilized on the following pools: 1) Commercial & Industrial; 2) Construction; 3) Consumer; 4) CRE Non-Owner Occupied; 5) CRE Owner Occupied; 6) HELOC & Junior Lien; 7) Residential 1st Lien; and 8) Multifamily.
Remaining Life
This methodology leverages a quarterly loss rate as well as future expectations of portfolio balances to calculate a reserve.
There are two main strengths of this methodology. First, it is fairly easy to execute and does not rely on large quantities of historical loan-level data. Second, it can satisfy the need to incorporate a reasonable and supportable forecast in a straightforward manner by either applying a forecast policy of “applicable history” or leveraging an actual econometric model for the analysis.
The remaining life methodology is utilized on the following pools: 1) Minute Lender; and 2) Student Loans.
Maximum Loss Rate - Management utilizes the same model to calculate maximum loss rates and expected loss rates for each segment. No additional models or methodologies were used to quantify the maximum loss rate, rather, a worst-case economic environment is utilized in the models. This process ensures symmetry between the maximum loss rate and the quantified loss rate. This process also leverages the well-documented regression models used in model development.
The process for deriving the maximum loss rate is outlined below:
The economic forecast reflects the worst economic environment observed for each economic factor. This is done by quantifying a rolling 1-year average for each economic factor. Then, the most pessimistic 1-year average observations are captured and utilized as economic forecast inputs within the application.
The economic forecast assumed is a ‘worst-case’ economic environment with inputs reflective of the great recession.
The economic forecast is used to quantify credit risk in the form of Loss Rate. The resulting periodic default and loss rates are applied to the prepayment adjusted amortization schedules for each segment.
The resulting ACL, which represents a lifetime reserve (symmetrical to the base model), is input into the qualitative framework’s maximum loss rate field. The difference between the expected model and the maximum model results are then allocated based on weight and risk assignment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Qualitative Factors - ASC 326 requires an entity to adjust historical loss information to reflect the extent to which management expects reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The adjustments for reasonable and supportable forecasts may be qualitative in nature and should reflect changes related to relevant data.
The Company utilizes a scorecard approach to assign qualitative factors. The scorecard approach is in alignment with the AICPA audit considerations for CECL which states:
These adjustments should be grounded in a methodology that is subject to appropriate governance, challenge, and periodic controlled reevaluation. Such methodology will generally require significant management judgment. The information used to support management’s adjustments may be publicly available information, information specifically developed for the entity via management’s specialist (internal or external), or other relevant and reliable information.
The purpose of the qualitative scorecard is to provide a qualitative estimate of the expected credit losses of the current loan portfolio in response to potential limitations of the quantitative model. It is used to aid in the assessment of the unquantifiable factors affecting expected credit losses in the loan portfolio. Benefits of the scorecard include directional consistency, objectivity, controls and quantification framework (auditable).
For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the maximum loss rate. This difference represents all available qualitative adjustment that can be applied to that segment.
Individual Evaluation - In accordance with ASC 326, the Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. Loans will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for each loan, using one of four methods: 1) Fair Value of Collateral Method (Collateral Relationship); 2) Cash Flow Method; 3) Advanced Cash Flow Method; or 4) Loan Pricing Method.
Management has elected to perform an individual evaluation on all loans in nonaccrual status. As of December 31, 2025 , after reviewing each loan in nonaccrual status, it was determined that no specific reserves were needed. As of December 31, 2024 , after reviewing each loan on nonaccrual status, a specific reserve of $ 28 thousand was established.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables shows the ACL activity by loan portfolio for the twelve months ended December 31, 2025 and December 31, 2024:
(Dollars in thousands)
Commercial
Loans
Real Estate
Construction
and Land
1-4 Family Residential Mortgages
Commercial
Mortgages
Consumer
Loans
Total
Balance as of December 31, 2023
Charge-offs
Recoveries
Provision for (recovery of) credit losses
Balance as of December 31, 2024
Balance as of December 31, 2024
Charge-offs
Recoveries
Provision for (recovery of) credit losses
Balance as of December 31, 2025
The following table presents a breakdown of the provision for (recovery of) credit losses for the periods indicated:
(Dollars in thousands)
December 31,
December 31,
Provision for (recovery of) credit losses on loans
Provision for credit losses on unfunded commitments
Total
The following table presents the Company's amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as of December 31, 2025 and December 31, 2024:
December 31, 2025
December 31, 2024
(Dollars in thousands)
Real Estate Secured Loans
ACL - Loans
Real Estate Secured Loans
ACL - Loans
Commercial real estate - non owner occupied
1-4 family residential mortgages
Total
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality Indicators
The Company utilizes the following credit quality indicators:
Pass
Loans with the following risk ratings are pooled by class and considered together as “Pass”:
Excellent – minimal risk loans secured by cash or fully guaranteed by a U.S. government agency
Good – low risk loans secured by marketable collateral within margin
Satisfactory – modest risk loans where the borrower has strong and liquid financial statements and more than adequate cash flow
Average – average risk loans where the borrower has reasonable debt service capacity
Marginal – acceptable risk loans where the borrower has acceptable financial statements but is leveraged
Watch
These loans have an acceptable risk but require more attention than normal servicing.
