What changed in this filing

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Item 1. Financial Statements

2021-08-13 compared with 2021-05-10 · 424 added, 319 removed, 572 unchanged (57% of the section changed)

3 unchanged sentences

(Dollars in thousands, except per share data)

March 31, 2021

June 30, 2021

December 31, 2020*

Cash and due from banks

Interest-bearing deposits in other banks

Federal funds sold

5 unchanged sentences

Bank owned life insurance

Core deposit intangible, net

Other intangible assets, net

Other real estate, net

Right of use asset, net

Accrued interest receivable and other assets

7 unchanged sentences

Advances from the FHLB

Junior subordinated debt

Lease liability

Accrued interest payable and other liabilities

5 unchanged sentences

Common stock, $ 2.50 par value, 10,000,000 shares authorized;

2,728,327 (including 36,179 nonvested) shares issued

and outstanding as of March 31, 2021 and 2,714,273

(including 25,268 nonvested) shares issued and outstanding

as of December 31, 2020

5,305,819 shares issued and outstanding as of June 30, 2021

(includes 35,495 nonvested), and 2,714,273 shares issued

and outstanding as of December 31, 2020 (includes 25,268

Capital surplus

9 unchanged sentences

For the three months ended

March 31, 2021

March 31, 2020

For the six months ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Interest and dividend income:

1 unchanged sentence

Federal funds sold

Other interest-bearing accounts

Investment securities:

6 unchanged sentences

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Provision for (recovery of) loan losses

Net interest income after provision for (recovery of) loan losses

Noninterest income:

12 unchanged sentences

Net occupancy

Bank franchise tax

Computer software

Data processing

FDIC deposit insurance assessment

Marketing, advertising and promotion

Merger expenses

Professional fees

Core deposit intangible amortization

Total noninterest expense

8 unchanged sentences

For the three months ended

March 31, 2021

March 31, 2020

For the six months ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Other comprehensive income (loss)

Unrealized losses on securities, net of tax

of ($ 900 ) for the three months ended

March 31, 2021;

and net of tax of

($ 109 ) for the three months ended

March 31, 2020

Unrealized gains (losses) on securities, net of tax

of $ 506 and ($ 394 ) for the three and six

months ended June 30, 2021;

of tax of $ 512 and $ 403 for the three

and six months ended June 30, 2020,

Reclassification adjustment for realized gains

on sales of securities, net of tax of ($ 0 )

for the three months ended

March 31, 2021;

and net of tax of ($ 11 )

for the three months ended

March 31, 2020

Total other comprehensive loss

Total comprehensive (loss) income

on sales of securities, net of tax of ($ 0 ) and

($ 0 ) for the three and six months ended

June 30, 2021;

and net of tax of ($ 124 ) and

($ 135 ) for the three and six months ended

June 30, 2020, respectively

Unrealized losses on interest rate swaps, net of tax

of ($ 30 ) and ($ 30 ) for the three and six

months ended June 30, 2021;

of tax of $ 0 and $ 0 for the three

and six months ended June 30, 2020,

Total other comprehensive income (loss)

Total comprehensive income

See Notes to Consolidated Financial Statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(Dollars in thousands, except per share data)

7 unchanged sentences

Balance, March 31, 2020

Stock option expense

Restricted stock grant expense

Cash dividends declared ($ 0.30 per share)

Other comprehensive income

Balance, June 30, 2020

Balance, December 31, 2020

6 unchanged sentences

Balance, March 31, 2021

Common stock issued in acquisition of Fauquier Bankshares, Inc.

Exercise of stock options

Stock option expense

Restricted stock grant expense

Vested stock grants

Cash dividends declared ($ 0.30 per share)

Other comprehensive income

Balance, June 30, 2021

See Notes to Consolidated Financial Statements

2 unchanged sentences

(dollars in thousands)

For the three months ended

March 31, 2021

March 31, 2020

For the six months ended

June 30, 2021

June 30, 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Provision for loan losses

Net accretion of certain acquisition-related discounts

Amortization of intangible assets

Net amortization and accretion of securities

1 unchanged sentence

Earnings on bank owned life insurance

Amortization of intangible assets

Depreciation and other amortization

6 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of Fauquier Bankshares

Net decrease (increase) in restricted investments

2 unchanged sentences

Proceeds from sales of available for sale securities

Net increase in organic loans

Net decrease in purchased loans

Net decrease (increase) in loans

Cash payment for wealth management book of business

Purchase of bank premises and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

1 unchanged sentence

Net increase (decrease) in certificates of deposit and other time deposits

Net decrease in other borrowings

Proceeds from stock options exercised

8 unchanged sentences

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING

Unrealized losses on available for sale securities

Unrealized (losses) gains on available for sale securities

Unrealized (losses) gains on interest rate swaps

Assets acquired in business combination

Liabilities assumed in business combination

Change in goodwill

See Notes to Consolidated Financial Statements

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Virginia National Bankshares Corporation (the “Company”), and its subsidiaries Virginia National Bank (the “Bank”) and Masonry Capital Management, LLC (“Masonry Capital”), a registered investment advisor.

Beginning in 2019, the services offered under the umbrella of VNB Wealth are provided by Masonry Capital or by the Bank under VNB Trust & Estate Services or Sturman Wealth Advisors, formerly known as VNB Investment Services.

All significant intercompany balances and transactions have been eliminated in consolidation.

June 30, 2021

Summary of Significant Accounting Policies

Principles of Consolidation:

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

1 unchanged sentence

In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.

The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2020.

Nature of Operations:

The accompanying unaudited consolidated financial statements include the accounts of Virginia National Bankshares Corporation (the “Company”), and its subsidiaries Virginia National Bank (the “Bank”) and Masonry Capital Management, LLC (“Masonry Capital”), a registered investment advisor.

All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation:

The preparation of financial statements in conformity with GAAP and the reporting guidelines prescribed by regulatory authorities requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses (including impaired loans), other-than-temporary impairment of securities, intangible assets, and fair value measurements.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2020.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, accounting for business combinations, including loans acquired in the business combination, impairment of loans, goodwill impairment, other-than-temporary impairment of securities, other intangible assets, and fair value measurements.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Reclassifications:

If needed, certain previously reported amounts have been reclassified to conform to current period presentation.

No such reclassifications were significant

Merger with Fauquier Bankshares, Inc.

On April 1, 2021 , the Company completed its merger with Fauquier Bankshares, Inc.

(“Fauquier”).

The merger of Fauquier with and into the Company (the “Merger”) was effected pursuant to the terms and conditions of the Agreement and Plan of Reorganization, dated as of September 30, 2020, between the Company and Fauquier, and a related Plan of Merger (together, the “Merger Agreement”).