Special Mention
These potential problem loans are currently protected but are potentially weak.
Substandard
These problem loans are inadequately protected by the sound worth and paying capacity of the borrower and/or the value of any collateral pledged. These loans may be considered impaired and evaluated on an individual basis.
Doubtful
Loans with this rating have significant deterioration in the sound worth and paying capacity of the borrower and/or the value of any collateral pledged, making collection or liquidation of the loan in full highly questionable. These loans would be considered impaired and evaluated on an individual basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of December 31, 2025. Current period gross write-off amounts represent write-offs for twelve months ended December 31, 2025:
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)
Prior
Revolving Loans
Loans Converted to Term
Total
Commercial loans
Pass
Watch
Special Mention
Substandard
Total commercial
Current period gross write-off
Real estate construction and land
Pass
Watch
Special Mention
Substandard
Total real estate construction and land
Current period gross write-off
1-4 family residential mortgages
Pass
Watch
Special Mention
Substandard
Total 1-4 family residential mortgage
Current period gross write-off
Commercial mortgages
Pass
Watch
Special Mention
Substandard
Total commercial mortgages
Current period gross write-off
Consumer
Pass
Watch
Special Mention
Substandard
Total consumer
Current period gross write-off
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024. Current period gross write-off amounts represent write-offs for twelve months ended December 31, 2024:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)
Prior
Revolving Loans
Loans Converted to Term
Total
Commercial loans
Pass
Watch
Special Mention
Substandard
Total commercial
Current period gross write-off
Real estate construction and land
Pass
Watch
Special Mention
Substandard
Total real estate construction and land
Current period gross write-off
1-4 family residential mortgages
Pass
Watch
Special Mention
Substandard
Total 1-4 family residential mortgage
Current period gross write-off
Commercial mortgages
Pass
Watch
Special Mention
Substandard
Total commercial mortgages
Current period gross write-off
Consumer
Pass
Watch
Special Mention
Substandard
Total consumer
Current period gross write-off
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Premises and Equipment
Premises and equipment are summarized as follows:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Leasehold improvements
Building and land
Construction and fixed assets in progress
Furniture and equipment
Computer software
Less: accumulated depreciation and amortization
Depreciation and amortization on these premises and equipment totaled $ 1.3 million for each of the years ended December 31, 2025 and December 31, 2024 .
Note 7 – Leases
At December 31, 2025 , the Company had leased certain of its banking and operations offices, or the land on which such offices were built, under operating lease agreements on terms ranging from 1 to 20 years, most with renewal options. Each of the Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. Refer to Note 14 – Related Party Transactions for information regarding leasing transactions with related parties.
The following tables present information about the Company’s leases:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Lease liability
Right-of-use asset
Weighted average remaining lease term
4.79 years
5.14 years
Weighted average discount rate
(Dollars in thousands)
Operating lease expense
Short-term lease expense
Total lease expense
Cash paid for amounts included in lease liabilities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:
(Dollars in thousands)
December 31, 2025
Twelve months ending December 31, 2026
Twelve months ending December 31, 2027
Twelve months ending December 31, 2028
Twelve months ending December 31, 2029
Twelve months ending December 31, 2030
Thereafter
Total undiscounted cash flows
Less: Discount
Lease liability
Note 8 – Goodwill and Other Intangible Assets
The carrying amount of goodwill was $ 7.8 million at December 31, 2025 and December 31, 2024 . There were no changes in the recorded balance of goodwill during the twelve months ended December 31, 2025.
The Company had $ 2.7 million and $ 3.8 million of other intangible assets as of December 31, 2025 and December 31, 2024, respectively, which were recognized in connection with the core deposits acquired from the Merger in 2021.