Pursuant to the Merger Agreement, holders of shares of Fauquier common stock received 0.675 shares of the Company’s common stock for each share of Fauquier common stock held immediately prior to the effective date of the Merger, plus cash in lieu of fractional shares.

Each share of the Company’s common stock outstanding immediately prior to the Merger remained outstanding and was unaffected by the Merger.

Shortly after the effective time of the Merger, The Fauquier Bank, Fauquier’s wholly-owned bank subsidiary, was merged with and into Virginia National Bank, the Company’s wholly-owned bank subsidiary, with Virginia National Bank surviving.

The first quarter balance sheet and financial results of the Company do not include the financial position or results of Fauquier.

At March 31, 2021, Fauquier had total assets of $ 911.3 million, net loans of $ 616.4 million and total deposits of $ 817.5 million.

Recent Accounting Pronouncements

Business Combination:

On April 1, 2021 , the Company completed the merger with Fauquier Bankshares, Inc.

with and into the Company for total consideration paid of $ 78.0 million.

Additional information about this transaction is presented in Note 2 – Business Combinations.

Recent Significant Accounting Pronouncements

Financial Instruments – Credit Losses In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326):

2 unchanged sentences

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASUs 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03.

4 unchanged sentences

Early in 2017, the Company formed a cross-functional steering committee, including some members of senior management, to provide governance and guidance over the project plan.

T h e Company is capturing the additional loan data which is anticipated to be needed for th is calculation .

The Company is capturing the additional loan data which is anticipated to be needed for this calculation.

The extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time.

18 unchanged sentences

Recently Adopted Accounting Developments

Accounting for Income Taxes In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance.

This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.

ASU 2019-12 was effective for the Company on January 1, 2021.

The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.

Nonrefundable Fees and Other Costs In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs.” This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.

ASU 2020-08 was effective for the Company on January 1, 2021.

The adoption of ASU 2020-08 did not have a material impact on the Company’s consolidated financial statements.

CARES Act In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed.

Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), including the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”)

and treatment of certain loan modifications related to the COVID-19 pandemic.

The adoption of the CAR E S Act had no material impact on the Company’s consolidated financial statements.

See further discussion of PPP loans and loan modifications in Note s 3 and 4 of the notes to the Consolidated Financial Statements.

The amortized cost and fair values of securities available for sale as of March 31, 2021 and December 31, 2020 were as follows (dollars in thousands):

March 31, 2021

The adoption of the CARES Act had no material impact on the Company’s consolidated financial statements.

See further discussion of PPP loans and loan modifications in Notes 4 and 5 of the notes to the Consolidated Financial Statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Business Combinations

On April 1, 2021 (The “Effective Date”), the Company completed the merger with Fauquier Bankshares, Inc.

(“Fauquier”) with and into the Company (the “Merger”), with the Company surviving, pursuant to the terms of the Agreement and Plan of Reorganization, dated September 30, 2020, between the Company and Fauquier (the “Merger Agreement”).

Pursuant to the Merger Agreement, holders of shares of Fauquier common stock received 0.675 shares of the Company’s common stock for each share of Fauquier common stock held immediately prior to the Effective Date of the Merger, plus cash in lieu of fractional shares.

In connection with the transaction, the Company issued 2,571,213 shares of its common stock to the shareholders of Fauquier and paid $ 4 thousand in cash lieu of fractional shares.

Each share of the Company’s common stock outstanding immediately prior to the Merger remained outstanding and was unaffected by the Merger.

Shortly after the Effective Date of the Merger, The Fauquier Bank (“TFB”), Fauquier’s wholly-owned bank subsidiary, was merged with and into Virginia National Bank, the Company’s wholly-owned bank subsidiary, with Virginia National Bank surviving.

The Company accounted for the Merger using the acquisition method of accounting in accordance with ASC 805, Business Combinations.

Under the acquisition method of accounting, the assets acquired and liabilities assumed in the Merger and the common stock of the Company issued as consideration were recorded at their respective acquisition date fair values.

Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is inherently subjective and involves significant judgment regarding the methods and assumptions used to estimate fair value.

Under ASC 805, during the measurement period of up to one year, the acquirer shall adjust the amounts recognized at the acquisition date and may recognize additional assets or liabilities to reflect new information obtained from facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

Measurement period adjustments are recognized in the reporting period in which they are determined.

The measurement period may not exceed one year from the acquisition date.

The following table presents as of April 1, 2021 the total consideration paid by the Company in connection with the Merger, the fair values of the assets acquired and liabilities assumed, and the resulting goodwill (dollars in thousands):

by Virginia National

Bankshares, Inc.

Cash and cash equivalents

Securities available for sale

Premises and equipment

Other real estate owned

Bank-owned life insurance

Right-of-use assets

Core deposit intangible

Total assets acquired

Short-term borrowings

Junior subordinated debt

Lease liability

Other liabilities

Total liabilities assumed

Net assets acquired

Total consideration paid

In connection with the Merger, the Company recorded approximately $ 8.5 million of goodwill and $ 8.7 million of other intangible assets related to the core deposits of Fauquier.

The goodwill arising from the Merger of Fauquier is not deductible for income taxes.

The core deposit intangible asset (“CDI”) will be amortized over a period of seven years using the sum of years digits method.

Loans acquired from Fauquier (the “Acquired Loans”) had aggregate outstanding principal of $ 622.9 million and an estimated fair value of $ 602.6 million.

The discount between the outstanding principal balance and fair value of $ 20.3 million represents expected credit losses and adjustments for market interest rates of $ 21.3 million, offset by elimination of net deferred fees/costs of $ 979 thousand.

As of the Effective Date, the fair value of the performing loans was $ 513.8 million, which was 1.7 % less than the book value of the loans.

The total fair value discount on performing loans of $ 9.0 million consisted of a credit discount of $ 8.4 million and an other fair value discount of $ 647 thousand.

Loans that have evidence of deterioration in credit quality since origination are categorized as purchased credit impaired (“PCI”).

As of the Effective Date, the fair value of PCI loans was $ 87.3 million, which was 12.3 % below the book value of the loans.

The total fair value mark on PCI loans of $ 12.3 million consisted of a credit discount of $ 11.2 million and an other fair value discount of $ 1.1 million.

Under the acquisition method (ASC 805), the allowance for loan losses recorded in the books of Fauquier in the amount of $7.2 million was not carried over into the books of the Company.

Information about PCI loans acquired from Fauquier as of April 1, 2021 is as follows (dollars in thousands):

April 1, 2021

Contractual principal and interest at acquisition

Nonaccretable difference

Expected cash flows at acquisition

Accretable yield

Basis in PCI loans at acquisition, estimated fair value

Fair values of the major categories of assets acquired and liabilities assumed as part of the Merger were determined as follows:

Cash and due from banks:

The carrying amount of cash and due from banks was used as a reasonable estimate of fair value.