The following table summarizes the gross carrying amounts and accumulated amortization of other intangible assets:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Amortized intangible assets:
Core deposit intangible
Core
Deposit
(Dollars in thousands)
Intangible
Thereafter
Total
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 – Deposits
At December 31, 2025, the scheduled maturities of time deposits are as follows:
(Dollars in thousands)
The aggregate amount of time deposits with a minimum balance of $250 thousand was $ 96.6 million at December 31, 2025 and $ 102.1 million at December 31, 2024.
Included in the time deposits reported above are Certificate of Deposit Account Registry Service CDs, whereby depositors can obtain FDIC deposit insurance on account balances of up to $50 million. CDARS TM deposits totaled $ 5.8 million as of December 31, 2025 and $ 4.9 million as of December 31, 2024, all of which were reciprocal balances for the Bank’s customers. In May 2018, the EGRRCPA was enacted, which excluded reciprocal CDARS deposits for certain banks from brokered deposit treatment up to the lesser of $5 billion or 20% of a bank’s total liabilities. Therefore, the Company’s CDARS reciprocal deposits as of December 31, 2025 and December 31, 2024 were not treated as brokered deposits. The Company had no brokered deposits as of December 31, 2025 or December 31, 2024.
The Company implemented an Insured Cash Sweep ® product during 2018. At December 31, 2025, ICS ® balances, included in demand deposit and money market account balances, were $ 60.8 million and $ 139.6 million, respectively. At December 31, 2024, ICS ® balances, included in demand deposit and money market account balances, were $ 44.5 million and $ 122.1 million, respectively. Such balances were not treated as brokered deposits.
Deposit account overdrafts reported as loans totaled $ 82 thousand and $ 36 thousand at December 31, 2025 and December 31, 2024, respectively.
The Company has entered into deposit transactions with certain directors, principal officers and their affiliates (collectively referred to as “related party deposits”), all of which are under the same terms as other customers. The aggregate amount of these related party deposits was $ 3.5 million and $ 4.9 million as of December 31, 2025 and December 31, 2024 , respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Borrowings
The Company uses both short-term and long-term borrowings to supplement deposits when they are available at a lower overall cost to the Company or they can be invested at a positive rate of return.
Each FHLB credit program has its own interest rate, which may be fixed or variable, and carries a range of maturities. The FHLB may prescribe the acceptable uses to which the advances may be put, as well as on the size of the advances and repayment provisions. The Company has pledged commercial real estate loans as collateral for FHLB borrowings. The Company had $ 20.0 million in outstanding FHLB advances as of December 31, 2025 and December 31, 2024.
In addition to access to short-term borrowings from FHLB, the Company uses federal funds purchased for short-term borrowing needs. Available borrowing arrangements maintained by the Bank include formal federal funds lines with five major correspondent banks. As of December 31, 2025 and December 31, 2024, the balance on these lines was $ 0 and $ 236 thousand , respectively.
The Company’s unused lines of credit for future borrowings total approximately $ 220.6 million at December 31, 2025 , which consists of $ 101.6 million available from the FHLB and $ 119.0 million from third-party financial institutions. Additional loans and securities are available that can be pledged as collateral for future borrowings from the FRB or the FHLB above the current lendable collateral value.
Information related to borrowings as of December 31, 2025 and 2024 is as follows:
(Dollars in thousands)
Federal funds purchased
FHLB advances
Total borrowings
Maximum amount at any month-end during the year
Annual average balance outstanding
Annual average interest rate paid
Annual interest rate at end of period
Note 11 – Income Taxes
Principal components of income tax expense as reflected in the Consolidated Statements of Income are as follows:
(Dollars in thousands)
Current tax expense
Deferred tax expense
Provision for income taxes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense for the years ended December 31, 2025 and December 31, 2024 differed from the federal statutory rate applied to income before income taxes for the following reasons:
(Dollars in thousands)
Federal statutory rate
Amount
Percent
Amount
Percent
Income tax at federal statutory rates
State income taxes, net of federal income tax effect
Investments in qualified housing projects
Nontaxable or nondeductible items
Tax exempt income net of interest expense disallowance
Bank-owned life insurance
Stock options
Other items, net
Total
The Company paid $ 4.4 million and $ 3.6 million respectively, in Federal income taxes for the years ended 2025 and 2024. No payments were made to state or local jurisdictions.
The Corporation's net deferred income taxes totaled $ 12.1 million and $ 15.4 million at December 31, 2025 and December 31, 2024 respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:
December 31,
(Dollars in thousands)
Deferred tax assets
Allowance for credit losses
Acquisition accounting
Fixed assets
Nonaccrual loan interest
Stock option/grant expense
Home equity closing costs
Deferred loan fees
Securities available for sale unrealized loss
Total deferred tax assets
Deferred tax liabilities
Goodwill and other intangible assets
Trust preferred
Right-of-use assets
Equity in earnings of subsidiaries
Total deferred tax liabilities
Net deferred tax assets
Note 12 – Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding commitments and contingent liabilities, which are not reflected in the accompanying Consolidated Financial Statements. The Company does not anticipate any material loss as a result of these transactions.