Securities available for sale:

The estimated fair value of investment securities available for sale was based on quoted pricing for those securities.

The Acquired Loans were recorded at fair value at the Merger date without carryover of Fauquier's allowance for loan losses.

The fair value of the Acquired Loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and then discounting those cash flows based on a discount rate that would be required by a market participant.

In this regard, the Acquired Loans were segregated into pools based on loan type and credit risk.

Loan type was determined based on collateral type, loan purpose and loan structure.

Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans), updated loan-to-value ratios and lien position, and past loan performance.

For valuation purposes, these pools were further disaggregated by maturity and pricing characteristics (e.g., fixed-rate, adjustable-rate, balloon maturities).

Premises and equipment:

The land and buildings acquired were recorded at fair value as determined by current appraisals by independent third parties and tax assessments at Effective Date.

Other real estate owned :

Other real estate owned was recorded at fair value based on an existing purchase contract, less estimated selling costs.

Bank owned life insurance:

The carrying amount of bank owned life insurance was used as a reasonable estimate of fair value.

Right of use assets and lease liabilities:

Lease liabilities were measured at the present value of the remaining lease payments, as if the acquired lease were a new lease of the Company at the Effective D ate.

Right-of-use assets were measured at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms.

Core deposit intangible:

The fair value of the CDI was determined based on a discounted cash flow analysis using a discount rate based on the estimated cost of equity capital for a market participant.

To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available through the FHLB.

The life of the deposit base and projected deposit attrition rates were determined using Fauquier’s historical deposit data.

The CDI was estimated at $ 8.7 million or 1.2 % of non-maturity deposits.

The fair value adjustment of deposits represents a premium over the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar term certificates of deposit, using a discounted cash flow method.

The resulting estimated fair value adjustment of certificates of deposit ranging in maturity from one month to three years is a $ 191,000 premium and is being amortized into income over a period of seven months .

Short-term borrowings:

The fair value of borrowings was determined by comparison to current interest rates for similar borrowings.

The resulting fair value adjustment to short-term borrowings is a $ 473,000 premium which will be amortized into interest expense over the remaining life of the debt on a straight-line basis.

Junior subordinated debt :

The fair value of the junior subordinated debt was determined by forecasting the cash flows at the stated coupon rate and discount at a prevailing market rate.

The prevailing market rate was based on implied market yields for recently issued debt with similar duration, credit quality, seniority and structure, issued by institutions of similar asset size.

The resulting estimated fair value adjustment of junior subordinated debt is a $ 790,000 discount and is being accreted over the remaining life of the debt on a straight-line basis.

The revenue and earnings amounts specific to Fauquier since the Effective Date that are included in the consolidated results for 2021 are not readily determinable.

The disclosures of these amounts are impracticable due to the merging of certain processes and systems at the Effective Date.

Merger related expenses associated with the Merger of Fauquier were $ 5.9 million ($ 4.6 million after taxes) for the three months ended June 30, 2021, $ 6.2 million ($ 4.7 million after taxes) for the six months ended June 30, 2021 and $ 7.7 million ($ 5.4 million after taxes) in the aggregate through June 30, 2021.

These costs included investment banker fees, expenses related to the integration of systems and operations, change of control payments and legal and consulting expenses, which have been expensed as incurred.

There were no merger related expenses during the three and six months ended June 30, 2020.

The amortized cost and fair values of securities available for sale as of June 30, 2021 and December 31, 2020 were as follows (dollars in thousands):

June 30, 2021

Government agencies

7 unchanged sentences

Total Securities Available for Sale

As of March 31, 2021, there were $ 130.7 million, or 80 issues of individual securities, held in an unrealized loss position.

As of June 30, 2021, there were $ 132.7 million, or 86 issues of individual securities, held in an unrealized loss position.

These securities have an unrealized loss of $ 2.3 million and consisted of 46 mortgage-backed/collateralized mortgage obligations (“CMOs”), 25 municipal bonds, and 15 agency bonds.

The following table summarizes all securities with unrealized losses, segregated by length of time in a continuous unrealized loss position, at March 31, 2021, and December 31, 2020 (dollars in thousands):

March 31, 2021

The following table summarizes all securities with unrealized losses, segregated by length of time in a continuous unrealized loss position, at June 30, 2021, and December 31, 2020 (dollars in thousands):

June 30, 2021

Less than 12 Months

9 unchanged sentences

Municipal bonds

The Company’s securities portfolio is primarily made up of fixed rate bonds, the prices of which move inversely with interest rates.

Any unrealized losses are considered by management to be driven by increases in market interest rates over the

yields available at the time the underlying securities were purchased.

The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.

The Company’s securities portfolio is primarily made up of fixed rate instruments, the prices of which move inversely with interest rates.

Any unrealized losses are considered by management to be driven by increases in market interest rates over the yields available at the time the underlying securities were purchased.

The fair value is expected to recover as the instruments approach their maturity date or repricing date or if market yields for such investments decline.

At the end of any accounting period, the portfolio may have both unrealized gains and losses.

Management does not believe any of the securities in an unrealized loss position are impaired due to credit quality.

Accordingly, as of March 31, 2021 , management believes the impairments detailed in the table above are temporary, and no impairment loss has been realized in the Company’s consolidated income statement.

Accordingly, as of June 30, 2021, management believes the impairments detailed in the table above are temporary, and no impairment loss has been realized in the Company’s consolidated income statement.

An “other-than-temporary impairment” (“OTTI”) is considered to exist if either of the following conditions are met:

1 unchanged sentence

In the event that a security would suffer impairment for a reason that was “other than temporary,” the Company would be expected to write down the security’s value to its new fair value, and the amount of the write down would be included in earnings as a realized loss.

As of March 31, 2021, management has concluded that none of its investment securities have an OTTI based upon the information available.

As of June 30, 2021, management has concluded that none of its investment securities have an OTTI based upon the information available.

Additionally, management has the ability to hold any security with an unrealized loss until maturity or until such time as the value of the security has recovered from its unrealized loss position.

Securities having carrying values of $ 5.9 million at March 31, 2021 were pledged as collateral to secure public deposits and facilitate borrowing from the Federal Reserve Bank of Richmond (“FRB”).

Securities having carrying values of $ 10.4 million at June 30, 2021 were pledged as collateral to secure deposits and for other purposes and facilitate borrowing from the Federal Reserve Bank of Richmond (“FRB”).

At December 31, 2020, securities having carrying values of $ 6.0 million were similarly pledged.

For the three months ended March 31, 2021, there were no sales of securities.

For the three months ended March 31, 2020, proceeds from the sales of securities amounted to $ 5.4 million, with realized gains of $ 53 thousand.

For the six months ended June 30, 2021 , there were no sales of securities .

For the six months ended June 30, 2020 , proceeds from the sales of securities amounted to $ 46.1 million, with realized gains of $ 655 thousand and realized losses of $ 12 thousand .