The Federal Reserve Bank's (FRB) reserve requirement to maintain balances on hand or with the FRB based on the level of certain types of deposits held, was eliminated March 26, 2020. Therefore, the Bank is not required to maintain cash reserve balances.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Financial Instruments with Off-Balance Sheet Risk and Credit Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit, such as unfunded lines of credit and standby letters of credit. The Company also treats authorization limits for originating ACH transactions as commitments. In addition to the amounts shown below, the Company has extended commitment letters at December 31, 2025 in the amount of $ 9.0 million to various borrowers. At December 31, 2024 , commitment letters totaled $ 13.6 million. Commitment letters are done in the normal course of business and typically expire after 120 days. All of these off-balance-sheet instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet, although material losses are not anticipated. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The totals for financial instruments whose contract amount represents credit risk are shown below:
Notional Amount
(Dollars in thousands)
December 31, 2025
December 31, 2024
Unfunded lines-of-credit
ACH
Letters of credit
Total
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral normally consists of real property.
Standby letters of credit are conditional commitments by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds real estate and bank deposits as collateral supporting those commitments for which collateral is deemed necessary.
The Company has approximately $ 1.5 million in deposits in other financial institutions in excess of amounts insured by the FDIC at December 31, 2025 .
Note 14 – Related Party Transactions
From time-to-time, the Company and its subsidiaries have business dealings with companies owned by directors and beneficial shareholders of the Company. Payments made to these companies that exceeded the disclosure threshold of $ 120 thousand in 2025 are reported below.
In 2025 and 2024 , leasing/rental expenditures of $ 595 thousand and $ 562 thousand respectively, (including reimbursements for taxes, insurance, and other expenses) were paid to an entity indirectly owned by a director of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 – Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for PCA, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Federal banking regulations also impose regulatory capital requirements on bank holding companies. However, in August 2018, the Federal Reserve Board issued an interim final rule, which was effective August 30, 2018, that expanded its small bank holding company policy statement (the “SBHC Policy Statement”) to bank holding companies with total consolidated assets of less than $ 3 billion (up from the prior $ 1 billion threshold). Under the SBHC Policy Statement, qualifying bank holding companies have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III Capital Rules (subsidiary depository institutions of qualifying bank holding companies are still subject to capital requirements). The Company currently has less than $ 3 billion in total consolidated assets and would likely qualify under the revised SBHC Policy Statement. However, the Company does not currently intend to issue a material amount of debt or take any other action that would cause its capital ratios to fall below the minimum ratios required by the Basel III Capital Rules.
The Basel III Capital Rules require banks and bank holding companies to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5 %, plus a 2.5 % “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7 %); (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0 %, plus the 2.5 % capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5 %); (iii) a ratio of total capital to risk-weighted assets of at least 8.0 %, plus the 2.5 % capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5 %); and (iv) a leverage ratio of 4 %, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).
With respect to the Bank, the PCA regulations, to be “well capitalized” under the revised regulations, a bank must have the following minimum capital ratios: (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 %.
The Bank’s capital ratios remained well above the levels designated by bank regulators as “well capitalized” at December 31, 2025 and 2024. There are no conditions or events since that management believes have changed the institution’s category.
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 CBLR framework, as required by the EGRRCPA. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
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. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the PCA regulations and will not be required to report or calculate risk-based capital.
The CBLR framework was available for banks to use in their March 31, 2020 Call Report and going forward. The Bank has not opted into the CBLR framework.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank calculates its regulatory capital under the Basel III regulatory capital framework. The table below summarizes the Bank’s regulatory capital and related ratios as of the dates presented: The required capital buffers and resultant ratios are already provided; therefore, this table presentation excludes the capital butters. The Company and the Bank exceeded these ratios at December 31, 2025 and 2024.
December 31, 2025
Minimum
(Dollars in thousands)
To Be Well Capitalized
Minimum Capital
Under Prompt Corrective
Actual
Requirement
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital
(To Risk Weighted Assets)
Bank
Common Equity Tier 1 Capital
(To Risk Weighted Assets)
Bank
Tier 1 Capital
(To Risk Weighted Assets)
Bank
Tier 1 Capital
(To Average Assets)
Bank
December 31, 2024
Minimum
(Dollars in thousands)
To Be Well Capitalized
Minimum Capital
Under Prompt Corrective
Actual
Requirement
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital
(To Risk Weighted Assets)
Bank
Common Equity Tier 1 Capital
(To Risk Weighted Assets)
Bank
Tier 1 Capital
(To Risk Weighted Assets)
Bank
Tier 1 Capital
(To Average Assets)
Bank
Note 16 – Dividend Restrictions
The primary source of funds for the dividends paid by the Company to shareholders is dividends received from the Bank. Federal regulations limit the amount of dividends which the Bank can pay to the Company without obtaining prior approval. The amount of cash dividends that the Bank may pay is limited to current year earnings plus retained net profits for the two preceding years. In addition, dividends paid by the Bank would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.
In addition to the regulatory limits, the Company’s Board of Directors, under current policies, will generally only consider a cash dividend payment to shareholders that does not exceed 50% of the Bank’s core net income annually. Core net income excludes nonrecurring income and expense items in calculating the payout ratio. Quarterly dividend payments may be in excess of this range if the annual payout is anticipated to be within the range.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2025 , the maximum amount of retained earnings available to the Bank for cash dividends to the Company was $ 35.3 million.
Note 17 – Fair Value Measurements
Determination of Fair Value
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” topic of FASB ASC 825, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 - Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 - Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available for sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the balances measured at fair value on a recurring basis:
December 31, 2025
(Dollars in thousands)
Quoted Prices in Active Markets for Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
Total securities available for sale
Total assets at fair value
December 31, 2024
(Dollars in thousands)
Quoted Prices in Active Markets for Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
U.S. Treasury securities
U.S. Government agencies
MBS/CMOs
Corporate bonds
Municipal bonds
Total securities available for sale
Total assets at fair value
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or writedowns of individual assets .
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the Consolidated Financial Statements:
Collateral Dependent Loans with an ACL
In accordance with ASC 326, the Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within its loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the ACL are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. the Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.
The following table presents the Company's assets that were measured at fair value on a nonrecurring basis. There were no individually evaluated loans with an ACL as of December 31, 2025.
December 31, 2024
(Dollars in thousands)
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Description
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
Individually evaluated loans
Valuation
Unobservable
Discount
Description
Fair Value
Technique
Inputs
Rate
Assets:
Individually evaluated loans
Market comparables
Discount applied to recent appraisal
ASC 825, “Financial Instruments,” requires disclosures about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying values and estimated fair values of the Company’s financial instruments are as follows:
Fair Value Measurements at December 31, 2025 Using:
(Dollars in thousands)
Quoted
Prices in Active
Markets for
Identical
Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Fair Value
Assets
Cash and cash equivalent
Available for sale securities
Restricted securities
Loans, net
Bank owned life insurance
Accrued interest receivable
Liabilities
Demand deposits and interest bearing transaction and money market accounts
Certificates of deposit
Borrowings
Junior subordinated debt
Accrued interest payable
Fair Value Measurements at December 31, 2024 Using:
(Dollars in thousands)
Quoted
Prices in Active
Markets for
Identical
Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Carrying value
Level 1
Level 2
Level 3
Fair Value
Assets
Cash and cash equivalent
Available for sale securities
Restricted securities
Loans, net
Bank owned life insurance
Accrued interest receivable
Liabilities
Demand deposits and interest bearing transaction and money market accounts
Certificates of deposit
Federal funds purchased
Borrowings
Junior subordinated debt
Accrued interest payable
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
minimize interest rate risk; however, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
Note 18 – Employee Benefit Plans
The Company has a 401(k) plan available to all employees who are at least 18 years of age. Employees are able to elect the amount to contribute, not to exceed a maximum amount as determined by Internal Revenue Service regulation. The Company matches 100 % of the first 6 % of employee contributions.
“Vesting” refers to the rights of ownership to the assets in the 401(k) accounts. Matching contributions as well as employee contributions are fully vested immediately.
The Company contributed $ 612 thousand and $ 622 thousand to the 401(k) plan in 2025 and 2024, respectively. These expenses represent the matching contribution by the Company.
The Company, as a result of the Merger, provides a post-retirement benefit for one retired employee. The liability associated with this benefit of $ 101 thousand as of December 31, 2025 is included in Accrued interest payable and other liabilities on the Consolidated Balance Sheet.