Restricted securities are securities with limited marketability and consist of stock in the FRB, the Federal Home Loan Bank of Atlanta (“FHLB”), and CBB Financial Corporation, the holding company for Community Bankers Bank.

These restricted securities, totaling $ 2.7 million and $ 3.0 million as of March 31, 2021 and December 31, 2020, are carried at cost.

The composition of the loan portfolio by loan classification at March 31, 2021 and December 31, 2020 appears below (dollars in thousands).

Commercial and industrial - organic

Commercial and industrial - Paycheck Protection Program

Commercial and industrial - government guaranteed

Commercial and industrial - syndicated

Total commercial and industrial

Additionally with the Fauquier merger, the Company acquired an investment in an SBA loan fund of $ 500 thousand.

These restricted securities, totaling $ 4.3 million and $ 3.0 million as of June 30, 2021 and December 31, 2020, are carried at cost.

The composition of the loan portfolio by major loan classifications at June 30, 2021 and December 31, 2020 appears below (dollars in thousands).

Real estate construction and land

Residential construction

Commercial construction

Land and land development

Total construction and land

Real estate mortgages

1-4 family residential, first lien, investment

1-4 family residential, first lien, owner occupied

1-4 family residential, junior lien

1-4 family residential - purchased

Home equity lines of credit, first lien

Home equity lines of credit, junior lien

Commercial owner occupied

Commercial non-owner occupied

Total real estate mortgage

Consumer revolving credit

Consumer all other credit

Student loans purchased

Total consumer

1-4 family residential mortgages

Commercial mortgages

Allowance for loan losses

During the last three quarters of 2020, the Company assisted nonprofit organizations and local businesses by funding $ 86.9 million of Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, which were designed to provide economic relief to small businesses adversely impacted by COVID-19.

During the three months ended March 31, 2021, the Company funded an additional $ 36.2 million in PPP loans.

The balances in the table above include unamortized premiums and net deferred loan costs (fees).

As of March 31, 2021 and December 31, 2020, unamortized premiums on loans purchased were $ 1.7 million and $ 1.8 million, respectively.

Net deferred loan costs (fees) totaled $( 2.0 ) million and $( 931 ) thousand as of March 31, 2021 and December 31, 2020, respectively.

The deferred fees increased $ 1.1 million due to the fees collected from the SBA for the additional PPP loans funded during the three months ended March 31, 2021.

Net deferred fees on PPP loans are being amortized over the contractual life of the underlying loans, most of which are over a 60 -month period.

Primarily within the second quarter of 2020 and the first quarter of 2021, the Company, including Virginia National Bank and The Fauquier Bank prior to the Merger, assisted nonprofit organizations and local businesses by funding a combined total of $ 207.5 million of Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, which were designed to provide economic relief to small businesses adversely impacted by COVID-19.

As of June 30, 2021, the Company had PPP loans of $ 68.8 million outstanding on its balance sheet, with the remainder having been forgiven by the SBA.

The balances in the table above include unamortized premiums and net deferred loan costs (fees) on PPP loans and loans purchased prior to the Merger.

As of June 30, 2021 and December 31, 2020, unamortized premiums on loans purchased prior to the Merger were $ 1.4 million and $ 1.8 million, respectively.

Net deferred loan costs (fees) totaled $( 1.7 ) million and $( 931 ) thousand as of June 30, 2021 and December 31, 2020, respectively.

The deferred fees increased $ 805 thousand due to the fees collected from the SBA for the additional PPP loans funded during the six months ended June 30, 2021.

Net deferred fees on PPP loans and loans purchased prior to the Merger are being amortized over the contractual life of the underlying loans.

As loans are forgiven by the SBA, accounting principles allow for the accelerated recognition of unamortized fees at that time.

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 $ 12.4 million on the purchased impaired loans and $ 8.2 million on the purchased performing loans as of June 30, 2021 on the loans acquired in the Merger.

See Note 2 – Business Combinations for more information on fair value of loan balances acquired in the Merger.

The outstanding principal balance and the carrying amount at June 30, 2021 on these Acquired Loans were as follows:

June 30, 2021

Acquired Loans -

Credit Impaired

Acquired Loans - Purchased Performing

Outstanding principal balance

Carrying amount:

Real estate construction and land

1-4 family residential mortgages

Commercial mortgages

Total Acquired Loans

The following table presents a summary of the change in the accretable yield of loans classified as purchased credit impaired:

June 30, 2021

Accretable yield, beginning of period

Accretable yield, end of period

Accounting guidance requires certain disclosures about investments in impaired loans, the allowance for loan losses and interest income recognized on impaired loans.

1 unchanged sentence

Factors involved in determining impairment include, but are not limited to, expected future cash flows, financial condition of the borrower, and current economic conditions.

The following tables reflect the breakdown by class of the loans classified as impaired loans as of March 31, 2021 and December 31, 2020.

The following tables reflect the breakdown by class of the Company’s loans classified as impaired loans, excluding Acquired Loans that are not impaired, as of June 30, 2021 and December 31, 2020.

These loans are reported at their recorded investment, which is the carrying amount of the loan as reflected on the Company’s balance sheet, net of charge-offs and other amounts applied to reduce the net book balance.

Average recorded investment in impaired loans is computed using an average of month-end balances for these loans for either the three months ended March 31, 2021 or the twelve months ended December 31, 2020.

Interest income recognized is for the three months ended March 31, 2021 or the twelve months ended December 31, 2020 (dollars below reported in thousands).

March 31, 2021

Average recorded investment in impaired loans is computed using an average of month-end balances for these loans for either the six months ended June 30, 2021 or the twelve months ended December 31, 2020.

Interest income recognized is for the six months ended June 30, 2021 or the twelve months ended December 31, 2020 (dollars in thousands).

June 30, 2021

Impaired loans without a valuation allowance:

Land and land development

1-4 family residential mortgages, junior lien

Real estate construction and land

1-4 family residential mortgages

Total impaired loans without a valuation allowance

Impaired loans with a valuation allowance

Student loans purchased

Total impaired loans with a valuation allowance

2 unchanged sentences

Impaired loans without a valuation allowance:

Land and land development

1-4 family residential mortgages, junior lien

Commercial non-owner occupied real estate

Real estate construction and land

1-4 family residential mortgages

Commercial real estate

Total impaired loans without a valuation allowance

Impaired loans with a valuation allowance

Student loans purchased

Total impaired loans with a valuation allowance

Total impaired loans

Included in the impaired loans above are non-accrual loans.

Included in the impaired loans are non-accrual loans.

Generally, a loan is placed on non-accrual when it is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more.