Note 19 – Stock Incentive Plans
At the Annual Shareholders Meeting on June 23, 2022, shareholders approved the Virginia National Bankshares Corporation 2022 Stock Incentive Plan. The 2022 Plan initially made available up to 150,000 shares of the Company’s common stock to be issued to plan participants. The 2022 Plan provides for granting of both incentive and nonqualified stock options, as well as restricted stock, unrestricted stock and other stock-based awards. No new grants can be issued under the 2014 Stock Incentive Plan as that plan has expired. At the Annual Meeting of Shareholders on July 24, 2025, an amendment to the 2022 Plan to increase the shares available for issuance under the plan by 150,000 shares was approved.
For the 2022 Plan, the option price for any stock options cannot be less than the fair value of the Company’s stock on the grant date. In addition, 95 % of the common stock authorized for issuance must have a vesting or exercise schedule of at least one year. Outstanding stock options generally expire ten years from the grant date. Stock options generally vest by the fourth or fifth anniversary of the date of the grant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the shares issued and available under each of the Plans is shown below as of December 31, 2025 . Share data and exercise price range per share have been adjusted to reflect previously stock dividends. Although the 2014 Plan has expired and no new grants will be issued under this plan, there were shares issued before the plan expired which are still outstanding as shown below.
2022 Plan
2014 Plan
Aggregate shares issuable
Options issued, net of forfeited and expired options
Unrestricted stock issued
Restricted stock grants issued
Cancelled due to Plan expiration
Remaining available for grant
Stock grants issued and outstanding:
Total vested and unvested shares
Fully vested shares
Option grants issued and outstanding:
Total vested and unvested shares
Fully vested shares
Exercise price range
The Company accounts for all of its stock incentive plans under recognition and measurement accounting principles which require that the compensation cost relating to stock-based payment transactions be recognized in the financial statements. Stock-based compensation arrangements for 2025 and prior years include stock options, unrestricted stock and restricted stock. All stock-based payments to employees are required to be valued using a fair value method on the date of grant and expensed based on that fair value over the applicable vesting period.
Stock Options
Changes in the stock options outstanding related to all of the Plans are summarized below.
December 31, 2025
(Dollars in thousands except weighted average data)
Number of
Options
Weighted
Average
Exercise Price
Aggregate
Intrinsic Value
Outstanding at January 1, 2025
Issued
Exercised
Forfeited
Expired
Outstanding at December 31, 2025
Options exercisable at December 31, 2025
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2025 and 2024 , the Company recognized $ 125 thousand and $ 131 thousand, respectively, in compensation expense for stock opt ions. As of December 31, 2025 , there was $ 295 thousand in unrecognized compensation expense for stock options remaining to be recognized in future reporting periods through 2030 . The fair value of any option grant is estimated at the grant date using the Black-Scholes pricing model.
There were stock option grants of 10,200 shares and 50,300 shares issued during the years ended December 31, 2025 and December 31, 2024 , respectively. The fair value on each option granted during the current year was estimated based on the assumptions noted in the following table:
For the year ended
December 31, 2025
Expected volatility 1
Expected dividends 2
Expected term (in years) 3
Risk-free rate 4
1 Based on the monthly historical volatility of the Company’s stock price over the expected life of the options.
2 Calculated as the ratio of historical dividends paid per share of common stock to the stock price on the date of grant.
3 Based on the average of the contractual life and vesting period for the respective option.
4 Based upon an interpolated US Treasury yield curve interest rate that corresponds to the contractual life of the option, in effect at the time of the grant.
Summary information pertaining to options outstanding at December 31, 2025, as adjusted for stock dividends, is as follows:
Options Outstanding
Options Exercisable
Exercise Price
Number of
Options
Outstanding
Weighted-
Average
Remaining
Contractual Life
Weighted-
Average
Exercise
Price
Number of
Options
Exercisable
Weighted-
Average
Exercise
Price
5.9 Years
6.3 Years
2.4 Years
Total
5.1 Years
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Grants
Restricted stock grants – During 2025 , 21,068 shares of restricted stock were granted to employees and non-employee directors, vesting over a four-year . During 2024 , 25,280 shares of restricted stock were granted. In 2025 and 2024 , restricted stock grants resulted in an associated expense of $ 847 thousand and $ 782 thousand, respectively. As of December 31, 2025 , there was $ 1.4 million in unrecognized compensation expense for restricted stock grants remaining to be recognized in future reporting periods through 2029 .