4 unchanged sentences

The recorded investment in non-accrual loans is shown below by class (dollars in thousands):

March 31, 2021

June 30, 2021

December 31, 2020

Land and land development

Real estate construction and land

Total non-accrual loans

7 unchanged sentences

A total of $ 59.7 million in loan deferments have been approved since the beginning of the pandemic.

As of March 31, 2021, $ 57.5 million, or 97.4 %, of the total loan deferments approved have returned to normal payment schedules and are now current.

Based on regulatory guidance on student lending, the Company has classified 68 of its student loans purchased as TDRs for a total of $ 1.1 million as of March 31, 2021.

As of June 30, 2021, $ 57.7 million, or 96.6 %, of the total loan deferments approved have returned to normal payment schedules and are now current.

Based on regulatory guidance on student lending, the Company has classified 57 of its student loans purchased (“Purchased Student Loans”), which exclude the student loans acquired from Fauquier that are 98 % guaranteed by the U.

Government (the “Acquired Student Loans”), as TDRs for a total of $ 1.0 million as of June 30, 2021.

These borrowers that should have been in repayment have requested and been granted payment extensions or reductions exceeding the maximum lifetime allowable payment forbearance of twelve months ( 36 months lifetime allowance for military service), as permitted under the regulatory guidance, and are therefore considered TDRs.

1 unchanged sentence

Initially, all student loans were fully insured by a surety bond, and the Company did not expect to experience a loss on these loans.

Based on the loss of insurance after July 27, 2018 due to the insolvency of the insurer, management has evaluated these loans individually for impairment and included any probable loss in the allowance for loan losses;

Based on the loss of insurance after July 27, 2018 due to the insolvency of the insurer, management has evaluated these loans individually for impairment and included any expected loss in the allowance for loan losses;

interest continues to accrue on these TDRs during any deferment and forbearance periods.

1 unchanged sentence

Troubled debt restructurings

March 31, 2021

June 30, 2021

December 31, 2020

Performing TDRs

1-4 family residential mortgages, junior lien

Student loans purchased

1-4 family residential mortgages

Total performing TDRs

Nonperforming TDRs

Land and land development

Real estate construction and land development

Total nonperforming TDRs

A summary of loans shown above that were modified under the terms of a TDR during the three months ended March 31, 2021 and 2020 is shown below by class (dollars in thousands).

A summary of loans shown above that were modified under the terms of a TDR during the three and six months ended June 30, 2021 and 2020 is shown below by class (dollars in thousands).

The Post-Modification Recorded Balance reflects the period end balances, inclusive of any interest capitalized to principal, partial principal paydowns, and principal charge-offs since the modification date.

Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

For three months ended

March 31, 2021

March 31, 2020

Student loans purchased

For the three months ended

June 30, 2021

June 30, 2020

Total loans modified during the period

During the three months ended March 31, 2021, there was one loan modified as a TDR that subsequently defaulted which had been modified as a TDR during the twelve months prior to default.

This student loan had a balance of $ 19 thousand prior to being charged off.

For the six months ended

June 30, 2021

June 30, 2020

Total loans modified during the period

During the six months ended June 30, 2021, there were three loans modified as a TDR that subsequently defaulted which had been modified as a TDR during the twelve months prior to default.

These student loans had balances of $ 22 thousand prior to being charged off.

There were five loans modified as a TDR that subsequently defaulted during the year ended December 31, 2020 which had been modified as a TDR during the twelve months prior to default.

These student loans had balances totaling $ 48 thousand prior to being charged off.

There were no loans secured by 1-4 family residential property that were in the process of foreclosure at either March 31, 2021 or December 31, 2020.

There was one loan secured by 1-4 family residential property, from the Acquired Loans, that was in the process of foreclosure with a principal balance of $ 220 thousand at June 30, 2021 and no loans secured by 1-4 family residential property were in the process of foreclosure at December 31, 2020.

Allowance for Loan Losses

3 unchanged sentences

Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows.

For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type.

For purposes of determining the allowance for loan losses on the outstanding loans that were not Acquired Loans (the “Non-Acquired Loans”), the Company has segmented certain loans in the portfolio by product type.

Within these segments, the Company has sub-segmented its portfolio by classes within the segments, based on the associated risks within these classes.

Loan Classes by Segments

Commercial loan segment:

Commercial and industrial - organic

Commercial and industrial - Paycheck Protection Program

Commercial and industrial - government guaranteed 1

Commercial and industrial - syndicated

Real estate construction and land loan segment:

Residential construction

Commercial construction

Land and land development

Real estate mortgage loan segment:

1-4 family residential, first lien, investment

1-4 family residential, first lien, owner occupied

1-4 family residential, junior lien

Home equity lines of credit, first lien

Home equity lines of credit, junior lien

Commercial owner occupied

Commercial non-owner occupied

Consumer loan segment:

Consumer revolving credit

Consumer all other credit

Student loans purchased

1 Commercial and industrial – government guaranteed class excludes PPP loans

Note that under the acquisition method of accounting (ASC 805), the allowance for loan losses recorded in the books of Fauquier was not carried over into the books of the Company.

Management utilizes a loss migration model for determining the quantitative risk assigned to unimpaired loans in order to capture historical loss information at the loan level, track loss migration through risk grade deterioration, and increase efficiencies related to performing the calculations.

The quantitative risk factor for each loan class primarily utilizes a migration analysis loss method based on loss history for the prior twelve quarters.

The migration analysis loss method is used for all loan classes except for the following:

Commercial and industrial PPP loans – These loans require no reserve as these are 100% guaranteed by the SBA.

Student loans purchased - On June 27, 2018, the Company was notified that ReliaMax Surety Company (“ReliaMax Surety”), the South Dakota insurance company which issued surety bonds for the student loan pools, was placed into liquidation due to insolvency.

The migration analysis loss method is used for all loan pools except for the following:

Student loans purchased (excluding Acquired Student Loans) - On June 27, 2018, the Company was notified that ReliaMax Surety Company (“ReliaMax Surety”), the South Dakota insurance company which issued surety bonds for the student loan pools, was placed into liquidation due to insolvency.

As such, the historical charge-off rate on this portfolio is determined by using the Company’s own losses/charge-offs since July 1, 2018 together with prior insurance claim history.

For reporting periods prior to June 30, 2018, the Company did not charge off student loans as the insurance covered the past due loans, but the Company did apply qualitative factors to calculate a reserve on these loans, net of the deposit reserve accounts held by the Company for this group of loans.

Commercial and industrial government guaranteed loans - These purchased loans require no reserve as these are 100% guaranteed by either the SBA or the United States Department of Agriculture.

Commercial and industrial syndicated loans - Beginning with the quarter ended September 30, 2016, migration analysis was utilized on the Pass pool.

For all other pools, there was not an established loss history;

therefore the S&P credit and recovery ratings on the credit facilities were utilized to calculate a three-year weighted average historical default rate.