December 31, 2025
(Dollars in thousands except weighted average data)
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic Value
Outstanding at January 1, 2025
Issued
Vested
Forfeited
Nonvested at December 31, 2025
The weighted average period over which nonvested restricted stock grants are expected to be recognized is 1.2 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 – Net Income per Share
The table below shows the weighted average number of shares used in computing net income per common share and the effect on the weighted average number of shares of potential dilutive common stock for the years ended December 31, 2025 and 2024 . Potential dilutive common stock equivalents have no effect on net income available to the Company’s shareholders. Diluted net income per share is computed based on the weighted average number of shares of common stock equivalents outstanding, to the extent dilutive. The Company’s common stock equivalents relate to outstanding common stock options.
Nonvested restricted stock is included in the calculation of basic and diluted net income per share. The weighted average shares below as of December 31, 2025 and December 31, 2024 include 62,468 and 65,889 shares, respectively, of such restricted stock that have not yet vested. The recipients of nonvested restricted shares have full voting and dividend rights. Dollars below are reported in thousands except for per share data.
Net Income
Weighted
Average
Shares
Per Share
Amount
December 31, 2025
Basic net income per share
Effect of dilutive stock options
Diluted net income per share
December 31, 2024
Basic net income per share
Effect of dilutive stock options
Diluted net income per share
In 2025 and 2024 , stock options representing 91,264 and 121,701 average shares, respectively, were not included in the calculation of net income per share, as their effect would have been antidilutive.
Note 21 - Junior Subordinated Debt
On September 21, 2006, Fauquier’s wholly owned Connecticut statutory business trust, 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 . Historically, the interest rate on the capital security reset every three months at 1.70 % above the then current three-month CME Term SOFR plus a spread adjustment of 0.26 % and was paid quarterly .
Total capital securities at December 31, 2025 and 2024 were $ 3.6 million and $ 3.5 million, respectively, as adjusted to fair value as of the date of the Merger. The Trust II issuance of capital securities and the respective subordinated debentures are callable at any time. The subordinated debentures are an unsecured obligation of the Company and are junior in right of payment to all present and future senior indebtedness of the Company. The capital securities are guaranteed by the Company on a subordinated basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22 - Other Comprehensive Income (Loss)
The following table presents the changes in each component of accumulated other comprehensive income (loss) as of December 31, 2025 and December 31, 2024:
(Dollars in thousands)
AFS Securities
Accumulated other comprehensive loss at December 31, 2024
Other comprehensive gain arising during the period
Related income tax effects
Accumulated other comprehensive loss at December 31, 2025
(Dollars in thousands)
AFS Securities
Accumulated other comprehensive loss at December 31, 2023
Other comprehensive loss arising during the period
Related income tax effects
Reclassification into net income
Related income tax effects
Accumulated other comprehensive loss at December 31, 2024
Note 23 – Segment Reporting
Virginia National Bankshares Corporation has two reportable segments in 2025 and three in 2024. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.
The reportable segments are:
Bank - The commercial banking segment involves making loans and generating deposits from individuals, businesses and charitable organizations. Loan fee income, service charges from deposit accounts, and other non-interest-related fees, such as fees for debit cards and ATM usage and fees for treasury management services, generate additional income for the Bank segment.
VNB Trust and Estate Services – VNB Trust and Estate Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as management fees which are derived from Assets Under Management. Investment management services currently are offered through in-house and third-party managers. In addition, royalty income, in the form of fixed and incentive fees, from the sale of Swift Run Capital Management, LLC in 2013 is reported as income of VNB Trust and Estate Services. More information on royalty income and the related sale can be found under Note 1 - Summary of Significant Accounting Policies.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Masonry 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 will be incurred by the Company related to Masonry subsequent to April 1, 2024.
The Company's chief operating decision makers are the President/ Chief Executive Officer and the Chief Financial Officer . The CODMs use income, operating expenses and net income to evaluate income generated from segment assets, including AUMs, in deciding whether to reinvest profits into the segments or into other parts of the Company, such as for acquisitions or to pay dividends. Net income is used to monitor budget versus actual results. The CODMs also use income, operating expenses and net income in competitive analysis by benchmarking to the Company's competitors. The competitive analysis along with monitoring of budgeted versus actual results are used in assessing performance of the segments and determining if a segment should be continued or sold.
Segment information for the years ended December 31, 2025 and 2024 is shown in the following tables. Note that asset information is not reported below, as the assets of VNB Trust & Estate Services are reported at the Bank level; also, assets specifically allocated to the lines of business other than the Bank are insignificant and are no longer provided to the CODM.