As of December 31, 2019, only migration analysis was utilized since all outstanding syndicated loans at that time were in the Pass pool.

For reporting periods prior to June 30, 2018, the Company did not charge off student

loans as the insurance covered the past due loans, but the Company did apply qualitative factors to calculate a reserve on these loans, net of the deposit reserve accounts held by the Company for this group of loans.

Commercial and industrial government guaranteed loans and PPP loans - These loans require no reserve as these are 100% guaranteed by either the SBA or the United States Department of Agriculture.

Under the migration analysis method, average loss rates are calculated at the risk grade and class levels by dividing the twelve-quarter average net charge-off amount by the twelve-quarter average loan balances.

27 unchanged sentences

These loans would be considered impaired and evaluated on an individual basis.

The following represents the loan portfolio designated by the internal risk ratings assigned to each credit as of March 31, 2021 and December 31, 2020 (dollars in thousands).

The following represents the loan portfolio designated by the internal risk ratings assigned to each credit as of June 30, 2021 and December 31, 2020 (dollars in thousands).

There were no loans rated “Doubtful” as of either period.

March 31, 2021

Commercial and industrial - organic

Commercial and industrial - Paycheck Protection Program

Commercial and industrial - government guaranteed

Commercial and industrial - syndicated

Real estate construction

Residential construction

Commercial construction

Land and land development

Real estate mortgages

1-4 family residential, first lien investment

1-4 family residential, first lien, owner occupied

1-4 family residential, junior lien

1-4 family residential, first lien - purchased

Home equity lines of credit, first lien

Home equity lines of credit, junior lien

Commercial owner occupied

Commercial non-owner occupied

Consumer revolving credit

Consumer all other credit

Student loans purchased

June 30, 2021

Real estate construction and land

1-4 family residential mortgages

Commercial mortgages

December 31, 2020

Commercial and industrial - organic

Commercial and industrial - Paycheck Protection Program

Commercial and industrial - government guaranteed

Commercial and industrial - syndicated

Real estate construction

Residential construction

Commercial construction

Land and land development

Real estate mortgages

1-4 family residential, first lien, investment

1-4 family residential, first lien, owner occupied

1-4 family residential, junior lien

1-4 family residential, first lien - purchased

Home equity lines of credit, first lien

Home equity lines of credit, junior lien

Commercial owner occupied

Commercial non-owner occupied

Consumer revolving credit

Consumer all other credit

Student loans purchased

Real estate construction and land

1-4 family residential mortgages

Commercial mortgages

In addition, the adequacy of the Company’s allowance for loan losses is evaluated through reference to eight qualitative factors, listed below and ranked in order of importance:

12 unchanged sentences

No additional downgrades of such factors were taken during the quarters ended September 30, 2020, December 31, 2020 or March 31, 2021.

During the quarter ended June 30, 2021, the Company upgraded the economic qualitative factors, resulting in a release of a portion of the reserves for loan losses related to the pandemic, as credit deterioration since the onset of COVID-19 has so far not been experienced to the extent anticipated.

If economic conditions improve or worsen, the Company could experience changes in the required ALLL.

It is possible that asset quality metrics could decline in the future if the effects of COVID-19 are sustained.

It is possible that asset quality metrics could decline in the future if there is a resurgence of COVID-19 cases that disrupts economic activity.

For each segment and class of loans, management must exercise significant judgment to determine the estimation method that fits the credit risk characteristics of its various segments.

Although this evaluation is inherently subjective, qualified management utilizes its significant knowledge and experience related to both the Company ’s market s and the history of the Company’s loan losses.

Although this evaluation is inherently subjective, qualified management utilizes its significant knowledge and experience related to both the Company’s markets and the history of the Company’s loan losses.

Impaired loans are individually evaluated and, if deemed appropriate, a specific allocation is made for these loans.

In reviewing the loans classified as impaired loans totaling $ 1.2 million at March 31, 2021, a specific valuation allowance was recognized after consideration was given for each borrowing as to the fair value of the collateral on the loan or the present value of expected future cash flows from the borrower.

The $ 6 thousand in the allowance total shown below as individually evaluated for impairment was attributed to the impaired student loans that required an allowance as of March 31, 2021 due to the loss of the insurance on this portfolio as discussed previously.

A summary of the transactions in the Allowance for Loan Losses by loan portfolio segment for the three months ended March 31, 2021 and the year ended December 31, 2020 appears below (dollars in thousands):

In reviewing the loans classified as impaired loans totaling $ 1.1 million at June 30, 2021, a specific valuation allowance was recognized after consideration was given for each borrowing as to the fair value of the collateral on the loan or the present value of expected future cash flows from the borrower.

The $ 4 thousand in the allowance total shown below as individually evaluated for impairment was attributed to the impaired student loans that required an allowance as of June 30, 2021 due to the loss of the insurance on this portfolio as discussed previously.

A summary of the transactions in the Allowance for Loan Losses by major loan portfolio segment for the six months ended June 30, 2021 and the year ended December 31, 2020 appears below (dollars in thousands):

Allowance for Loan Losses Rollforward by Portfolio Segment

As of and for the period ended March 31, 2021

As of and for the period ended June 30, 2021

Allowance for Loan Losses:

5 unchanged sentences

Collectively evaluated for impairment

Acquired loans - purchased credit impaired

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired loans - purchased credit impaired

Ending Balance

14 unchanged sentences

Interest and fees continue to accrue on past due loans until they are placed in nonaccrual or charged off.

The following tables show the aging of past due loans as of March 31, 2021 and December 31, 2020 (dollars below reported in thousands).

The following tables show the aging of past due loans as of June 30, 2021 and December 31, 2020 (dollars in thousands).

Past Due Aging as of

March 31, 2021

Commercial loans

Commercial and industrial - organic

Commercial and industrial - Paycheck Protection Program

Commercial and industrial - government guaranteed

Commercial and industrial - syndicated

June 30, 2021

Real estate construction and land

Residential construction

Commercial construction

Land and land development

Real estate mortgages

1-4 family residential, first lien, investment

1-4 family residential, first lien, owner occupied

1-4 family residential, junior lien

1-4 family residential - purchased

Home equity lines of credit, first lien

Home equity lines of credit, junior lien

Commercial owner occupied

Commercial non-owner occupied

1-4 family residential mortgages

Commercial mortgages

Consumer loans

Consumer revolving credit

Consumer all other credit

Student loans purchased

Past Due Aging as of

December 31, 2020

Commercial loans

Commercial and industrial - organic

Commercial and industrial - Paycheck Protection Program

Commercial and industrial - government guaranteed

Commercial and industrial - syndicated

Real estate construction and land

Residential construction

Commercial construction

Land and land development

Real estate mortgages

1-4 family residential, first lien, investment

1-4 family residential, first lien, owner occupied

1-4 family residential, junior lien

1-4 family residential - purchased

Home equity lines of credit, first lien

Home equity lines of credit, junior lien

Commercial owner occupied

Commercial non-owner occupied

1-4 family residential mortgages

Commercial mortgages

Consumer loans

Consumer revolving credit

Consumer all other credit

Student loans purchased

Goodwill and Other Intangible Assets

The carrying amount of goodwill was $ 8.9 million and $ 372 thousand at June 30, 2021 and December 31, 2020, respectively.

The following table presents the changes in goodwill during the six months ended June 30, 2021.

There were no changes in the recorded balance of goodwill during the three and six months ended June 30, 2020.

Sturman Wealth Advisors

Balance as of January 1, 2021

Acquisition of Fauquier Bankshares, Inc.

Balance at June 30, 2021

The Corporation had $ 8.6 million and $ 341 thousand of other intangible assets as of June 30, 2021 and December 31, 2020, respectively.

Other intangible assets were recognized in connection with the core deposits acquired from Fauquier in 2021 and the book of business, including interest in the client relationships of an officer, acquired by VNB Wealth in 2016, Sturman Wealth Advisors.

The following table summarizes the gross carrying amounts and accumulated amortization of other intangible assets (dollars in thousands):

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

Amortized intangible assets:

Core deposit intangible

Customer relationships intangible

Amortization expense was $ 445 thousand and $ 17 thousand for the three months ended June 30, 2021 and 2020, respectively and $ 462 thousand and $ 57 thousand for the six months ended June 30, 2021 and 2020, respectively.

Estimated future amortization expense as of June 30, 2021 is as follows (dollars in thousands):

Relationships

For the six months ending December 31, 2021

For the year ending December 31, 2022

For the year ending December 31, 2023

For the year ending December 31, 2024

For the year ending December 31, 2025

Net Income Per Share

The table below shows the weighted average number of shares used in computing net income per common share and the effect of the weighted average number of shares of potential dilutive common stock for the three months ended March 31, 2021 and 2020.

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.

Unvested restricted stock as noted in the Consolidated Balance Sheets as of March 31, 2021 and March 31, 2020 is included in the calculation of basic and diluted net income per share (dollars below reported in thousands except per share data).

Unvested restricted stock as noted in the Consolidated Balance Sheets as of June 30, 2021 and June 30, 2020 is included in the calculation of basic and diluted net income per share (dollars below reported in thousands except per share data).

Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Basic net income per share

1 unchanged sentence

Diluted net income per share

For the three months ended March 31, 2021, there were 78,301 option shares considered anti-dilutive and excluded from this calculation.

For the three months ended March 31, 2020, there were 104,301 option shares considered anti-dilutive and excluded from this calculation.

Six Months Ended

June 30, 2021

June 30, 2020

Basic net income per share

Effect of dilutive stock options

Diluted net income per share

For the three and six months ended June 30, 2021, there were 78,301 option shares considered anti-dilutive and excluded from this calculation.

For the three and six months ended June 30, 2020, there were 105,404 and 104,301 option shares, respectively, considered anti-dilutive and excluded from this calculation.

Stock Incentive Plans

7 unchanged sentences

Stock options generally vest by the fourth or fifth anniversary of the date of the grant.

A summary of the shares issued and available under each of the Plans is shown below as of March 31, 2021.

A summary of the shares issued and available under each of the Plans is shown below as of June 30, 2021.

Share data and exercise price range per share have been adjusted to reflect prior issued stock dividends.

14 unchanged sentences

$23.75 to $42.62

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.

3 unchanged sentences

Changes in the stock options outstanding related to the Plans are summarized below (dollars in thousands except per share data):

March 31, 2021

June 30, 2021

Number of Options

3 unchanged sentences

Outstanding at January 1, 2021

Outstanding at March 31, 2021

Options exercisable at March 31, 2021

For the three months ended March 31, 2021 and 2020, the Company recognized $ 34 thousand and $ 24 thousand, respectively, in compensation expense for stock options.

As of March 31, 2021, there was $ 361 thousand in unrecognized compensation expense remaining to be recognized in future reporting periods through 2025 .

Outstanding at June 30, 2021

Options exercisable at June 30, 2021

For the six months ended June 30, 2021 and 2020, the Company recognized $ 65 thousand and $ 58 thousand, respectively, in compensation expense for stock options.

As of June 30, 2021, there was $ 362 thousand in unrecognized compensation expense remaining to be recognized in future reporting periods through 2025 .

The fair value of any stock option grant is estimated at the grant date using the Black-Scholes pricing model.

No stock option grants were issued during the three months ended March 31, 2021.

Stock option grants for 26,000 shares were issued during the three months ended March 31, 2020.

The fair value of each option granted in the first three months of 2021 and 2020 was estimated based on the assumptions noted in the following table:

For the three months ended

March 31, 2021

March 31, 2020

No stock option grants were issued during the three months ended June 30, 2021, or during the three months ended June 30, 2020.

No stock option grants were issued in the six months ended June 30, 2021, and 420 stock options grants were issued during the six months ended June 30, 2020.

The fair value of each option granted in the six months ended June 30, 2021 and 2020 was estimated based on the assumptions noted in the following table:

For the six months ended

June 30, 2021

June 30, 2020

Expected volatility 1

7 unchanged sentences

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 March 31, 2021 is shown below.

Summary information pertaining to options outstanding at June 30, 2021 is shown below.

Share and per share data have been adjusted to reflect the prior stock dividends issued.

7 unchanged sentences

$40.01 to $42.62

Restricted stock grants – In February 2021, 13,503 restricted shares were granted to employee and non-employee directors, vesting over a four-year period.

In March 2020, 10,368 restricted shares were granted to non-employee directors, vesting over a four-year period.

For the three months ended March 31, 2021, $ 61 thousand was expensed as a result of restricted stock grants.

As of March 31, 2021, there was $ 898 thousand in unrecognized compensation expense for restricted stock grants remaining to be recognized in future reporting periods through 2025 .

For the three months ended March 31, 2020, $ 15 thousand in expense was incurred.

Changes in the restricted stock grants outstanding during the three months ended March 31, 2021 are summarized below (dollars in thousands except per share data):

March 31, 2021

Restricted stock grants – During the three and six months ended June 30, 2021, 5,730 and 19,233 restricted shares, respectively, were granted to employees and non-employee directors, vesting over a four- or five-year period.

During the three and six months ended June 30, 2020, 11,900 and 22,268 restricted shares, respectively, were granted.

For the three and six months ended June 30, 2021, $ 165 thousand and $ 226 thousand, respectively, was expensed as a result of restricted stock grants.

For the three and six months ended June 30, 2020, $ 39 thousand and $ 54 thousand, respectively, in expense was incurred.

As of June 30, 2021, there was $ 1.1 million in unrecognized compensation expense for restricted stock grants remaining to be recognized in future reporting periods through 2026 .