(Dollars in thousands)
Bank
VNB Trust &
Estate
Services
Consolidated
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income:
Wealth management fees
Deposit account fees
Debit/credit card and ATM fees
Bank owned life insurance income
Gains on sale of assets, net
Other
Total noninterest income
Noninterest expense:
Salaries and employee benefits
Net occupancy
Equipment
Bank franchise tax
Computer software
Data processing
FDIC deposit insurance assessment
Marketing, advertising and promotion
Professional fees
Core deposit intangible amortization
Other
Total noninterest expense
Income before income taxes
Provision for (benefit of) income taxes
Net income (loss)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Bank
VNB Trust &
Estate
Services
Masonry
Capital
Consolidated
Net interest income
Recovery of credit losses
Net interest income after recovery of credit losses
Noninterest income:
Wealth management fees
Deposit account fees
Debit/credit card and ATM fees
Bank owned life insurance income
Gains on sale of assets, net
Gains on early redemption of debt
Losses on sales of AFS, net
Other
Total noninterest income
Noninterest expense:
Salaries and employee benefits
Net occupancy
Equipment
Bank franchise tax
Computer software
Data processing
FDIC deposit insurance assessment
Marketing, advertising and promotion
Professional fees
Core deposit intangible amortization
Other
Total noninterest expense
Income before income taxes
Provision for (benefit of) income taxes
Net income (loss)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 24 – Condensed Parent Company Financial Statements
Condensed financial statements pertaining only to the Parent Company are presented below. The investment in subsidiary is accounted for using the equity method of accounting.
Cash dividend payments authorized by the Bank’s Board of Directors were paid to the Parent Company in 2025 and 2024 , totaling $ 9.0 million and $ 9.5 million, respectively.
The payment of dividends by the Bank is restricted by various regulatory limitations. Banking regulations also prohibit extensions of credit to the parent company unless appropriately secured by assets. For more detail on dividends, see Note 16 – Dividend Restrictions.
Condensed Parent Com pany Only
BALANCE SHEETS
(Dollars in thousands)
December 31, 2025
December 31, 2024
ASSETS
Cash and due from banks
Investment securities
Investments in subsidiaries
Other assets
Total assets
LIABILITIES & SHAREHOLDERS' EQUITY
Junior subordinated debt
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
STATEMENTS OF INCOME
(Dollars in thousands)
For the years ended
December 31, 2025
December 31, 2024
Dividends from subsidiary
Net interest expense
Noninterest income
Noninterest expense
Income before income taxes
Income tax benefit
Income before equity in undistributed earnings of
subsidiaries
Equity in undistributed earnings of subsidiaries
Net income
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Parent Company Only (Continued)
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended
December 31, 2025
December 31, 2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries
Net accretion of certain acquisition-related adjustments
Stock option & restricted stock grant expense
Shares repurchased
Increase in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options exercised
Dividends paid
Net cash used in financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
Beginning of period
End of period
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 25 – Investment in Affordable Housing Projects
As a result of the Merger, the Company acquired certain limited partnership investments in affordable housing projects located in the Commonwealth of Virginia. These partnerships exist to develop and preserve affordable housing for low income families through residential rental property projects. The Company exerts no control over the operating or financial policies of the partnerships. Return on these investments is through receipt of tax credits and other tax benefits which are subject to recapture by taxing authorities based on compliance features at the project level. The investments are due to expire by 2036 . There are currently no unfunded capital commitments.
The Company accounts for these Low Income Housing Tax Credits (LIHTC) using the proportional amortization method which it adopted January 1, 2024, and which resulted in a $ 1.1 million reduction to retained earnings as reflected on the Consolidated Statements of Changes in Shareholder Equity. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statements as a component of income tax expense (benefit). As of December 31, 2025 and 2024, the Company had recorded $ 915 thousand and $ 1.3 million, respectively, in LIHTC equity investments presented in Accrued Interest Receivable and Other Assets on the Consolidated Balance Sheets.
Note 26 - Sale of Masonry Capital Management, LLC
Effective April 1, 2024, the Company sold the membership interests in Masonry Capital Management, LLC to an officer of the Company. 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 the effective date of sale. The sale of this business line did not meet the requirements for classification of discontinued operations, as the sale did not represent a strategic shift in the Company's operations or plans and will not have a major effect on the Company's future operations or financial results.
Note 27 - Share Repurchase Plan
During the second quarter of 2023, the Board of Directors approved a share repurchase plan of up to 5 % of outstanding common stock. Repurchases may be made through open market purchases or in privately negotiated transactions. The actual timing, number, and value of shares repurchased under the plan would have been determined by a committee of the Board.
During 2024, a total of 20,350 shares were repurchased at an average price of $ 27.42 . There were no share repurchases during 2025.