Changes in the restricted stock grants outstanding during the six months ended June 30, 2021 are summarized below (dollars in thousands except per share data):

June 30, 2021

Number of Shares

2 unchanged sentences

Nonvested as of January 1, 2021

Nonvested at March 31, 2021

Nonvested at June 30, 2021

Fair Value Measurements

22 unchanged sentences

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).

The following tables present the balances measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (dollars in thousands):

Fair Value Measurements at March 31, 2021 Using:

The following tables present the balances measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (dollars in thousands):

Fair Value Measurements at June 30, 2021 Using:

Quoted Prices

20 unchanged sentences

Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Income.

As of March 31, 2021 and December 31, 2020, the Company had no OREO property.

As of June 30, 2021, the Company had one OREO property acquired through the merger with Fauquier which is carried at a fair value of $ 611 thousand.

As of December 31, 2020, the Company had no OREO property.

Impaired Loans

10 unchanged sentences

Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

The Company had impaired loans of $ 1.2 million as of March 31, 2021 and $ 1.3 million as of December 31, 2020.

The Company had impaired loans, excluding acquired impaired loans, of $ 1.1 million as of June 30, 2021 and $ 1.3 million as of December 31, 2020.

All impaired loans were measured based on expected future cash flows discounted at the loan’s effective interest rate, or fair value of collateral, as noted above.

The following table presents the Company’s assets that were measured at fair value on a nonrecurring basis as of June 30, 2021.

There were no such assets to report as of December 31, 2020.

Fair Value Measurements at June 30, 2021 Using:

Quoted Prices

Identical Assets

Other Real Estate Owned

For the assets measured at fair value on a nonrecurring basis as of June 30, 2021, the following table displays quantitative information about Level 3 Fair Value Measurements (dollars in thousands):

Valuation Technique

Unobservable Inputs

Weighted Average

Other Real Estate Owned

Market comparables

Discount applied to bonafide offer *

* A discount percentage is applied based on age of independent appraisals, current market conditions, and cost to sell.

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.

1 unchanged sentence

The Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis.

The carrying values and estimated fair values of the Company's financial instruments as of March 31, 2021 and December 31, 2020 are as follows (dollars in thousands):

Fair Value Measurements at March 31, 2021 Using:

Interest rate swaps

The Company recognizes interest rate swaps at fair value.

The Company has contracted with a third-party to provide valuations for interest rate swaps using standard valuation techniques.

The Company’s interest rate swaps are classified as Level 2.

The carrying values and estimated fair values of the Company's financial instruments as of June 30, 2021 and December 31, 2020 are as follows (dollars in thousands):

Fair Value Measurements at June 30, 2021 Using:

Quoted Prices

4 unchanged sentences

Bank owned life insurance

Other real estate, net

Accrued interest receivable

2 unchanged sentences

Certificates of deposit and other time deposits

Junior subordinated debt

Accrued interest payable

Interest rate swaps

Fair Value Measurements at December 31, 2020 Using:

15 unchanged sentences

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.

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.

Other Comprehensive Income

1 unchanged sentence

Reclassifications of realized gains and losses on available for sale securities are reported in the income statement as “Gains on sales of securities” with the corresponding income tax effect reflected as a component of income tax expense.

There were no sales of securities in the first quarter of 2021.

Amounts reclassified out of accumulated other comprehensive income are presented below for the three months ended March 31, 2021 and 2020 (dollars in thousands)

There were no sales of securities in the first two quarters of 2021.

Amounts reclassified out of accumulated other comprehensive income are presented below for the three and six months ended June 30, 2021 and 2020 (dollars in thousands).

Three Months Ended

March 31, 2021

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Available for sale securities

1 unchanged sentence

Realized gains, net of tax

The following table presents the cumulative balances of the components of accumulated other comprehensive income (loss), net of deferred taxes of $ 36 thousand and ($ 389 ) thousand, as of June 30, 2021 and December 31, 2020, respectively (dollars in thousands).

June 30, 2021

December 31, 2020

Accumulated other comprehensive income (loss) on securities

Accumulated other comprehensive income (loss) on interest rate swap

Total accumulated other comprehensive income (loss)

Segment Reporting

17 unchanged sentences

A management fee for administrative and technology support services provided by the Bank is allocated to the other three lines of business.

For both the three months ended March 31, 2021 and 2020, management fees totaling $ 25 thousand were charged by the Bank and eliminated in consolidated totals.

Segment information for the three months ended March 31, 2021 and 2020 is shown in the following tables (dollars in thousands).

For both the three months ended June 30, 2021 and 2020, management fees totaling $ 25 thousand were charged by the Bank and eliminated in consolidated totals.

For both the six months ended June 30, 2021 and 2020, management fees totaling $ 50 thousand were charged by the Bank and eliminated in consolidated totals.

Segment information for the three and six months ended June 30, 2021 and 2020 is shown in the following tables (dollars in thousands).

Note that asset information is not reported below, as the assets of Sturman Wealth Advisors and 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 chief operating decision maker.

Three months ended March 31, 2021

Three months ended June 30, 2021

Sturman Wealth Advisors

Net interest income

Provision for loan losses

Provision for (recovery of) loan losses

Noninterest income

3 unchanged sentences

Net income (loss)

Three months ended March 31, 2020

Six months ended June 30, 2021

Sturman Wealth Advisors

4 unchanged sentences

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Three months ended June 30, 2020

Sturman Wealth Advisors

Net interest income

Provision for loan losses

Noninterest income

Noninterest expense

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Six months ended June 30, 2020

Sturman Wealth Advisors

Net interest income

Provision for loan losses

Noninterest income

Noninterest expense

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows.

8 unchanged sentences

The following tables present information about the Company’s leases (dollars in thousands):

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Lease liability

2 unchanged sentences

Weighted average discount rate

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Lease Expense

5 unchanged sentences

Undiscounted Cash Flow

March 31, 2021

Nine months ending December 31, 2021

June 30, 2021

Six months ending December 31, 2021

Twelve months ending December 31, 2022

5 unchanged sentences

Lease liability

Mergers and Acquisitions

On April 1, 2021, the Company completed the Merger with Fauquier, a bank holding company based in Warrenton, Virginia, in an all-stock transaction.

Fauquier shareholders received 0.675 shares of Company common stock for each share of Fauquier common stock they own, resulting in the Company issuing 2,571,213 shares of common stock at a fair value of $ 78.0 million.

As a result of the transaction and on the same date, Fauquier’s former bank subsidiary, The Fauquier Bank, merged with and into the Company’s wholly-owned bank subsidiary, Virginia National Bank.

The Company’s balance sheet and results of operations as of and for the period ended March 31, 2021 do not include the impact of Fauquier’s financial position and results of operations for the first quarter of 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements